3 unchanged sentences
If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer.
−Removed: This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
+Added: This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act.
Actual results and the timing of events could differ materially from those projected in forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report.
1 unchanged sentence
Risk Factors.
−Removed: Risks Related to Our Business
+Added: Risks Related to Our Operations
+Added: Our results of operations, cash flows and financial condition are expected to continue to be adversely impacted by the coronavirus pandemic.
+Added: In January 2020, a new strain of coronavirus, COVID-19, was identified in Wuhan, China.
+Added: On March 11, 2020, the World Health Organization declared a pandemic.
+Added: The pandemic has had and will have an adverse effect on our results of operations, cash flows and financial condition.
+Added: While physical revenue streams—physical revenue in our Recorded Music business and mechanical revenue in our Music Publishing business—have declined significantly over the last decade, the virus outbreak has resulted in declines in our physical revenue streams related to disruptions in manufacturing and physical supply chains, the mandated closure of physical retailers, the requirement that people stay in their homes and our decisions to delay the release of new recordings from artists with a more physical consumer base.
+Added: Stay at home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected our business in other ways.
+Added: It has ended live concert tours, adversely impacting our concert promotion business and our sale of tour merchandise.
+Added: It has made it more difficult for artists to engage in marketing efforts around the release of their new recordings which, in some cases, has led to our decisions to delay the release of those recordings.
+Added: It has delayed the release of new recordings by impeding the types of collaboration among artists, songwriters, producers, musicians, engineers and studios which are necessary for the delivery of those recordings.
+Added: The cessation or significant delay in the production of motion pictures and television programs has negatively affected licensing revenue in our Recorded Music business and synchronization revenue in our Music Publishing business.
+Added: It has been widely reported that advertisers have reduced their advertising spend as a result of the COVID-19 pandemic.
+Added: We expect this will result in a corresponding decline in licensing revenue and, to a lesser extent, ad-supported digital revenue in our Recorded Music business and synchronization, performance and ad-supported digital revenue in our Music Publishing business.
+Added: The severity and the duration of the pandemic is difficult to predict but it is expected that the pandemic will materially and adversely affect the global economy, creating risk around the timing and collectability of our accounts receivable and leading to a decline in consumer discretionary spending which, in turn, could have a negative impact on our results of operations, cash flows and financial condition.
+Added: To the extent the COVID-19 pandemic adversely affects our business, results of operations, cash flows or financial condition, it may also have the effect of heightening other risks described in this section.
+Added: Given the uncertainty around the extent and timing of the potential future spread or mitigation of the virus and around the imposition or relaxation of protective measures, we cannot at this time reasonably estimate the impact to our future results of operations, cash flows and financial condition.
We may be unable to compete successfully in the highly competitive markets in which we operate, and we may suffer reduced profits as a result.
4 unchanged sentences
We may lose business if we are unable to sign successful recording artists or songwriters or to match the prices of the music offered by our competitors.
−Removed: Our Recorded Music business competes not only with other recorded music companies, but also with recording artists who may choose to distribute their own works (which has become more practicable as music is distributed online rather than physically) and companies in other industries (such as Spotify) that may choose to sign direct deals with recording artists or recorded music companies.
+Added: Our Recorded Music business competes not only with other recorded music companies, but also with recording artists who may choose to distribute their own works (which has become more practicable as music is distributed online
+Added: rather than physically) and companies in other industries (such as Spotify) that may choose to sign direct deals with recording artists or recorded music companies.
Our Music Publishing business competes not only with other music publishing companies, but also with songwriters who publish their own works and companies in other industries that may choose to sign direct deals with songwriters or music publishing companies.
12 unchanged sentences
Additionally, our financial results are generally affected by the appeal of our recorded music and music publishing catalogs to consumers.
−Removed: If streaming adoption or revenues grows less rapidly or levels off, our prospects and our results of operations may be adversely affected.
−Removed: Streaming revenues are important because they have offset declines in downloads and physical sales and represent a growing area of our Recorded Music business.
−Removed: According to IFPI, streaming revenues, which includes revenues from ad-supported and subscription services, accounted for approximately 80% of digital revenues in 2018, up approximately 10% year-over-year.
−Removed: There can be no assurance that this growth pattern will persist or that digital revenues will continue to grow at a rate sufficient to offset and exceed declines in downloads and physical sales.
−Removed: If growth in streaming revenues levels off or fails to grow as quickly as it has over the past several years, our Recorded Music business may experience reduced levels of revenues and operating income.
−Removed: Additionally, slower growth in streaming adoption or revenues is also likely to have a negative impact on our Music Publishing business, which generates a significant portion of its revenues from sales and other uses of recorded music.
−Removed: We are substantially dependent on a limited number of digital music services for the online distribution and marketing of our music, and they are able to significantly influence the pricing structure for online music stores and may not correctly calculate royalties under license agreements.
−Removed: We derive an increasing portion of our revenues from the licensing of music through digital distribution channels.
−Removed: We are currently dependent on a small number of leading digital music services.
−Removed: In fiscal year 2019 , revenue earned under our license agreements with our top two digital music accounts, Apple and Spotify, accounted for approximately 27% of our total revenues.
−Removed: We have limited ability to increase our wholesale prices to digital music services as a small number of digital music services control much of the legitimate digital music business.
−Removed: If these services were to adopt a lower pricing model or if there were structural changes to other pricing models, we could receive substantially less for our music, which could cause a material reduction in our revenues, unless offset by a corresponding increase in the number of transactions.
−Removed: We currently enter into short-term license agreements with many digital music services and provide our music on an at-will basis to others.
−Removed: There can be no assurance that we will be able to renew or enter into new license agreements with any digital music service.
−Removed: The terms of these license agreements, including the royalty rates that we receive pursuant to them, may change as a result of changes in our bargaining power, changes in the industry, changes in the law, or for other reasons.
−Removed: Decreases in royalty rates, rates of revenue sharing or changes to other terms of these license agreements may materially impact our business, operating results and financial condition.
−Removed: Digital music services generally accept and make available all of the music that we deliver to them.
−Removed: However, if digital music services in the future decide to limit the types or amount of music they will accept from music entertainment companies like us, our revenues could be significantly reduced.
−Removed: See “Business—Recorded Music—Sales and Digital Distribution.”
−Removed: We are also substantially dependent on a limited number of digital music services for the marketing of our music.
−Removed: A significant proportion of the music streamed on digital music services is from playlists curated by those services or generated from those services’ algorithms.
−Removed: If these services were to fail to include our music on playlists, change the position of our music on playlists or give us less marketing space, it could adversely affect our business, operating results and financial condition.
−Removed: Under our license agreements and relevant statutes, we receive royalties from digital music services in order to stream or otherwise offer our music.
−Removed: The determination of the amount and timing of such payments is complex and subject to a number of variables, including the revenue generated, the type of music offered and the country in which it is sold, identification of the appropriate licensor, and the service tier on which music is made available.
−Removed: As a result, we may not be paid appropriately for our music.
−Removed: Failure to be accurately paid our royalties may adversely affect our business, operating results and financial condition.
Our business operations in some foreign countries subject us to trends, developments or other events which may affect us adversely.
43 unchanged sentences
If we are unable to implement our strategy successfully or properly react to changes in market conditions, our financial condition, results of operations and cash flows could be adversely affected.
−Removed: Due to the nature of our business, our results of operations and cash flows may fluctuate significantly from period to period.
−Removed: Our results of operations are affected by the amount and quality of music that we release, the number of releases that include musical compositions published by us, timing of release schedules and, more importantly, the consumer demand for these releases.
−Removed: We also make advance payments to recording artists and songwriters, which impact our results of operations and operating cash flows.
−Removed: The timing of releases and advance payments is largely based on business and other considerations and is made without regard to the impact of the timing of the release on our financial results.
−Removed: In addition, certain of our license agreements with digital music services contain minimum guarantees and/or require that we are paid minimum guarantee payments.
−Removed: Our results of operations and cash flows in any reporting period may be materially affected by the timing of releases and advance payments and minimum guarantees, which may result in significant fluctuations from period to period.
−Removed: In addition, in 2013, we adopted a senior executive incentive compensation program (the “Plan”) that pays annual bonuses to certain executives based on our free cash flow and offers participants the opportunity to share in appreciation of our common stock.
−Removed: As the valuation of our common stock fluctuates, this may also result in fluctuations in our operating results from period to period and cash flows, as payments are eligible to be made related to the equity portion of the Plan.
Our ability to operate effectively could be impaired if we fail to attract and retain our executive officers.
3 unchanged sentences
In fiscal year 2020, we did not have an employment agreement with our CEO.
−Removed: Our CEO and certain of our executive officers are participants in the Plan.
−Removed: The loss of the services of any of our executive officers or the failure to attract and retain other executive officers could have a material adverse effect on our business or our business prospects.
+Added: Our CEO and certain of our executive officers and members of management are participants in the Plan.
+Added: The loss of the services of any of our executive officers or key members of management or the failure to attract and retain other executive officers could have a material adverse effect on our business or our business prospects.
A significant portion of our revenues are subject to rate regulation either by government entities or by local third-party collecting societies throughout the world and rates on other income streams may be set by governmental proceedings, which may limit our profitability.
3 unchanged sentences
In June 2019, the Antitrust Division of the Department of Justice opened a review of its consent decrees with ASCAP and BMI to determine whether the decrees should be maintained in their current form, modified or terminated.
−Removed: Outside the United States, mechanical and performance royalty rates are typically negotiated on an industry-wide basis.
+Added: Outside the United States, mechanical and performance royalty
+Added: rates are typically negotiated on an industry-wide basis.
In most territories outside the United States, mechanical royalties are based on a percentage of wholesale prices for physical product and based on a percentage of consumer prices for digital formats.
5 unchanged sentences
The rates set for recorded music and music publishing income sources through collecting societies or legally prescribed rate-setting processes could have a material adverse impact on our business prospects.
−Removed: Failure to obtain, maintain, protect and enforce our intellectual property rights could substantially harm our business, operating results and financial condition.
−Removed: The success of our business depends on our ability to obtain, maintain, protect and enforce our trademarks, copyrights and other intellectual property rights.
−Removed: The measures that we take to obtain, maintain, protect and enforce our intellectual property rights, including, if necessary, litigation or proceedings before governmental authorities and administrative bodies, may be ineffective, expensive and time-consuming and, despite such measures, third parties may be able to obtain and use our intellectual property rights without our permission.
−Removed: Additionally, changes in law may be implemented, or changes in interpretation of such laws may occur, that may affect our ability to obtain, maintain, protect or enforce our intellectual property rights.
−Removed: Failure to obtain, maintain, protect or enforce our intellectual property rights could harm our brand or brand recognition and adversely affect our business, financial condition and results of operation.
−Removed: We also in-license certain major trademarks from third parties, including the WARNER, WARNER MUSIC and WARNER RECORDS trademarks and the “W” logo, pursuant to a perpetual, royalty-free license agreement that may be terminated by the licensor under certain circumstances, including our material breach of the license agreement and certain events of insolvency.
−Removed: Upon any such termination, we may be required to either negotiate a new or reinstated agreement with less favorable terms or otherwise lose our rights to use the licensed trademarks, which may require us to change our corporate name and undergo other significant rebranding efforts.
−Removed: Any such rebranding efforts may be disruptive to our business operations, require us to incur significant expenses and have an adverse effect on our business, financial condition and results of operation.
−Removed: Our involvement in intellectual property litigation could adversely affect our business.
−Removed: Our business is highly dependent upon intellectual property, an area that has encountered increased litigation in recent years.
−Removed: If we are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of a third party, any litigation to defend the claim could be costly and would divert the time and resources of management, regardless of the merits of the claim and whether the claim is settled out of court or determined in our favor.
−Removed: There can be no assurance that we would prevail in any such litigation.
−Removed: If we were to lose a litigation relating to intellectual property, we could be forced to pay monetary damages and to cease using certain intellectual property or technologies.
−Removed: Any of the foregoing may adversely affect our business.
−Removed: Digital piracy continues to adversely impact our business.
−Removed: A substantial portion of our revenue comes from the distribution of music which is potentially subject to unauthorized consumer copying and widespread digital dissemination without an economic return to us, including as a result of “stream-ripping.” In its Music Listening 2019 report, IFPI surveyed 34,000 Internet users to examine the ways in which music consumers aged 16 to 64 engage with recorded music across 21 countries.
−Removed: Of those surveyed, 23% used illegal stream-ripping services, the leading form of music piracy.
−Removed: Organized industrial piracy may also lead to decreased revenues.
−Removed: The impact of digital piracy on legitimate music revenues and subscriptions is hard to quantify, but we believe that illegal file sharing and other forms of unauthorized activity, including stream manipulation, have a substantial negative impact on music revenues.
−Removed: If we fail to obtain appropriate relief through the judicial process or the complete enforcement of judicial decisions issued in our favor (or if judicial decisions are not in our favor), if we are unsuccessful in our efforts to lobby governments to enact and enforce stronger legal penalties for copyright infringement or if we fail to develop effective means of protecting and enforcing our intellectual property (whether copyrights or other intellectual property rights such as patents, trademarks and trade secrets) or our music entertainment-related products or services, our results of operations, financial position and prospects may suffer.
An impairment in the carrying value of goodwill or other intangible and long-lived assets could negatively affect our operating results and equity.
10 unchanged sentences
FASB ASC Topic 360-10-35 (“ASC 360-10-35”) requires companies to review these assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
−Removed: No such events or circumstances were identified during the year ended September 30, 2019 .
+Added: No such events or circumstances were identified during the fiscal year ended September 30, 2020.
If similar events occur as enumerated above such that we believe indicators of impairment are present, we would test for recoverability by comparing the carrying value of the asset to the net undiscounted cash flows expected to be generated from the asset.
39 unchanged sentences
In August 2019, we announced that we were beginning a financial transformation initiative to upgrade our information technology and finance infrastructure over the next two years, including related systems and processes.
−Removed: We expect to incur significant costs in connection with this project, and there can be no assurance that we will be successful in upgrading our systems and processes effectively or on the timetable and at the costs contemplated, or that we will achieve the expected long-term cost savings.
+Added: There has been a slight delay in the timing of the transformation initiative as a result of COVID-19 interruption but it is still expected to be completed over the next year.
+Added: We expect to incur material costs in connection with this project, and there can be no assurance that we will be successful in upgrading our systems and processes effectively or on the timetable and at the costs contemplated, or that we will achieve the expected long-term cost savings.
We cannot be certain that we will not be required to implement further restructuring activities, make additions or other changes to our management or workforce based on other cost reduction measures or changes in the markets and industry in which we compete.
1 unchanged sentence
Restructuring activities can create unanticipated consequences and negative impacts on the business, and we cannot be sure that any ongoing or future restructuring efforts will be successful or generate expected cost savings.
−Removed: Access, which indirectly owns all of our outstanding capital stock, controls our company and may have conflicts of interest with the holders of our debt or us in the future.
−Removed: Access may also enter into, or cause us to enter into, strategic transactions that could change the nature or structure of our business, capital structure or credit profile.
−Removed: As a result of the Merger, affiliates of Access indirectly own all of our common stock, and the actions that Access undertakes as our sole ultimate stockholder may differ from or adversely affect the interests of debt holders.
−Removed: Because Access ultimately controls our voting shares and those of all of our subsidiaries, it has the power, among other things, to affect our legal and capital structure and our day-to-day operations, as well as to elect our directors and those of our subsidiaries, to change our management and to approve any other changes to our operations.
−Removed: Access also provides us with financial, investment banking, management, advisory and other services pursuant to the Management Agreement (as defined below), for which we pay Access a specified annual fee, plus expenses, and a specified transaction fee for certain types of transactions completed by Holdings or one or more of its subsidiaries, plus expenses.
−Removed: Access also has the power to direct us to engage in strategic transactions, with or involving other companies in our industry, including acquisitions, combinations or dispositions, and the acquisition of certain assets that may become available for purchase, and any such transaction could be material.
−Removed: Any such transaction would carry the risks set forth above under “—If we acquire, combine with or invest in other businesses, we will face risks inherent in such transactions.”
−Removed: Additionally, Access is in the business of making investments in companies and is actively seeking to acquire interests in businesses that operate in our industry and other industries and may compete, directly or indirectly, with us.
−Removed: Access may also pursue acquisition opportunities that may be complementary to our business, which could have the effect of making such acquisition opportunities unavailable to us.
−Removed: Access could elect to cause us to enter into business combinations or other transactions with any business or businesses in our industry that Access may acquire or control, or we could become part of a group of companies organized under the ultimate common control of Access that may be operated in a manner different from the manner in which we have historically operated.
−Removed: Any such business combination transaction could require that we or such group of companies incur additional indebtedness, and could also require us or any acquired business to make divestitures of assets necessary or desirable to obtain regulatory approval for such transaction.
−Removed: The amounts of such additional indebtedness, and the size of any such divestitures, could be material.
−Removed: Access may also from time to time purchase outstanding debt securities that we issued, and could also subsequently sell any such debt securities.
−Removed: Any such purchase or sale may affect the value of, trading price or liquidity of our debt securities.
−Removed: We may also, from time to time, pay dividends to our stockholders within the requirements of our debt agreements and applicable law.
−Removed: If we were to pay dividends, the funds used to make such dividend payments would not be available to service our indebtedness.
−Removed: Finally, because neither we nor our Parent company have any securities listed on a securities exchange, we are not subject to certain of the corporate governance requirements of any securities exchange, including any requirement to have any independent directors.
+Added: The enactment of legislation limiting the terms by which an individual can be bound under a “personal services” contract could impair our ability to retain the services of key artists.
+Added: California Labor Code Section 2855 (“Section 2855”) limits the duration of time any individual can be bound under a contract for “personal services” to a maximum of seven years.
+Added: In 1987, Subsection (b) was added, which provides a limited exception to Section 2855 for recording contracts, creating a damages remedy for record companies.
+Added: Such legislation could result in certain of our existing contracts with artists being declared unenforceable, or may restrict the terms under which we enter into contracts with
+Added: artists in the future, either of which could adversely affect our results of operations.
+Added: There is no assurance that California will not introduce legislation in the future seeking to repeal Subsection (b).
+Added: The repeal of Subsection (b) and/or the passage of legislation similar to Section 2855 by other states could materially adversely affect our results of operations and financial position.
+Added: If our recording artists and songwriters are characterized as employees, we would be subject to employment and withholding liabilities.
+Added: Although we believe that the recording artists and songwriters with which we partner are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships.
+Added: We are aware of a number of judicial decisions and legislative proposals that could bring about major reforms in worker classification, including the California legislature’s recent passage of California Assembly Bill 5 (“AB 5”).
+Added: AB 5 purports to codify a new test for determining worker classification that is widely viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships.
+Added: Given AB 5’s recent passage, there is no guidance from the regulatory authorities charged with its enforcement, and there is a significant degree of uncertainty regarding its application.
+Added: In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions may enact similar laws.
+Added: If such regulatory authorities or state, federal or foreign courts were to determine that our recording artists and songwriters are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay Social Security, Medicare and similar taxes and to pay unemployment and other related payroll taxes.
+Added: We would also be liable for unpaid past taxes and subject to penalties.
+Added: As a result, any determination that our recording artists and songwriters are our employees could have a material adverse effect on our business, financial condition and results of operations.
+Added: Fulfilling our obligations incident to being a public company will be expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
+Added: Following our IPO, we are subject to the reporting, accounting and corporate governance requirements applicable to issuers of listed equity, including the listing standards of NASDAQ and the Sarbanes-Oxley Act.
+Added: The expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.
+Added: Failure to comply with any of the public company requirements applicable to us could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.
+Added: If streaming adoption or revenues grows less rapidly or levels off, our prospects and our results of operations may be adversely affected.
+Added: Streaming revenues are important because they have offset declines in downloads and physical sales and represent a growing area of our Recorded Music business.
+Added: According to IFPI, streaming revenues, which includes revenues from ad-supported and subscription services, accounted for approximately 88% of digital revenues in 2019, up approximately 5% year-over-year.
+Added: There can be no assurance that this growth pattern will persist or that digital revenues will continue to grow at a rate sufficient to offset and exceed declines in downloads and physical sales.
+Added: If growth in streaming revenues levels off or fails to grow as quickly as it has over the past several years, our Recorded Music business may experience reduced levels of revenues and operating income.
+Added: Additionally, slower growth in streaming adoption or revenues is also likely to have a negative impact on our Music Publishing business, which generates a significant portion of its revenues from sales and other uses of recorded music.
+Added: We are substantially dependent on a limited number of digital music services for the online distribution and marketing of our music, and they are able to significantly influence the pricing structure for online music stores and may not correctly calculate royalties under license agreements.
+Added: We derive an increasing portion of our revenues from the licensing of music through digital distribution channels.
+Added: We are currently dependent on a small number of leading digital music services.
+Added: In fiscal year 2020, revenue earned under our license agreements with our top two digital music accounts, Apple and Spotify, accounted for approximately 31% of our total revenues.
+Added: We have limited ability to increase our wholesale prices to digital music services as a small number of digital music services control much of the legitimate digital music business.
+Added: If these services were to adopt a lower pricing model or if there were structural changes to other pricing models, we could receive substantially less for our music, which could cause a material reduction in our revenues, unless offset by a corresponding increase in the number of transactions.
+Added: We currently enter into short-term license agreements with many digital music services and provide our music on an at-will basis to others.
+Added: There can be no assurance that we will be able to renew or enter into new license agreements with any digital music service.
+Added: The terms of these license agreements, including the royalty rates that we receive pursuant to them, may change as a result of changes in our bargaining power, changes in the industry, changes in the law, or for other reasons.
+Added: Decreases in royalty rates, rates of revenue sharing or changes to other terms of these license agreements may materially impact our business, operating results and financial condition.
+Added: Digital music services generally accept and make available all of the music that we deliver to them.
+Added: However, if digital music services in the future decide to limit the types or amount
+Added: of music they will accept from music entertainment companies like us, our revenues could be significantly reduced.
+Added: See “Business—Recorded Music—Sales and Digital Distribution.”
+Added: We are also substantially dependent on a limited number of digital music services for the marketing of our music.
+Added: A significant proportion of the music streamed on digital music services is from playlists curated by those services or generated from those services’ algorithms.
+Added: If these services were to fail to include our music on playlists, change the position of our music on playlists or give us less marketing space, it could adversely affect our business, operating results and financial condition.
+Added: Under our license agreements and relevant statutes, we receive royalties from digital music services in order to stream or otherwise offer our music.
+Added: The determination of the amount and timing of such payments is complex and subject to a number of variables, including the revenue generated, the type of music offered and the country in which it is sold, identification of the appropriate licensor, and the service tier on which music is made available.
+Added: As a result, we may not be paid appropriately for our music.
+Added: Failure to be accurately paid our royalties may adversely affect our business, operating results, and financial condition.
+Added: Risks Related to Intellectual Property and Data Security
+Added: Failure to obtain, maintain, protect and enforce our intellectual property rights could substantially harm our business, operating results and financial condition.
+Added: The success of our business depends on our ability to obtain, maintain, protect and enforce our trademarks, copyrights and other intellectual property rights.
+Added: The measures that we take to obtain, maintain, protect and enforce our intellectual property rights, including, if necessary, litigation or proceedings before governmental authorities and administrative bodies, may be ineffective, expensive and time-consuming and, despite such measures, third parties may be able to obtain and use our intellectual property rights without our permission.
+Added: Additionally, changes in law may be implemented, or changes in interpretation of such laws may occur, that may affect our ability to obtain, maintain, protect or enforce our intellectual property rights.
+Added: Failure to obtain, maintain, protect or enforce our intellectual property rights could harm our brand or brand recognition and adversely affect our business, financial condition and results of operation.
+Added: We also in-license certain major trademarks from third parties, including the WARNER, WARNER MUSIC and WARNER RECORDS trademarks and the “W” logo, pursuant to a perpetual, royalty-free license agreement that may be terminated by the licensor under certain circumstances, including our material breach of the license agreement and certain events of insolvency.
+Added: Upon any such termination, we may be required to either negotiate a new or reinstated agreement with less favorable terms or otherwise lose our rights to use the licensed trademarks, which may require us to change our corporate name and undergo other significant rebranding efforts.
+Added: Any such rebranding efforts may be disruptive to our business operations, require us to incur significant expenses and have an adverse effect on our business, financial condition and results of operation.
+Added: Our involvement in intellectual property litigation could adversely affect our business.
+Added: Our business is highly dependent upon intellectual property, an area that has encountered increased litigation in recent years.
+Added: If we are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of a third party, any litigation to defend the claim could be costly and would divert the time and resources of management, regardless of the merits of the claim and whether the claim is settled out of court or determined in our favor.
+Added: There can be no assurance that we would prevail in any such litigation.
+Added: If we were to lose a litigation relating to intellectual property, we could be forced to pay monetary damages and to cease using certain intellectual property or technologies.
+Added: Any of the foregoing may adversely affect our business.
+Added: Digital piracy continues to adversely impact our business.
+Added: A substantial portion of our revenue comes from the distribution of music which is potentially subject to unauthorized consumer copying and widespread digital dissemination without an economic return to us, including as a result of “stream-ripping.” In its Music Listening 2019 report, IFPI surveyed 34,000 Internet users to examine the ways in which music consumers aged 16 to 64 engage with recorded music across 21 countries.
+Added: Of those surveyed, 23% used illegal stream-ripping services, the leading form of music piracy.
+Added: Organized industrial piracy may also lead to decreased revenues.
+Added: The impact of digital piracy on legitimate music revenues and subscriptions is hard to quantify, but we believe that illegal file sharing and other forms of unauthorized activity, including stream manipulation, have a substantial negative impact on music revenues.
+Added: If we fail to obtain appropriate relief through the judicial process or the complete enforcement of judicial decisions issued in our favor (or if judicial decisions are not in our favor), if we are unsuccessful in our efforts to lobby governments to enact and enforce stronger legal penalties for copyright infringement or if we fail to develop effective means of protecting and enforcing our intellectual property (whether copyrights or other intellectual property rights such as patents, trademarks and trade secrets) or our music entertainment-related products or services, our results of operations, financial position and prospects may suffer.
If we or our service providers do not maintain the security of information relating to our customers, employees and vendors and our music, security information breaches through cyber security attacks or otherwise could damage our reputation with customers, employees, vendors and artists, and we could incur substantial additional costs, become subject to litigation and our results of operations and financial condition could be adversely affected.
28 unchanged sentences
Claims or allegations that we have violated laws and regulations relating to privacy and data security could also result in negative publicity and a loss of confidence in us.
−Removed: The enactment of legislation limiting the terms by which an individual can be bound under a “personal services” contract could impair our ability to retain the services of key artists.
−Removed: California Labor Code Section 2855 (“Section 2855”) limits the duration of time any individual can be bound under a contract for “personal services” to a maximum of seven years.
−Removed: In 1987, Subsection (b) was added, which provides a limited exception to Section 2855 for recording contracts, creating a damages remedy for record companies.
−Removed: Such legislation could result in certain of our existing contracts with artists being declared unenforceable, or may restrict the terms under which we enter into contracts with artists in the future, either of which could adversely affect our results of operations.
−Removed: There is no assurance that California will not introduce legislation in the future seeking to repeal Subsection (b).
−Removed: The repeal of Subsection (b) and/or the passage of legislation similar to Section 2855 by other states could materially adversely affect our results of operations and financial position.
We face a potential loss of catalog to the extent that our recording artists have a right to recapture rights in their recordings under the U.S.
12 unchanged sentences
We believe the effect of any potential terminations is already reflected in the financial results of our business.
−Removed: If our recording artists and songwriters are characterized as employees, we would be subject to employment and withholding liabilities.
−Removed: Although we believe that the recording artists and songwriters with which we partner are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships.
−Removed: We are aware of a number of judicial decisions and legislative proposals that could bring about major reforms in worker classification, including the California legislature’s recent passage of California Assembly Bill 5 (“AB 5”).
−Removed: AB 5 purports to codify a new test for determining worker classification that is widely viewed as expanding the scope of employee relationships and narrowing the scope of independent contractor relationships.
−Removed: Given AB 5’s recent passage, there is no guidance from the regulatory authorities charged with its enforcement, and there is a significant degree of uncertainty regarding its application.
−Removed: In addition, AB 5 has been the subject of widespread national discussion and it is possible that other jurisdictions may enact similar laws.
−Removed: If such regulatory authorities or state, federal or foreign courts were to determine that our recording artists and songwriters are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay Social Security, Medicare and similar taxes and to pay unemployment and other related payroll taxes.
−Removed: We would also be liable for unpaid past taxes and subject to penalties.
−Removed: As a result, any determination that our recording artists and songwriters are our employees could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Leverage
2 unchanged sentences
As of September 30, 2020, our total consolidated indebtedness, net of deferred financing costs, was $3.104 billion.
−Removed: In addition, we would have been able to borrow up to $167 million under our Revolving Credit Facility (as defined later in this Annual Report) as of September 30, 2019 (after giving effect to approximately $13 million of letters of credit outstanding under our Revolving Credit Facility as of September 30, 2019 ).
+Added: In addition, on November 2, 2020, Acquisition Corp.
+Added: issued and sold $250 million of additional 3.000% Senior Secured Notes (as defined herein).
+Added: Further, we would have been able to borrow up to $290 million under our Revolving Credit Facility (as defined later in this Annual Report) as of September 30, 2020 (after giving effect to approximately $10 million of letters of credit outstanding under our Revolving Credit Facility as of September 30, 2020).
Our high degree of leverage could have important consequences for our investors.
−Removed: For example, it may:
−Removed: make it more difficult for us to make payments on our indebtedness;
+Added: For example, it may make it more difficult for us to make payments on our indebtedness;
increase our vulnerability to general economic and industry conditions, including recessions and periods of significant inflation and financial market volatility;
4 unchanged sentences
place us at a competitive disadvantage compared to competitors that have less indebtedness;
−Removed: limit our ability to borrow additional funds that may be needed to operate and expand our business.
+Added: and limit our ability to borrow additional funds that may be needed to operate and expand our business.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in the indentures governing our outstanding notes as well as under the Senior Credit Facilities.
If new indebtedness is added to our current debt levels, the related risks that we and our subsidiaries now face could intensify.
−Removed: The indentures that govern our outstanding notes and the Senior Credit Facilities contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests.
+Added: The indentures that govern our outstanding notes and the credit agreements that govern the Senior Credit Facilities (as defined later in this Annual Report) contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests.
Those covenants include restrictions on our ability to, among other things, incur more indebtedness, pay dividends, redeem stock or make other distributions, make investments, create liens, transfer or sell assets, merge or consolidate and enter into certain transactions with our affiliates.
Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of all of our indebtedness.
−Removed: See also “—Our debt agreements contain restrictions that limit our flexibility in operating our business.”
+Added: See also “—Our debt agreements contain restrictions that
+Added: limit our flexibility in operating our business.” Any such event of default or acceleration could have an adverse effect on the trading price of our common stock.
+Added: As a holding company, the Company depends on the ability of its subsidiaries to transfer funds to it to meet its obligations.
+Added: The Company is a holding company for all of our operations and is a legal entity separate from its subsidiaries.
+Added: Dividends and other distributions from the Company’s subsidiaries are the principal sources of funds available to the Company to pay corporate operating expenses, to pay stockholder dividends, to repurchase stock and to meet its other obligations.
+Added: The inability to receive dividends from our subsidiaries could have a material adverse effect on our business, financial condition, liquidity or results of operations.
+Added: The subsidiaries of the Company have no obligation to pay amounts due on any liabilities of the Company or to make funds available to the Company for such payments.
+Added: The ability of our subsidiaries to pay dividends or other distributions to the Company in the future will depend, among other things, on their earnings, tax considerations and covenants contained in any financing or other agreements, such as the covenants governing our current indebtedness which restrict the ability of Acquisition Corp.
+Added: to pay dividends and make distributions.
+Added: In addition, such payments may be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees.
+Added: If the ability of our subsidiaries to pay dividends or make other distributions or payments to the Company is materially restricted by cash needs, bankruptcy or insolvency, or is limited due to operating results or other factors, we may be required to raise cash through the incurrence of debt, the issuance of equity or the sale of assets.
+Added: However, there is no assurance that we would be able to raise sufficient cash by these means.
+Added: This could materially and adversely affect our ability to pay our obligations or pay dividends, which could have an adverse effect on the trading price of our common stock.
Acquisition Corp.
2 unchanged sentences
Acquisition Corp.
−Removed: may not maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
+Added: may not maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
Acquisition Corp.
2 unchanged sentences
in an amount sufficient to make such payments, if necessary in the future, Acquisition Corp.
−Removed: may default under the indentures or credit facilities governing its borrowings, which would result in all such borrowings becoming due and payable.
+Added: may default under the indentures or credit agreements governing its borrowings, which would result in all such borrowings becoming due and payable.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
7 unchanged sentences
enter into certain transactions with our affiliates;
−Removed: consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
+Added: and consolidate, merge, sell or otherwise dispose of all or substantially all of our assets.
In addition, the credit agreements governing the Senior Credit Facilities contain a number of covenants that limit our ability and the ability of our restricted subsidiaries to:
8 unchanged sentences
• enter into transactions with affiliates;
−Removed: change the business we and our subsidiaries conduct;
+Added: • change the business that we and our subsidiaries conduct;
• pay dividends or make distributions;
3 unchanged sentences
Events beyond our control can affect our ability to meet these covenants.
−Removed: In addition, under the credit agreement governing the revolving portion of the Senior Credit Facilities, a financial maintenance covenant is applicable if at the end of a quarter the outstanding amount of loans and letters of credit is in excess of $54 million .
+Added: In addition, under the credit agreement governing the revolving portion of the Senior Credit Facilities, a financial maintenance covenant is applicable if at the end of a fiscal quarter the outstanding amount of loans and letters of credit is in excess of $105 million.
Our failure to comply with obligations under the instruments governing our indebtedness may result in an event of default under such instruments.
2 unchanged sentences
If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
−Removed: All of these restrictions could affect our ability to operate our business or may limit our ability to take advantage of potential business opportunities as they arise.
+Added: All of these restrictions could affect our ability to operate our business or may limit our ability to take advantage of potential business opportunities as they arise, and may have an adverse effect on the trading price of our common stock.
We may, from time to time, refinance our existing indebtedness, which could result in the agreements governing any new indebtedness having fewer or less restrictive covenants, including removing or lessening restrictions on our ability to incur additional indebtedness or make restricted payments.
8 unchanged sentences
The indentures governing our outstanding notes and the credit agreements governing the Senior Credit Facilities will not fully prohibit us, Holdings or our subsidiaries from incurring additional indebtedness under certain circumstances.
−Removed: If we, Holdings or our subsidiaries are in compliance with certain incurrence ratios set forth in such indentures, we, Holdings or our subsidiaries may be able to incur substantial additional indebtedness, which may increase the risks created by our current substantial indebtedness.
+Added: If we, Holdings or our subsidiaries are in compliance with certain incurrence ratios set forth in such indentures and credit agreements, we, Holdings or our subsidiaries may be able to incur substantial additional indebtedness, which may increase the risks created by our current substantial indebtedness.
Our ability to incur secured indebtedness is subject to compliance with certain secured leverage ratios that are calculated as of the date of incurrence.
1 unchanged sentence
To the extent that the terms of our current debt agreements would prevent us from incurring additional indebtedness, we may be able to obtain amendments to those agreements that would allow us to incur such additional indebtedness, and such additional indebtedness could be material.
+Added: We will require a significant amount of cash to service our indebtedness.
+Added: The ability to generate cash or refinance indebtedness as it becomes due depends on many factors, some of which are beyond our control.
+Added: Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness and to fund planned capital expenditures and other corporate expenses will depend on our future operating performance and on economic, financial, competitive, legislative and other factors and any legal and regulatory restrictions on the payment of distributions and dividends to which they may be subject.
+Added: Many of these factors are beyond our control.
+Added: We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized or that future borrowings will be available to us in an amount sufficient to enable us to satisfy our obligations under our indebtedness or to fund our other needs.
+Added: To satisfy our obligations under our indebtedness and to fund planned capital expenditures, we must continue to execute our business strategy.
+Added: If we are unable to do so, we may need to reduce or delay our planned capital expenditures or refinance all or a
+Added: portion of our indebtedness on or before maturity.
+Added: Significant delays in our planned capital expenditures may materially and adversely affect our future revenue prospects.
+Added: In addition, we cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
+Added: While limited by the terms of our debt agreements, if we were to pay dividends to our shareholders, the funds used to make such dividend payments would not be available to service our indebtedness.
A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us could cause the liquidity or market value of our indebtedness to decline and our cost of capital to increase.
1 unchanged sentence
Therefore, although reductions in our debt ratings may not have an immediate impact on the cost of debt or our liquidity, they may impact the cost of debt and liquidity over the medium term and future access at a reasonable rate to the debt markets may be adversely impacted.
−Removed: Special Note Regarding Forward-Looking Statements
−Removed: We have made various statements in this Annual Report that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
−Removed: Forward-looking statements may also be made in our other reports filed with or furnished to the SEC, in our press releases and in other documents.
−Removed: In addition, from time to time, we, through our management, may make oral forward-looking statements.
−Removed: Forward-looking statements are subject to risks and uncertainties, including those identified above, which could cause actual results to differ materially from such statements.
−Removed: The words “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “may,” “should,” “could,” “would,” “likely,” “projection,” “outlook” and similar expressions are intended to identify forward-looking statements.
−Removed: We caution you that the risk factors described above are not exclusive.
−Removed: There may also be other risks that we are unable to predict at this time that may cause actual results to differ materially from those in forward-looking statements.
−Removed: New factors emerge from time to time and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
−Removed: Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.
−Removed: We undertake no obligation to update publicly or revise any forward-looking statements, except as required by law.
+Added: Risks Related to Our Controlling Stockholder
+Added: Following the completion of the IPO, Access continues to control us and may have conflicts of interest with other stockholders.
+Added: Conflicts of interest may arise because affiliates of our controlling stockholder have continuing agreements and business relationships with us.
+Added: Subsequent to the IPO, Access holds approximately 99% of the total combined voting power of our outstanding common stock and approximately 83% of the economic interest of our outstanding common stock.
+Added: As a result, and in addition to certain other rights granted to Access as disclosed in the Registration Statement on Form S-1 related to the IPO, Access will continue to be able to control the election of our directors, affect our legal and capital structure, change our management, determine our corporate and management policies and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions.
+Added: Access also has sufficient voting power to amend our organizational documents.
+Added: In addition, under the provisions of a stockholder agreement entered into with Access (the “Stockholder Agreement”), the relevant terms of which govern the powers afforded the Company under our organizational documents, Access has consent rights with respect to certain corporate and business activities that we may undertake, including during periods where Access holds less than a majority of the total combined voting power of our outstanding common stock.
+Added: Specifically, the Stockholder Agreement provides that, until the date on which Access ceases to hold at least 10% of our outstanding common stock, Access’s prior written consent will be required before we may take certain corporate and business actions, whether directly or indirectly through a subsidiary, including, among others, the following:
+Added: • any merger, consolidation or similar transaction (or any amendment to or termination of an agreement to enter into such a transaction) with or into any other person whether in a single transaction or a series of transactions, subject to certain specified exceptions;
+Added: • any acquisition or disposition of securities, assets or liabilities, subject to certain specified exceptions;
+Added: • any change in our authorized capital stock or the creation of any new class or series of our capital stock;
+Added: • any issuance or acquisition of capital stock (including stock buy-backs, redemptions or other reductions of capital), or securities convertible into or exchangeable or exercisable for capital stock or equity-linked securities, subject to certain specified exceptions;
+Added: • any issuance or acquisition of debt securities to or from a third party, subject to certain specified exceptions;
+Added: • any amendment (or approval or recommendation of any amendment) to our certificate of incorporation or by-laws.
+Added: As a result of these consent rights, Access will maintain significant control over our corporate and business activities until such rights cease.
+Added: Additionally, until Access ceases to hold more than 50% of the total combined voting power of our outstanding common stock, pursuant to Section 141(a) of the General Corporation Law of the State of Delaware (“DGCL”), our Executive Committee, as the Company’s governing body, has all of the power and authority (including voting power) of our board of directors.
+Added: The Executive Committee has the authority to approve any actions of the Company, except for matters that must be approved by the Audit Committee of our board of directors (or both the Executive Committee and the Audit Committee), or by a committee or sub-committee qualified to grant equity to persons subject to Section 16 of the Exchange Act for purposes of exempting transactions pursuant to Section 16b-3 thereunder, or as required under Delaware law, SEC rules and NASDAQ rules.
+Added: Access also has the power to direct us to engage in strategic transactions, with or involving other companies in our industry, including acquisitions, combinations or dispositions, and the acquisition of certain assets that may become available for purchase, and any such transaction could be material.
+Added: Our amended and restated certificate of incorporation and our amended and restated by-laws also include a number of provisions that may discourage, delay or prevent a change in our management or control for so long as Access owns specified percentages of our common stock.
+Added: See “—Risks Related to Our Common Stock—Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws and Delaware law could discourage, delay or prevent a change of control of our company and may affect the trading price of our Class A Common Stock.” These provisions not only could have a negative impact on the trading price of our Class A Common Stock, but could also allow Access to delay or prevent a corporate transaction of which the public stockholders approve.
+Added: Additionally, Access is in the business of making investments in companies and is actively seeking to acquire interests in businesses that operate in our industry and other industries and may compete, directly or indirectly, with us.
+Added: Access may also pursue acquisition opportunities that may be complementary to our business, which could have the effect of making such acquisition opportunities unavailable to us.
+Added: Access could elect to cause us to enter into business combinations or other transactions with any business or businesses in our industry that Access may acquire or control, or we could become part of a group of companies organized under the ultimate common control of Access that may be operated in a manner different from the manner in which we have historically operated.
+Added: Any such business combination transaction could require that we or such group of companies incur additional indebtedness, and could also require us or any acquired business to make divestitures of assets necessary or desirable to obtain regulatory approval for such transaction.
+Added: The amounts of such additional indebtedness, and the size of any such divestitures, could be material.
+Added: Access may also from time to time purchase outstanding debt securities that we issued, and could also subsequently sell any such debt securities.
+Added: Any such purchase or sale may affect the value of, trading price or liquidity of our debt securities.
+Added: See “—Under our amended and restated certificate of incorporation, Access and its affiliates, and in some circumstances, any of our directors and officers who is also a director, officer, employee, stockholder, member or partner of Access and its affiliates, have no obligation to offer us corporate opportunities.”
+Added: Conflicts of interest may arise between our controlling stockholder and us.
+Added: Affiliates of our controlling stockholder engage in transactions with us.
+Added: Further, Access may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us, and they may either directly, or through affiliates, also maintain business relationships with companies that may directly compete with us.
+Added: In general, Access or its affiliates could pursue business interests or exercise their voting power as stockholders in ways that are detrimental to us but beneficial to themselves or to other companies in which they invest or with whom they have a material relationship.
+Added: In addition, a number of persons who currently are our directors and officers have been and remain otherwise affiliated with Access and, in some cases, such affiliations also involve financial interests.
+Added: These relationships may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for Access and us.
+Added: As a result of these relationships, the interests of Access may not coincide with our interests or the interests of the holders of our Class A Common Stock.
+Added: So long as Access continues to control a significant amount of the total combined voting power of our outstanding common stock, Access will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions.
+Added: Under our amended and restated certificate of incorporation, Access and its affiliates, and in some circumstances, any of our directors and officers who is also a director, officer, employee, stockholder, member or partner of Access and its affiliates, have no obligation to offer us corporate opportunities.
+Added: The policies relating to corporate opportunities and transactions with Access and its affiliates set forth in our amended and restated certificate of incorporation, address potential conflicts of interest between the Company, on the one hand, and Access, its affiliates and its directors, officers, employees, stockholders, members or partners who are directors or officers of the Company, on the other hand.
+Added: Our amended and restated certificate of incorporation provides that we, on our behalf and on behalf of our subsidiaries, renounce any interest or expectancy in, or in being offered an opportunity to participate in, corporate opportunities, that are from time to time presented to Access or any of its affiliates, directors, officers, employees, stockholders, members or partners, even if the opportunity is one that we or our subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so.
+Added: None of Access, its affiliates or any of its directors, officers, employees, stockholders, members or partners will generally be liable to us or any of our subsidiaries for breach of any fiduciary or other duty, as a director or otherwise, by reason of the fact that such person pursues, acquires or participates in such corporate opportunity, directs such corporate opportunity to another person or fails to present such corporate opportunity, or information regarding such corporate opportunity, to us or our subsidiaries unless, in the case of any such person who is a director or officer, such corporate opportunity is expressly offered to such director or officer in writing solely in his or her capacity as a director or officer.
+Added: To the fullest extent permitted by law, by becoming a stockholder in our company, stockholders will be deemed to have notice of and consented to this provision of our amended and restated certificate of incorporation.
+Added: Although these provisions are designed to resolve conflicts between us and Access and its affiliates fairly, conflicts may not be resolved in our favor or be resolved at all.
+Added: If Access sells a controlling interest in our company to a third party in a private transaction, our stockholders may not realize any change of control premium on shares of our Class A Common Stock and we may become subject to the control of a presently unknown third party.
+Added: Access has the ability, should it choose to do so, to sell some or all of its shares of our common stock in a privately negotiated transaction.
+Added: If such a transaction were to be sufficient in size, it could result in a change of control of the Company.
+Added: The ability of Access to privately sell such shares of our common stock, with no requirement for a concurrent offer to be made to acquire all of the shares of our Class A Common Stock, could prevent our stockholders from realizing any change of control premium on their shares of our Class A Common Stock that may otherwise accrue to Access upon its private sale of our common stock.
+Added: Additionally, if Access privately sells a significant equity interest in us, we may become subject to the control of a presently unknown third party.
+Added: Such third party may have conflicts of interest with the interests of other stockholders.
+Added: Risks Related to Our Common Stock
+Added: The dual class structure of our common stock and the existing ownership of Class B Common Stock by Access have the effect of concentrating voting control with Access for the foreseeable future, which will limit or preclude the ability of our other stockholders to influence corporate matters.
+Added: Our Class A Common Stock has one vote per share and our Class B Common Stock has 20 votes per share.
+Added: Given the greater number of votes per share attributed to our Class B Common Stock, Access, who is our only Class B Common Stock stockholder, holds approximately 99% of the total combined voting power of our outstanding common stock.
+Added: As a result of our dual class ownership structure, Access is able to exert a significant degree of influence or actual control over our management and affairs and over matters requiring stockholder approval, including the election of directors, mergers or acquisitions, asset sales and other significant corporate transactions.
+Added: Further, Access owns shares representing approximately 83% of the economic interest of our outstanding common stock.
+Added: Because of the 20-to-1 voting ratio between the Class B Common Stock and Class A Common Stock, the holders of Class B Common Stock collectively continue to control a majority of the total combined voting power of our outstanding common stock and therefore be able to control all matters submitted to our stockholders for approval, so long as the outstanding shares of Class B Common Stock represent at least approximately 10% of the total number of outstanding shares of common stock.
+Added: This concentrated control will limit the ability of our other stockholders to influence corporate matters for the foreseeable future.
+Added: For example, Access will be able to control elections of directors, amendments of our certificate of incorporation or by-laws, increases to the number of shares available for issuance under our equity incentive plans or adoption of new equity incentive plans and approval of any merger or sale of assets for the foreseeable future.
+Added: This control may materially adversely affect the market price of our Class A Common Stock.
+Added: Additionally, the holders of our Class B Common Stock may cause us to make strategic decisions or pursue acquisitions that could involve risks to our other stockholders or may not be aligned with their interests.
+Added: The holders of our Class B Common Stock will also be entitled to a separate vote in the event we seek to amend our certificate of incorporation.
+Added: The difference in the voting rights of our Class A Common Stock and Class B Common Stock may harm the value and liquidity of our Class A Common Stock.
+Added: The difference in the voting rights of our Class A Common Stock and Class B Common Stock could harm the value of our Class A Common Stock to the extent that any investor or potential future purchaser of our Class A Common Stock ascribes value to the right of holders of our Class B Common Stock to 20 votes per share of Class B Common Stock.
+Added: The existence of two classes of common stock could also result in less liquidity for our Class A Common Stock than if there were only one class of our common stock.
+Added: Our dual class structure may depress the trading price of our Class A Common Stock.
+Added: Our dual class structure may result in a lower or more volatile market price of our Class A Common Stock or in adverse publicity or other adverse consequences.
+Added: For example, certain index providers have announced restrictions on including companies with dual or multiple class share structures in certain of their indexes.
+Added: S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500.
+Added: These changes exclude companies with multiple classes of shares of common stock from being added to these indices.
+Added: In addition, several stockholder advisory firms have announced their opposition to the use of dual or multiple class structures.
+Added: As a result, the dual class structure of our common stock may prevent the inclusion of our Class A Common Stock in these indices and may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure.
+Added: Any such exclusion from indices could result in a less active trading market for our Class A Common Stock.
+Added: Any actions or publications by stockholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A Common Stock.
+Added: Future sales of shares by existing stockholders could cause our stock price to decline.
+Added: Sales of substantial amounts of our Class A Common Stock in the public market, or the perception that these sales could occur, could cause the market price of our Class A Common Stock to decline.
+Added: These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
+Added: Upon completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, we had 88,550,000 outstanding shares of Class A Common Stock and 421,450,000 outstanding shares of Class B Common Stock.
+Added: All of the shares of Class A Common Stock sold in the IPO were immediately tradable without restriction under the Securities Act except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or “Rule 144.”
+Added: The remaining shares of Class B Common Stock outstanding subsequent to the consummation of the IPO are restricted securities within the meaning of Rule 144, but will be eligible for resale subject, in certain cases, to applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, or “Rule 701,” subject to the terms of the lock-up agreements described below.
+Added: Additionally, shares of Class A Common Stock are registered under our registration statements on Form S-8 to be issued under our equity compensation plans, including the Plan, and, as a result, all shares of Class A Common Stock acquired upon settlement of deferred equity units granted under the Plan will also be freely tradable under the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates.
+Added: In addition, 31,169,099 shares of our Class A Common Stock were reserved for future issuances under the Omnibus Incentive Plan adopted in connection with the IPO over the 10-year period from the date of adoption.
+Added: The Company granted members of its Board of Directors a total of 28,361 shares of restricted common stock on August 14, 2020, and 2,553 shares of restricted common stock on October 1, 2020, pursuant to the Omnibus Incentive Plan.
+Added: These grants represent compensation for board service for the period from the Company’s initial public offering until the Company’s 2021 regularly scheduled annual shareholder meeting, at which time the restricted stock will be vested.
+Added: Directors are entitled to dividends on this restricted stock during the vesting period.
+Added: In connection with the IPO, we, the selling stockholders, all of our directors and executive officers and the holders of all of our outstanding stock have entered into lock-up agreements under which, subject to certain exceptions, we and they have agreed not to sell, transfer or dispose of or hedge, directly or indirectly, any shares of our Class A Common Stock or any securities convertible into or exercisable or exchangeable for shares of our Class A Common Stock for a period of 180 days after the pricing date of the IPO, June 3, 2020, except with the prior written consent of Morgan Stanley & Co.
+Added: Following the expiration of this 180-day lock-up period, approximately 421,450,000 shares of our Class A Common Stock (assuming conversion of all shares of Class B Common Stock into shares of Class A Common Stock) will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701.
+Added: As resale restrictions end, the market price of our Class A Common Stock could decline if Access sells its shares or is perceived by the market as intending to sell them.
+Added: Morgan Stanley & Co.
+Added: LLC may, in its sole discretion and at any time, release all or any portion of the securities subject to lock-up agreements.
+Added: Furthermore, subject to the expiration or waiver of the lock-up agreements, Access will have the right to require us to register shares of common stock for resale in some circumstances pursuant to a registration rights agreement we entered into with Access.
+Added: In the future, we may issue additional shares of Class A Common Stock, Class B Common Stock or other equity or debt securities convertible into or exercisable or exchangeable for shares of our Class A Common Stock in connection with a financing, strategic investment, litigation settlement or employee arrangement or otherwise.
+Added: Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our Class A Common Stock to decline.
+Added: The market price of our Class A Common Stock may be volatile and could decline after the IPO.
+Added: The market price of our Class A Common Stock may fluctuate significantly.
+Added: Among the factors that could affect our stock price are:
+Added: • industry or general market conditions;
+Added: • domestic and international economic factors unrelated to our performance;
+Added: • changes in our customers’ preferences;
+Added: • changes in law or regulation;
+Added: • lawsuits, enforcement actions and other claims by third parties or governmental authorities;
+Added: • adverse publicity related to us or another industry participant;
+Added: • actual or anticipated fluctuations in our operating results;
+Added: • changes in securities analysts’ estimates of our financial performance or lack of research coverage and reports by industry analysts;
+Added: • action by institutional stockholders or other large stockholders (including Access), including future sales of our Class A Common Stock;
+Added: • failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;
+Added: • speculation in the press or investment community;
+Added: • investor perception of us and our industry;
+Added: • changes in market valuations or earnings of similar companies;
+Added: • announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships;
+Added: • war, terrorist acts, epidemic disease and pandemics, including COVID-19;
+Added: • any future sales of our Class A Common Stock or other securities;
+Added: • additions or departures of key personnel;
+Added: • misconduct or other improper actions of our employees.
+Added: Stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies.
+Added: These broad market fluctuations may adversely affect the trading price of our Class A Common Stock.
+Added: In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company.
+Added: Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which could materially and adversely affect our business, consolidated results of operations, liquidity or financial condition.
+Added: Due to the nature of our business, our results of operations, cash flows and the trading price of our common stock may fluctuate significantly from period to period.
+Added: Our results of operations are affected by the amount and quality of music that we release, the number of releases that include musical compositions published by us, timing of release schedules and, more importantly, the consumer demand for these releases.
+Added: We also make advance payments to recording artists and songwriters, which impact our results of operations and operating cash flows.
+Added: The timing of releases and advance payments is largely based on business and other considerations and is made without regard to the impact of the timing of the release on our financial results.
+Added: In addition, certain of our license agreements with digital music services contain minimum guarantees and/or require that we are paid minimum guarantee payments.
+Added: Our results of operations and cash flows in any reporting period may be materially affected by the timing of releases and advance payments and minimum guarantees, which may result in significant fluctuations from period to period, which may have an adverse impact on the price of our Class A Common Stock.
+Added: If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.
+Added: The trading market for our Class A Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business.
+Added: We do not currently have, and may never obtain, research coverage for our Class A Common Stock.
+Added: If there is no research coverage of our Class A Common Stock, the trading price for our common stock may be negatively impacted.
+Added: In the event we obtain research coverage for our Class A Common Stock, if one or more of the analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline.
+Added: If one or more of the analysts ceases coverage of our Class A Common Stock or fails to publish reports on us regularly, demand for our Class A Common Stock could decrease, which could cause our Class A Common Stock price or trading volume to decline.
+Added: Our existing debt securities do, and future offerings of debt or equity securities may, rank senior to our common stock, which may adversely affect the market price of our Class A Common Stock.
+Added: As of September 30, 2020, our total consolidated indebtedness, net of deferred financing costs, was $3.104 billion, all of which ranks senior to our Class A Common Stock.
+Added: Additionally, on November 2, 2020, Acquisition Corp.
+Added: issued and sold $250 million of additional 3.000% Senior Secured Notes (as defined herein).
+Added: Our existing debt is subject to agreements which contain provisions restricting our operating flexibility.
+Added: If, in the future, we decide to issue additional debt or equity securities that rank senior to our Class A Common Stock, it is likely that such securities will also be governed by an indenture or other instrument containing covenants restricting our operating flexibility consistent with our existing debt agreements.
+Added: Additionally, any convertible or
+Added: exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our Class A Common Stock and may result in dilution to owners of our Class A Common Stock.
+Added: We and, indirectly, our stockholders, bear the cost of issuing and servicing such securities.
+Added: Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
+Added: Thus, holders of our Class A Common Stock will bear the risk of our future offerings reducing the market price of our Class A Common Stock and diluting the value of their stock holdings in us.
+Added: Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws and Delaware law could discourage, delay or prevent a change of control of our company and may affect the trading price of our Class A Common Stock.
+Added: Our amended and restated certificate of incorporation and our amended and restated by-laws include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable.
+Added: For example, our amended and restated certificate of incorporation and amended and restated by-laws collectively:
+Added: • authorize two classes of common stock with disparate voting power;
+Added: • permit different treatment of our Class A Common Stock and Class B Common Stock in a change of control transaction if approved by a majority of the voting power of our outstanding Class A Common Stock and a majority of the voting power of our outstanding Class B Common Stock, voting separately;
+Added: • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;
+Added: • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office once Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock;
+Added: • prohibit stockholders from calling special meetings of stockholders if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock;
+Added: • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders, if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock;
+Added: • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders;
+Added: • require the approval of holders of at least 66 2/3% of the total combined voting power of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock;
+Added: • subject us to Section 203 of the DGCL, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting stock from engaging in certain business combinations with us, once Access no longer owns at least 5% of the total combined voting power of our outstanding common stock.
+Added: These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our Class A Common Stock offered by a bidder in a takeover context.
+Added: Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class A Common Stock if the provisions are viewed as discouraging takeover attempts in the future.
+Added: Our amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove our management.
+Added: Furthermore, the existence of the foregoing provisions, as well as the significant amount of common stock that Access owns and voting power that Access holds, could limit the price that investors might be willing to pay in the future for shares of our Class A Common Stock.
+Added: These provisions may facilitate management and board entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.
+Added: We are a “controlled company” within the meaning of NASDAQ rules and, as a result, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
+Added: After the consummation of the IPO, Access holds approximately 99% of the total combined voting power of our outstanding common stock.
+Added: Accordingly, we qualify as a “controlled company” within the meaning of NASDAQ corporate governance standards.
+Added: Under NASDAQ rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NASDAQ corporate governance standards, including:
+Added: • the requirement that a majority of the members of our board of directors be independent directors;
+Added: • the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
+Added: • the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
+Added: • the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.
+Added: We intend to use these exemptions.
+Added: As a result, we will not have a majority of independent directors, our compensation and our nominating and corporate governance committees will not consist entirely of independent directors and such committees may not be subject to annual performance evaluations.
+Added: Additionally, we are only required to have all independent audit committee members within one year from the date of listing.
+Added: Consequently, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of NASDAQ corporate governance rules and requirements.
+Added: Our status as a controlled company could make our Class A Common Stock less attractive to some investors or otherwise harm our stock price.
+Added: Our amended and restated certificate of incorporation includes provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.
+Added: Our amended and restated certificate of incorporation contains provisions permitted under the action asserting a claim arising under the DGCL relating to the liability of directors.
+Added: These provisions will eliminate a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:
+Added: • any breach of the director’s duty of loyalty;
+Added: • acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;
+Added: • Section 174 of the DGCL (unlawful dividends);
+Added: • any transaction from which the director derives an improper personal benefit.
+Added: The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL.
+Added: These provisions, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty.
+Added: These provisions will not alter a director’s liability under federal securities laws.
+Added: The inclusion of this provision in our amended and restated certificate of incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.
+Added: Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders.
+Added: Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, other employees, agents or stockholders, (iii) any action asserting a claim arising out of or under the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our amended and restated certificate of incorporation or our amended and restated by-laws) or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to such Court of Chancery of the State of Delaware having personal jurisdiction over the indispensable parties named as defendants.
+Added: However, claims subject to exclusive jurisdiction in the federal courts, such as suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act, or the rules and regulations thereunder, need not be brought in the Court of Chancery of the State of Delaware.
+Added: Stockholders in our company will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum.
+Added: The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers, other employees, agents or stockholders, which may discourage lawsuits with respect to such claims.
+Added: Additionally, a court could determine that the exclusive forum provision is unenforceable, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
+Added: If a court were to find
+Added: these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.
UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.