SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 15, 1996
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ALLIANCE ENTERTAINMENT CORP.
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(Exact name of registrant as specified in its charter)
Delaware 1-13054 13-3645913
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
110 East 59th Street, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 935-6662
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Exhibit index on page 4.
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Item 5. Other Events
On August 15, 1996 Alliance Entertainment Corp. (the
"Company") entered into a Stock Acquisition and Merger Agree-
ment (the "Agreement") among Alvin N. Teller ("Teller"),
Wasserstein & Co. Inc. ("WCI"), the Company and other parties
thereto, pursuant to which the Company will acquire all the
outstanding units of Red Ant L.L.C., a Delaware limited lia-
bility company, from WCI and Teller, in exchange for
(i) 760,823 shares of the Company's common stock (the "Common
Stock") issued to Teller and 5,957,928 shares of common stock
issued to WCI and its affiliates and (ii) the right for each of
Teller and WCI and its affiliates to receive additional shares
of Common Stock contingent upon the market price of the Common
Stock achieving defined target prices or certain specified
events. Upon consummation of the transactions contemplated by
the Agreement, Teller will become Co-Chairman, President and
Chief Executive Officer of the Company and all of its
subsidiaries.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 1. Stock Acquisition and Merger Agreement
dated August 15, 1996, including
exhibits thereto.
Exhibit 2. Press Release dated August 15, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Anil K. Narang
Name: Anil K. Narang
Title: President
Date: August 21, 1996
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EXHIBIT INDEX
Exhibit 1. Stock Acquisition and Merger Agreement dated
August 15, 1996, including exhibits thereto.
Exhibit 2. Press Release dated August 15, 1996.
STOCK ACQUISITION AND MERGER AGREEMENT
STOCK ACQUISITION AND MERGER AGREEMENT, dated as of
August 15, 1996 (the "Agreement"), by and among Alvin N. Teller
("AT"), Wasserstein & Co., Inc., a Delaware corporation
("WCI"), U.S. Equity Partners, L.P., a Delaware limited part-
nership ("USEP Delaware"), U.S. Equity Partners (Offshore),
L.P., a Cayman Islands limited partnership ("USEP Offshore"
and, together with USEP Delaware, "USEP"), Red Ant Box, Inc., a
Delaware corporation ("AT Sub"), Alliance Entertainment Corp.,
a Delaware corporation (the "Company"), and Alliance Acquisi-
tion Co. Inc., a Delaware corporation wholly owned by the Com-
pany ("Acquisition Sub").
RECITALS
WHEREAS, AT Sub and Red Ant Holdings, Inc., a Dela-
ware corporation ("WPI"), either directly or indirectly through
wholly-owned subsidiaries are the sole members of Red Ant,
L.L.C., a Delaware limited liability company ("RA");
WHEREAS, AT, WCI and USEP desire to transfer to the
Company, and the Company wishes to acquire, all of the stock
interests in AT Sub and WPI in exchange for Common Stock of the
Company, all upon the terms and subject to the conditions of
this Agreement;
WHEREAS, the parties intend that the acquisitions of
AT Sub and WPI be characterized as tax-free reorganizations
within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended; and
WHEREAS, AT, WCI, AT Sub, Acquisition Sub and the
Company desire to make certain representations, warranties,
covenants and agreements in connection with the transactions
described above.
NOW, THEREFORE, in consideration of the premises and
the mutual representations, warranties, covenants, agreements
and conditions herein, the parties hereto agree as follows:
1. MERGER.
1.1. The Merger. (a) In accordance with the provi-
sions of this Agreement and the General Corporation Law of the
State of Delaware ("DGCL"), at the Closing Date (as defined in
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Section 2.3 hereof), Acquisition Sub shall be merged with and into AT Sub
(the "Merger"), and AT Sub shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware. The name of
the Surviving Corporation shall be "Red Ant Box, Inc." At the Effective
Date (as defined in Section 1.3 hereof) the separate existence of the
Acquisition Sub shall cease.
(b) The Surviving Corporation shall possess all the rights,
privileges, immunities, powers and purposes of each of Acquisition Sub and
AT Sub (referred to collectively herein sometimes as the "Constituent
Corporations") and shall by operation of law assume and be liable for all
the liabilities, obligations and penalties of each of the Constituent
Corporations.
1.2. Filing. As soon as practicable after the satisfaction or
waiver of the conditions set forth in Section 7 and Section 8 hereof, AT
and the Company will cause a Certificate of Merger in compliance with the
provisions of Section 264 of the DGCL (the "Certificate of Merger") to be
executed and filed with the Secretary of State of the State of Delaware,
and shall take any and all other lawful actions and do any and all other
lawful things to cause the Merger to become effective.
1.3. Effective Date of the Merger. The Merger shall become
effective immediately upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware. The date of such filing is
herein sometimes referred to as the "Effective Date" and the time of such
filing is herein sometimes referred to as the "Effective Time." The
Effective Date shall occur on the Closing Date (as defined in Section 2.3
hereof). Both the Merger and the Acquisition (as defined in Section 2.1
hereof) shall close simultaneously.
1.4. Articles of Incorporation. Upon the effectiveness of the
Merger, the Articles of Incorporation of Acquisition Sub, as in effect
immediately prior to the Effective Date, shall continue to be in full force
and effect as the Articles of Incorporation of the Surviving Corporation,
except to the extent amended to reflect the change in corporate name, until
thereafter amended as provided therein or by the DGCL.
1.5. By-laws. Upon the effectiveness of the Merger, the
By-laws of Acquisition Sub as in effect immediately prior to the Effective
Date shall continue to be in full force and
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effect as the By-laws of the Surviving Corporation until thereafter amended
or repealed from time to time by the Board of Directors of the Surviving
Corporation.
1.6. Directors and Officers. The directors and officers of
Acquisition Sub immediately prior to the Effective Date shall be the
directors and officers of the Surviving Corporation and will hold office
from and after the Effective Date until their respective successors are
duly elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and By-laws of the Surviving Corporation, or
as otherwise provided by law.
1.7. Further Assurances. If, at any time after the Effective
Date, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to
or under any of the rights, properties or assets of either of the Con-
stituent Corporations acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise
to carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of the Constituent Corporations or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise
to carry out this Agreement.
1.8. Conversion of Shares. At the Effective Time (i) each
share of capital stock of AT Sub held by AT shall be cancelled and
converted into (a) 7,608.23 shares of Common Stock, par value $.0001 per
share, of the Company ("Common Stock") aggregating 760,823 shares and (b)
the right to receive up to 10,000 additional shares of Common Stock,
aggregating 1,000,000 shares (the "Contingent Stock") upon the terms and
conditions set forth in Section 1.9 below, subject to adjustment pursuant
to Section 3 hereof, and (ii) each share of capital stock of Acquisition
Sub outstanding immediately prior to the Effective Time shall be converted
into and become one share of capital stock of the Surviving Corporation
with the same rights and privileges as the shares so converted and shall
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constitute the only outstanding shares of capital stock of the Surviving
Corporation.
1.9. Contingent Stock.
(a) Tranche 1. If, at any time during the period of
two years following the Closing Date, the price of the
Common Stock remains at or above any of the Target
Contingent Acquisition Prices indicated on the schedule
below for any 25 trading days out of a period of 30
consecutive trading days, then AT shall be entitled to
receive the corresponding percentage of 500,000 shares of
Common Stock (the "Tranche 1 Contingent Stock"):
Tranche 1 Contingent Stock Schedule
Target Contingent % of Tranche 1 Contingent
Acquisition Price Stock
$ 9.00 25.00%
$ 9.25 31.25%
$ 9.50 37.50%
$ 9.75 43.75%
$10.00 50.00%
$10.25 56.25%
$10.50 63.50%
$10.75 69.75%
$11.00 75.00%
$11.25 81.25%
$11.50 87.50%
$11.75 93.75%
$12.00 100.00%
(b) Tranche 2. If, at any time during the period of
four years following the Closing Date, the price of the
Common Stock remains at or above any of the Target
Contingent Acquisition Prices indicated on the schedule
below for any 85 trading days out of a period of 90
consecutive trading days, then AT shall be entitled to
receive the corresponding percentage of 500,000 shares of
Common Stock (the "Tranche 2 Contingent Stock"):
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Tranche 2 Contingent Stock Schedule
Target Contingent % of Tranche 2 Contingent
Acquisition Price Stock
$13.00 50.00%
$13.50 56.25%
$14.00 62.50%
$14.50 68.75%
$15.00 75.00%
$15.50 81.25%
$16.00 87.50%
$16.50 93.75%
$17.00 100.00%
(c) Additional Provisions. The issuance of
Contingent Stock pursuant to this Section 1.9 shall be
subject to the terms and conditions contained in Section 3
hereof.
(d) AT's rights to any Contingent Stock pursuant to
this Section 1.9 shall not be transferable or assignable,
except by operation of law, and except to a trust for the
benefit of AT, his wife, and/or any of the children of
either, provided that such assignees shall agree to be bound
by the terms of this Agreement.
2. SHARE EXCHANGE.
2.1. Exchange. Subject to the terms and conditions of this
Agreement, and in consideration of the Exchange Consideration specified in
Section 2.2 hereof, on the Closing Date (as defined below), WCI and USEP
shall transfer to the Company all of the issued and outstanding shares of
capital stock of WPI, free and clear of all liens and encumbrances (the
"Acquisition").
2.2. Exchange Consideration. The consideration for the
Acquisition (the "Exchange Consideration") shall be (i) 5,957,928 shares of
Common Stock, of which 2,220,266 shares shall be delivered to WCI and
3,737,662 shares shall be delivered to USEP Delaware and USEP Offshore, pro
rata with respect to their holdings of shares of WPI, and (ii) the right to
receive additional shares of Common Stock upon the terms and conditions set
forth in Section 2.4 hereof.
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2.3. Closing. The Closing shall occur at 10:00 A.M. on
August 26, 1996 or such other date that the conditions set forth in Section
7.2 have been satisfied or waived (the "Closing Date") at the offices of
Cahill Gordon & Reindel, 80 Pine Street, New York, New York, or at such
other time and place as the parties hereto mutually agree.
2.4. Contingent Stock.
(a) Tranche 1. If, at any time during the period of
two years following the Closing Date, the price of the
Common Stock remains at or above any of the Target
Contingent Acquisition Prices indicated on the schedule
below for any 25 trading days out of a period of 30
consecutive trading days, then WCI and USEP shall be
entitled to receive the corresponding percentage of 277,500
shares and 472,500 shares, respectively, of Common Stock
(the "Tranche 1 Contingent Stock"):
Tranche 1 Contingent Stock Schedule
Target Contingent % of Tranche 1 Contingent
Acquisition Price Stock
$ 9.00 25.00%
$ 9.25 31.25%
$ 9.50 37.50%
$ 9.75 43.75%
$10.00 50.00%
$10.25 56.25%
$10.50 63.50%
$10.75 69.75%
$11.00 75.00%
$11.25 81.25%
$11.50 87.50%
$11.75 93.75%
$12.00 100.00%
(b) Tranche 2. If, at any time during the period of
four years following the Closing Date, the price of the
Common Stock remains at or above any of the Target
Contingent Acquisition Prices indicated on the schedule
below for any 85 trading days out of a period of 90
consecutive trading days, then WCI and USEP shall be
entitled to receive the corresponding percentage of 277,500
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shares and 472,500 shares, respectively, of Common Stock
(the "Tranche 2 Contingent Stock"):
Tranche 2 Contingent Stock Schedule
Target Contingent % of Tranche 2 Contingent
Acquisition Price Stock
$13.00 50.00%
$13.50 56.25%
$14.00 62.50%
$14.50 68.75%
$15.00 75.00%
$15.50 81.25%
$16.00 87.50%
$16.50 93.75%
$17.00 100.00%
(c) Additional Provisions. The issuance of
Contingent Stock pursuant to this Section 2.4 shall be
subject to the terms and conditions contained in Section 3
hereof.
3. ADDITIONAL CONTINGENT STOCK PROVISIONS
3.1. Change of Control. In the event of a Change of Control,
AT, WCI and USEP shall be entitled to receive all of the Tranche 1
Contingent Stock and the Tranche 2 Contingent Stock issuable to them
pursuant to Section 1.9 and Section 2.4 hereof. As used in this Agreement,
"Change of Control" shall mean (i) the acquisition of all or substantially
all of the assets of the Company, (ii) the acquistion by any party (or
group, as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) not currently a
holder of more than 5% of the outstanding Common Stock of the Company of
more than 50% of the outstanding Common Stock of the Company, (iii) any
merger, combination, consolidation or similar transaction involving the
Company following which the holders of Common Stock of the Company immedi-
ately prior to such transaction will not own more than 50% of the Common
Stock of the Company.
3.2. Certain Events. In the event that either (a) at any time
the Common Stock of the Company is no longer required to be registered
pursuant to Section 12(b) of the 1934 Act or (b) the stockholders of the
Company have not approved this Agreement and the transactions contemplated
hereby (as
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contemplated by Section 9.10 below) by the later of (i) ninety days from
the Closing Date or (ii) the time AT, WCI, USEP are eligible to receive
contingent consideration pursuant to Sections 1.9 and 2.4 hereof, the
Company shall engage an investment bank unaffiliated with the Company
(which investment bank shall be reasonably acceptable to AT and WCI) to
develop a method of equivalent consideration for AT, WCI and USEP in
accordance with the essential intent and principles of Sections 1.9 and 2.4
hereof; provided, however, that in the case of clause (b) above, the
Company shall issue the maximum amount of Contingent Shares it is entitled
to issue without stockholder approval in accordance with applicable rules
and regulations and such investment bank shall only evaluate equivalent
consideration in respect of Contingent Stock that cannot be so issued.
3.3. Stockholder Vote. Any acquisition of Contingent Stock by
AT, WCI and USEP pursuant to Section 1.9 or Section 2.4 hereof shall be
contingent upon the prior approval of this Agreement and the transactions
contemplated hereby by the stockholders of the Company for purposes of
compliance with the rules and regulations of the New York Stock Exchange as
contemplated in Section 9.10 hereof.
3.4. Adjustments. In the event that the Company shall at
any time (a) subdivide (by any stock split, stock dividend or otherwise)
one or more classes of its outstanding Common Stock into a greater number
of shares of Common Stock, (b) combine (by reverse stock split or
otherwise) one or more classes of its outstanding Common Stock into a
smaller number of shares or (c) pay any extraordinary cash dividend on one
or more classes of its outstanding Common Stock; then the number of shares
to be issued pursuant to Sections 1.9 and 2.4 hereof and the target prices
shall be proportionately adjusted.
3.5. Reallocation of Contingent Stock. Notwithstanding any
other provision of either Section 1.9 or Section 2.4, in the event in
excess of (i) 675,000 shares of Tranche 1 Contingent Stock in aggregate
would otherwise be issued pursuant to Section 2.4(a) or (ii) 675,000 shares
of Tranche 2 Contingent Stock in aggregate would otherwise be issued
pursuant to Section 2.4(b); then the entire number of excess shares shall
be issued to AT.
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4. REPRESENTATIONS AND WARRANTIES OF WCI. WCI hereby
represents and warrants to the Company that:
4.1.1 Capitalization of WPI. The total authorized number of
shares of WPI is 1,000, of which 100 shares are issued and outstanding.
All of the issued and outstanding shares are validly issued, fully paid and
nonassessable; there are no other outstanding shares, warrants, scrip,
rights, options, calls or any obligations or instruments evidencing the
right to purchase or effect a conversion into any shares thereof, nor any
agreement, instrument, arrangement, contract, obligation, commitment or
understanding relating to the issuance or transfer of any thereof, whether
or not such may be authorized, issued or outstanding pertaining to WPI.
WCI is the record and beneficial owner of all issued and outstanding shares
of capital stock of WPI.
4.1.2. USEP. As of the Closing Date, USEP Delaware and USEP
Offshore are limited partnerships validly existing and in good standing
under the laws of the State of Delaware and the Cayman Islands,
respectively. All of the outstanding units of the sole general partner of
USEP are owned directly or indirectly through a wholly owned subsidiary by
WCI.
4.2. Organization of WPI. WPI is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware.
4.3. Assets and Liabilities of WPI. As of the Closing Date,
WPI will own directly or indirectly 60 units of RA (the "WPI Units"). As
of the Closing Date WPI will have good and valid title to the WPI Units,
free and clear of any liens, claims or encumbrances and WPI will have no
liabilities, contingent or otherwise.
4.4. Contracts and Commitments. Except as set forth on
Schedule 4.4, WPI is not party to any written agreements, instruments,
arrangements, oral or written contracts, obligations or commitments.
4.5. Taxes. (a) All federal, state, local and foreign Tax
Returns required to be filed for taxable periods ending on or prior to the
Closing Date for, or with respect to the activities of, both WPI and RA
have been or will be filed with the appropriate Taxing authority. All such
Tax Returns were (and, as to Tax Returns not filed as of the date hereof,
will be) in all material respects true, complete and correct, and
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filed on a timely basis (taking into account proper extensions).
(b) Both WPI and RA have paid (and, until the Closing Date,
will pay), within the time and in the manner prescribed by law and prior to
the date on which any fine, penalty, interest or late charge may be added
thereto for nonpayment thereof, all Taxes that are due and payable relating
to Taxable periods ending on or prior to the Closing Date or with respect
to which payment is due on or prior to the Closing Date.
(c) There are no Tax liens upon the assets of either WPI or
RA.
(d) Both WPI and RA have complied (and, until the Closing
Date, will comply) in all material respects with all applicable laws, rules
and regulations relating to the payment and withholding of Taxes (including
withholding and reporting requirements under Code sections 1441 through
1464, 3401 through 3406, 6041 and 6049 and similar provisions under any
other laws) and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper Taxing authorities
all amounts required to be so paid. Neither WPI nor RA is liable for any
penalties with respect to such withholding and reporting requirements, nor
is either liable for any backup withholding.
(e) Neither WPI nor RA has executed any waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(f) No audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes or Tax Returns
of either WPI or RA, it being understood that, although the affiliated
group of corporations of which Wasserstein Perella Group, Inc. ("WP
Parent") is the common parent currently is under audit by the Internal
Revenue Service, none of the issues pending or raised in that audit relate
specifically to the business or assets of WPI or RA.
(g) No power of attorney currently in force has been granted
by either WPI or RA concerning any Tax matter.
(h) Neither WPI nor RA has received a Tax Ruling (as defined
below) or entered into a Closing Agreement (as defined below) with any
Taxing authority that would have a continuing
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effect after the Closing Date. "Tax Ruling" shall mean a written ruling of
a Taxing authority relating to Taxes. "Closing Agreement" shall mean a
written and legally binding agreement with a Taxing authority relating to
Taxes.
(i) Any existing agreement relating to the allocation or
sharing of Taxes other than pursuant to this Agreement between any
affiliate of WCI and RA, on the one hand, and WP Parent and any of its
affiliates, on the other hand, will be terminated no later than the Closing
Date, with no continuing liability on the part of WPI or RA.
(j) No property of either WPI or RA is property that it or any
party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code section 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is
"tax-exempt use property" within the meaning of Code section 168.
(k) Neither WPI nor RA is required to include in income any
adjustment pursuant to Code section 481(a) by reason of a voluntary change
in accounting method initiated by it, and the Internal Revenue Service has
not proposed any such adjustment or change in accounting method.
(l) Neither WPI nor RA has filed (and will not file prior to
the Closing Date) a consent pursuant to Code section 341(f), and neither
has agreed to have Code section 341(f)(2) apply to any disposition of a
subsection (f) asset (as that term is defined in Code section 341(f)(4))
owned by it.
(m) As of the Closing Date, neither WPI nor RA will be a party
to any agreement, contract or arrangement that would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Code section 280G, and no part of any service fee received
by WCI or any of its affiliates from WPI or RA on or after the Closing Date
will be considered to be an "excess parachute payment" by reason of the
application of Code sections 269A and 280G.
(n) Neither WPI nor RA has engaged in any transaction with
WCI, AT or any affiliate of WCI or AT that would result in the recognition
of income by it with respect to such transaction for any period ending on
or after the Closing Date.
(o) WPI has never been a member of any affiliated group of
corporations within the meaning of Code section
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1504(a), other than the group of which WP Parent is the common parent, or
any similar group for purposes of any analogous state or local combined or
consolidated return.
(p) WPI has never been a member of an affiliated group of
corporations with respect to which an election was made pursuant to Rev.
Proc. 95-39, 1995-35 I.R.B. 17, or Rev. Proc. 95-11, 1995-4 I.R.B. 48, to
discontinue filing consolidated returns.
(q) As of the Closing Date, neither WPI nor RA will be a
partner in any partnership, except for WPI's interest in RA.
(r) The Company will not be required to withhold any taxes
upon payment of the Exchange Consideration under this Agreement.
(s) RA has at all times been classified as a partnership for
federal income tax purposes, and not a "publicly traded partnership" within
the meaning of Code section 7704(b) and the Treasury Regulations
thereunder.
4.6. Representations True at the Closing Date. The
representations and warranties made in this Agreement by WCI with respect
to itself, WPI and RA will be true and correct on and as of the Closing
Date in all material respects, except that any such representations and
warranties which expressly relate to a specified date shall be true and
correct in all material respects as of such specified date.
5. REPRESENTATIONS AND WARRANTIES REGARDING RA. WCI hereby
represents and warrants to the Company that:
5.1. Capitalization of RA. The total authorized and
outstanding number of Units of RA is 100. All of the issued and
outstanding Units are validly issued, fully paid and nonassessable; there
are no other outstanding Units, warrants, scrip, rights, options, calls or
any obligations or instruments evidencing the right to purchase or effect a
conversion into any Units thereof, nor any agreement, instrument,
arrangement, contract, obligation, commitment or understanding relating to
the issuance or transfer of any thereof, whether or not such may be
authorized, issued or outstanding pertaining to RA. As of the Closing
Date, WPI will be the record owner of 60 Units of RA and AT Sub will be the
record owner of the remaining 40 Units of RA.
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5.2. Power and Authority of RA. RA is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Delaware. RA has full power and authority to carry on
its business and to own or lease its properties as and in the places where
such business is now conducted and such properties are now owned, leased or
operated.
5.3. No Conflict. The execution, delivery and performance of
this Agreement will not (i) violate any provisions of any federal, state,
local or foreign statute, law, ordinance, rule or regulation (herein
collectively called "Laws"), judgment, decree or order applicable to RA or
(ii) conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute an event which with notice or the lapse of
time or both would constitute a default under, or violate or result in the
breach of, or create any right of termination or acceleration of any right
under, the Limited Liability Company Operating Agreement of RA or any
agreement, lease, instrument, arrangement, contract, obligation, commit-
ment, or understanding to which RA is a party or by which any of its
properties are bound.
5.4. Financial Statements. AT and WCI have caused to be
prepared and delivered to the Company a balance sheet of RA as of the date
of this Agreement in the form of Schedule 5.4 hereto (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be otherwise
indicated in the Financial Statements or the notes thereto) and fairly
present in all material respects the financial position of RA as of the
dates thereof. There are no liabilities of RA, contingent or otherwise,
that are not reflected on the Financial Statements or disclosed in Schedule
5.11.
5.5. No Subsidiaries. As of the Closing Date, RA shall have
no subsidiaries, except for Ant Enterprises, Inc. and will not own (or have
any commitment with respect to) any equity interest in any corporation,
partnership or other enterprise or business, except for Ant Enterprises,
Inc.
5.6. Certificates, etc. Complete and correct copies of the
Certificate of Formation of RA, as amended to the date hereof (certified by
the Secretary of State of the State of Delaware), and of the Limited
Liability Company Agreement of
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RA, as amended to the date hereof, have been delivered to the Company by AT
and WCI. RA has no minute books or stock books.
5.7. Due Qualification. RA is not required to be qualified or
licensed as a limited liability company authorized to do business in any
jurisdictions in which it is not so qualified or licensed, except for those
jurisdictions in which the failure to obtain such qualification or
licensing would not have a material adverse effect on the financial
condition, property or operations of RA.
5.8. Properties. RA has good and valid title to all the
assets shown on the Financial Statements (except for those assets disposed
of since that date in the ordinary course of business), free and clear of
any material liens, claims and encumbrances.
5.9. Legal Proceedings, etc. There is no action, suit, claim,
proceeding or investigation (whether or not purportedly by or on behalf of
RA) pending or, to the best knowledge of WCI, threatened against RA or any
of RA's officers or members in connection with the business or affairs of
RA (such actions, suits, claims, proceedings or investigations are herein
referred to as "Legal Proceedings"), at law or in equity, or before any
court or federal, state, county, local or other governmental department,
commission, board, agency or administrative body (herein collectively
referred to as "Governmental Authorities") or in arbitration or mediation,
in which the amount in dispute exceeds or could reasonably be expected to
exceed $10,000 or which in the aggregate exceeds or could reasonably be
expected to exceed $100,000. RA is not a party in a Legal Proceeding in
respect of any claim other than one seeking monetary damages. RA is not
subject to any order, writ, injunction or decree of any Governmental
Authority.
5.10. Compliance with Laws. RA has complied with all Laws
(including, without limitation, those with respect to wages, hours, equal
opportunity, nondiscrimination, immigration, fair credit, insurance,
health, safety, environmental protection, land use and quality criteria and
standards for air, water, land and hazardous materials, product labeling,
warranties and packaging) except to the extent that such failure to comply
could not reasonably be expected to have a material adverse effect on the
business or prospects of RA. No written notice, citation, summons or order
has been received by RA which remains outstanding. RA has not received
written notice of any complaint that has been filed, any penalty that
<PAGE>
-15-
has been assessed any investigation or review that is pending or threatened
by any Governmental Authority with respect to any alleged violation by RA
of any Law or order of any Governmental Authority in connection with the
conduct of its business or the operation or maintenance of the real
properties leased by RA.
5.11. Contracts and Commitments. Except as set forth in
Schedule 5.11 hereto, there are no written agreements, instruments,
arrangements, oral or written contracts, obligations or commitments
involving payments by or to RA aggregating more than $10,000 or which
might, individually, be material to RA to which RA is a party or by which
the properties or assets of RA are bound (herein collectively called
"Contracts"). There is no material default by RA under any Contract, and
no event has occurred that, with the lapse of time or giving of notice, or
both, would constitute a material breach or material default thereof by RA,
would cause or permit acceleration of any obligation of RA thereunder,
would cause or permit the termination thereof or would materially and
adversely affect RA.
5.12. No Violation. The execution, delivery and performance
of this Agreement will not impair in any material respect any right, title
or interest of RA under or in respect of any properties, assets, licenses,
trademarks, copyrights, intangible assets or Contracts of RA. Except for
filings under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the
"HSR Act") as provided in Section 9.9, no consent, approval or agreement of
any person, party, court, government or entity is required to be obtained
by RA in connection with the execution, delivery and performance of the
transactions contemplated by this Agreement.
5.13. Affiliate Transactions with AT, WCI. RA does not do
business directly or indirectly with AT or WCI or any entity controlling,
controlled by or in common control except as set forth in Schedule 5.13
hereto.
5.14. Representations True at the Closing Date. The
representations and warranties made in this Agreement by WCI will be true
and correct on and as of the Closing Date in all material respects, except
that any such representations and warranties which expressly relate to a
specified date shall be true and correct in all material respects as of
such specified date.
5.15. Brokers. WCI represents and warrants that it has
employed no brokers, agents, or finders in carrying on the
<PAGE>
-16-
negotiations relating to this Agreement or to the transactions herein
contemplated other than whose fees will have already been paid at the
Closing.
5.16. Subsequent Contributions. (a) WCI and USEP shall
contribute to the capital of RA an aggregate amount of $12 million less the
reasonable costs of obtaining the letters of credit at the Closing and $5
million on the date that is six months after the Closing Date and (b) WCI
and USEP have caused to be issued in favor of RA four standby irrevocable
letters of credit issued by Bank of America: (i) one from each of WCI and
USEP in the aggregate amount of $12 million which can be drawn on or after
the Closing Date and (ii) one from each of WCI and USEP in the aggregate
amount of $5 million drawable on or after the date that is six months after
the Closing Date, such letters of credit to be in the form attached hereto
as Exhibits A-1 and A-2.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to AT and WCI that:
6.1. Organizational Documents. The Company has delivered to
both AT and WCI an accurate and complete copy of (a) its Restated
Certificate of Incorporation and all amendments thereto, certified by the
Secretary of State or other comparable authority of the jurisdiction of its
incorporation, and (b) its By-laws and all amendments thereto, certified by
its Secretary or Assistant Secretary.
6.2. Existence and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction
where failure to so qualify or be in good standing as a foreign corporation
could reasonably be expected to have a material adverse effect on its
business, operations, prospects, properties or condition (financial or
otherwise), or its ability to perform its obligations hereunder.
6.3. Power and Authority. The Company has all corporate power
and authority necessary to own, operate or lease its properties and assets
and to conduct its business as now conducted by it. The Company has all
corporate power and authority necessary to perform its obligations under
this Agreement and the exhibits hereto, and all such agreements to
<PAGE>
-17-
which the Company is a party are valid and binding agreements of the
Company enforceable in accordance with their terms.
6.4. Corporate Action. The Company has taken all corporate
action required to authorize the performance of its obligations hereunder
and under all documents which are exhibits hereto.
6.5. Consents; Governmental Approvals. No consent or approval
of any person, firm or corporation, and no consent, license, approval or
authorization of, or registration, filing or declaration with, any
Governmental Authority is required to be obtained or made by or on behalf
of the Company in connection with the completion of the transactions
contemplated by this Agreement and the agreements referenced herein, except
for filings under the HSR Act contemplated by Section 9.9 hereof.
6.6. Absence of Conflicts. The execution, delivery and
performance of the obligations of the Company under this Agreement and the
agreements referenced herein do not and will not (a) conflict with or
violate any provision of the Restated Certificate of Incorporation or
By-laws of the Company, (b) conflict with or result in a violation, breach
or default by the Company under (i) any provision of any existing statute,
law, rule or regulation binding on it or any order, judgment, award,
decree, license or authorization of any court or governmental
instrumentality, authority, bureau or agency binding on it, which breach or
default could reasonably be expected to have a material adverse effect on
the present or prospective business, operations, properties, assets or
condition (financial or otherwise) of the Company or (ii) any material
provision or any mortgage, indenture, lease or other contract, agreement,
instrument or undertaking to which it is a party or will be a party
immediately after the Closing Date, or by which or to which it or any of
its property or assets is now or immediately after the Closing will be
bound or subject, or (c) result in the creation or imposition of any lien,
encumbrance or other charge on any of its properties or assets.
6.7. No Defaults. None of the Company or its subsidiaries is,
or immediately after the Closing will be, in default under or in violation
of (a) its Restated Certificate of Incorporation or By-laws, (b) any
agreement or instrument to which it is a party relating to its indebtedness
for borrowed money, (c) any other agreement or instrument to which it is a
party, (d) any statute, rule, writ, injunction, judgment, decree, order or
regulation of any court or governmental
<PAGE>
-18-
authority, having jurisdiction over it, or (e) any license, permit,
certification or approval requirement of any customer, supplier,
governmental authority or other person, in the case of (c), (d) or (e)
above, in any way that could reasonably be expected to have a material
adverse effect on the present or prospective business, operations,
properties, assets or condition (financial or otherwise) of such
corporation, or the Company's ability to perform its obligations under this
Agreement.
6.8. Capitalization. As of July 30, 1996, the authorized
capital stock of the Company consisted of: (i) 100,000,000 shares of Common
Stock, of which (A) 37,956,094 shares are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights, (B) no shares are held in the treasury of
the Company, (C) 8,825,277 shares are reserved for future issuance for the
exercise of stock options and (D) 1,670,733 shares are reserved for future
issuance for the exercise of warrants and (ii) 10,000,000 shares of
preferred stock, of which 422,500 shares of Series A Convertible Preferred
Stock (initially convertible into 5,827,586 shares of Common Stock) are
issued and outstanding. Except as described in Schedule 6.8, no shares of
the capital stock or other equity securities of the Company are authorized,
issued or outstanding, or reserved for any other purpose, and there are no
options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character (including,
without limitation, obligations to issue shares as the deferred purchase
price for acquisitions of stock or assets of third parties) to which the
Company or any of its subsidiaries is a party relating to the issued or
unissued capital stock or other equity securities or ownership interests of
the Company or any of its subsidiaries or obligating the Company or any of
its subsidiaries to grant, issue or sell any shares of capital stock or
other equity securities or ownership interests of the Company or any of its
subsidiaries, by sale, lease, license or otherwise. The Company has no
outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote or which are convertible into or exercisable
for securities having the right to vote with the stockholders of the
Company on any matter. There are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment
in respect of any shares of capital stock or other equity securities or
ownership interests of the Company or any of its subsidiaries. There are
no preemptive or similar rights to
<PAGE>
-19-
purchase or otherwise acquire shares of capital stock of the Company.
Except as contemplated herein the capitalization of the Company will not
change as a result of the transactions contemplated by this Agreement.
6.9. SEC Documents. (1) The Common Stock of the Company is
registered pursuant to Section 12(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the Company has filed all
reports, schedules, forms, statements and other documents required to be
filed by it with the Securities and Exchange Commission ("SEC") pursuant to
the reporting requirements of the Exchange Act, including material filed
pursuant to Section 13(a) or 15(d), in addition to one or more registration
statements and amendments thereto heretofore filed by the Company with the
SEC. The Company has delivered or made available to AT and WP Parent true
and complete copies of (i) its annual reports on Form 10-K and quarterly
reports on Form 10-Q for its 1994 and 1995 fiscal years, (ii) proxy state-
ments, information and solicitation materials filed by the Company with the
SEC since January 1, 1994, and (iii) each other report, registration
statement, proxy statement and other document filed with the SEC since the
filing of its most recent Form 10-K (all of the foregoing, collectively,
the "SEC Documents").
(2) As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
6.10. Financial Statements. The financial statements of the
Company included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (a) as may be
otherwise indicated in such financial statements or the notes thereto or
(b) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed
<PAGE>
-20-
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results
of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
6.11. No Material Adverse Change. Since June 30, 1996, the
date through which the most recent quarterly report of the Company on
Form 10-Q has been prepared and filed with the SEC, a copy of which is
included in the SEC Documents, and until the date hereof, there has been no
material adverse change in the businesses, properties, prospects,
operations or financial condition of the Company and its Subsidiaries,
except as otherwise disclosed or reflected in other SEC Documents, or
otherwise disclosed to AT and WCI on or before the date hereof.
6.12. No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries, or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company and
which has not been so publicly disclosed or announced, or otherwise dis-
closed to AT and WCI on or before the date hereof.
6.13. Brokers. The Company represents and warrants that it
has employed no brokers, agents or finders in carrying on the negotiations
relating to this Agreement or to the transactions herein contemplated,
except as noted on Schedule 6.13 hereof.
6.14. No General Solicitation. Neither the Company, nor any
of its affiliates, nor, to its knowledge, any person acting on its or their
behalf has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act)
in connection with the offer or sale of the Common Stock to be issued
pursuant to this Agreement.
6.15. No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has, directly
or indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of the Common Stock to be issued pursuant to this Agreement
under the Securities Act of 1933, as amended (the "Securities Act").
<PAGE>
-21-
6.16. Certain Agreements. (a) Except as set forth on
Schedule 6.16 attached hereto, the Company is not a party to any agreement
of any nature whatsoever which in any way restricts, encumbers, impedes or
prevents the Company or any affiliate from exploiting or otherwise dealing
in any material respect in Properties (as defined below) owned or
controlled by the Company or such affiliates.
(b) No affiliate of the Company is a party to any agreement of
any nature whatsoever which in any way restricts, encumbers, impedes or
prevents the Company or any other affiliate from exploiting or otherwise
dealing in Properties owned or controlled by the Company or such other
affiliate.
As used in this Section 6.16, the term "Properties" shall mean all audio
recordings, audiovisual recordings, musical compositions and other works of
authorship, all performances contained therein and all copyright and other
rights in connection therewith.
6.17. Acquisition Sub. Acquisition Sub is a first tier
wholly-owned subsidiary of the Company having no material assets or
liabilities.
6.18. Preservation of Corporate Structure. As of the Closing
Date, the Company will have no plan or intention to, following the Closing,
(a) liquidate, dissolve or otherwise discontinue the existence of AT Sub,
WPI or RA, (b) discontinue the business operations of AT Sub, WPI or RA in
any significant respect, (c) cause AT Sub, WPI or RA to sell, transfer or
otherwise dispose of a significant portion of its assets, except for
dispositions made in the ordinary course of business, (d) merge AT Sub, WPI
or RA with or into another corporation, including the Company or any of its
affiliates, (e) sell, distribute or otherwise dispose of the capital stock
or interests in AT Sub, WPI or RA, except for transfers described in
section 368(a)(2)(C) of the Code, or (f) issue additional shares of stock
(or rights to acquire shares of stock) of AT Sub or WPI that would result
in the Company losing control of AT Sub or WPI within the meaning of
section 368(c) of the Code.
6.19. Representations True at the Closing Date. The
representations and warranties made in this Agreement by the Company will
be true and correct on and as of the Closing Date in all material respects,
except that any such representations and warranties which expressly relate
to a specified date shall
<PAGE>
-22-
be true and correct in all material respects of such specified date.
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company under this Agreement to consummate the Merger
and the Acquisition are subject to the satisfaction or waiver of each of
the conditions in this Section 7 prior to or on the Closing Date.
7.1. Legal Proceedings. There shall not be any investigation
(formal or informal) or any action or proceeding by, or any order issued
by, any Governmental Authority which seeks to restrain, prohibit or
invalidate, or which is reasonably likely to result in the payment of
substantial damages in respect of, any of the transactions contemplated
hereby.
7.2. HSR Act. The waiting period applicable to the
consummation of the Merger and the Acquisition under the HSR Act shall have
expired or been terminated.
7.3. AT Employment Agreement. AT shall have executed and
delivered the Employment Agreement substantially in the form of Exhibit C
hereto (the "AT Employment Agreement").
7.4. Stock Purchase. WCI and USEP shall have executed stock
purchase agreements for an aggregate of 1,850,000 shares of Common Stock
for a consideration of $6.00 per share in the form of the Stock Purchase
Agreements in the form of Exhibits D-1 and D-2 hereto.
7.5. Release by Holders of Units. Each of the holders of
Units in RA shall have delivered to RA releases of all claims against RA.
7.6. Termination of Employment Arrangements. All employment
arrangements between RA and AT shall have been terminated.
7.7. Voting Agreement. The Voting Agreement dated as of the
date hereof in the form of Exhibit E hereto (the "Voting Agreement") shall
have been executed and delivered by the parties thereto.
7.8. Revised and Restated Employment Agreements. The Revised
and Restated Employment Agreements between the Company and Joseph Bianco,
Anil Narang and Elliot Newman in the
<PAGE>
-23-
forms attached hereto as Exhibits F-1, F-2 and F-3 shall have been executed
and delivered.
7.9. Restated By-laws. The By-laws of the Company shall have
been amended to read as set forth in Exhibit G hereto.
8. CONDITIONS TO THE OBLIGATIONS OF AT AND WCI. The
obligations of AT and WCI under this Agreement to consummate the Merger and
the Acquisition are subject to the satisfaction or waiver of each of the
following conditions prior to or on the Closing Date:
8.1. Legal Proceedings. There shall not be any investigation
(formal or informal) or any action or proceeding by or any order issued by
any Governmental Authority which seeks to restrain, prohibit or invalidate,
or which is reasonably likely to result in the payment of substantial
damages in respect of, any of the transactions contemplated hereby.
8.2. AT Employment Agreement. The Company shall have executed
and delivered the AT Employment Agreement.
8.3. Voting Agreement. The Voting Agreement dated as of the
date hereof in the form of Exhibit E hereto shall have been executed and
delivered by all the parties thereto.
8.4. HSR Act. The waiting period applicable to the
consummation of the Merger and the Acquisition under the HSR Act shall have
expired or been terminated.
8.5. Board of Directors. The persons listed on Schedule
8.5(a) shall have resigned from the Company's Board of Directors and the
persons listed on Schedule 8.5(b) shall have been appointed members of the
Board of Directors of the Company.
8.6. Restated By-laws. The By-laws of the Company shall have
been amended to read as set forth in Exhibit G hereto.
8.7. Revised and Restated Employment Agreements. The Revised
and Restated Employment Agreements between the Company and Joseph Bianco,
Anil Narang and Elliot Newman in the forms attached hereto as Exhibits F-1,
F-2 and F-3 shall have been executed and delivered.
<PAGE>
-24-
8.8. Engagement Letter. The Engagement Letter dated the date
hereof in the form of Exhibit J shall have been executed and delivered by
the Company.
9. OTHER AGREEMENTS.
9.1. Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of issuance of Contingent Stock
such number of shares of Common Stock issuable upon the contingencies
described in Section 1.9 and Section 2.4 hereof. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that
all such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation. The Company shall not authorize
or issue any class of its common stock other than the Common Stock.
9.2. Board Seats. (a) So long as WCI or any direct or
indirect wholly owned subsidiary of WCI or any limited partnership of which
any such subsidiary is the general partner ("WCI Entity") hold an aggregate
of 3,900,000 shares of Common Stock (subject to adjustment for stock
splits, combinations and recapitalizations), WCI shall have the right to
(i) select two representatives to be elected to the Company's Board of
Directors and the Company shall nominate such representatives for election
to the Board of Directors and (ii) designate one such representative as the
Deputy Chairman. So long as WCI Entities hold an aggregate of 780,000
shares of Common Stock, WCI shall have the right to select one
representative to be elected to the Company's Board of Directors and the
Company shall nominate such representative for election to the Board of
Directors.
(b) So long as AT is the beneficial owner (as defined in the
Exchange Act) of 380,400 shares of Common Stock (subject to adjustment for
stock splits, combinations, and recapitalizations), AT shall have the right
to select one representative to be elected to the Company's Board of
Directors and the Company shall nominate such representative for election
to the Board of Directors. In addition, so long as AT is chief executive
officer of the Company, AT shall have the right to select an additional
representative for election to the Board of Directors commencing with the
filling of the first vacancy to occur on the Board of Directors after the
Closing Date.
<PAGE>
-25-
(c) The Company shall use its best efforts to cause the
representatives of WCI and AT to be elected to the Board of Directors and
shall not take any action which would diminish the prospects of such
representatives being elected to the Board of Directors. All out-of-pocket
expenses of such board members incurred in connection with attending
regular and special board meetings and any meeting of any board committee
shall be paid by the Company, and such board members shall receive the same
compensation for serving as a director as is given to the other board
members who are not officers of the Company.
9.3. Furnishing of Information. So long as either of AT or
WCI has the right to select a director of the Company pursuant to
Section 9.2 hereof, the Company shall furnish to such party promptly upon
becoming available one copy of each financial statement, report, notice or
proxy statement sent by the Company to its creditors or stockholders and
one copy of each regular or periodic report (including any report on Form
8-K), and any registration statement or prospectus, together with any
amendments required to be made with respect thereto, filed by the Company
with the SEC, or any successor thereto, or with any securities exchange.
9.4. Registration Rights. The Company agrees to use its best
efforts to maintain with respect to the Common Stock to be received by AT,
USEP and WCI pursuant to the terms of this Agreement an effective
registration statement under the Securities Act and a current prospectus
relating thereto, and effective registration statements or qualifications
under the securities laws of AT's, USEP's and WCI's state of residence for
a period equal to the longer of (a) five (5) years after the date hereof or
(b) as long as either AT, USEP or WCI is an affiliate of the Company within
the meaning of Rule 144 of the Securities Act. The Company hereby grants
to WCI, USEP and AT the registration rights set forth in Exhibit I hereto.
The rights of WCI, USEP and AT pursuant to this Section 9.4 are assignable
to any pledgee or transferee of the shares of Common Stock held by USEP,
WCI or AT.
9.5. Inspection of Records. (a) From the date of this
Agreement until the Closing Date, AT, WCI and the Company will give each
other and their authorized representatives (including counsel,
environmental and other consultants, accountants and auditors, and lenders
and prospective lenders and their counsel) full access during normal
business hours to all facilities, personnel and operations and to all books
and
<PAGE>
-26-
records of RA, AT Sub, WPI and the Company, as the case may be, will permit
AT, WCI and the Company to make such inspections as it may reasonably
require and will cause their respective officers or representatives to
furnish such parties with such financial and operating data and other
information with respect to the business and properties of RA, AT Sub, WPI
or the Company as such party may from time to time reasonably request.
(b) The Company, AT and WCI will hold and will cause their
respective officers, directors, consultants and advisors to hold in strict
confidence pursuant to the Confidentiality Agreement dated July 26, 1996
among the Company, WPI, RA and AT (the "Confidentiality Agreement") all
documents and information concerning RA and the Company furnished to such
parties in connection with the transactions contemplated by this Agreement.
With respect to any information (whether oral or written) conveyed to AT,
WCI or their agents by the Company or its agents, or conveyed to the
Company or its agents by AT, WCI or their agents, such information shall be
held confidential in the manner and to the extent provided in the
Confidentiality Agreement.
9.6. Preservation of Business Organization. (a) RA. Except
as otherwise contemplated by this Agreement, at all times prior to and
including the Closing Date, (A) RA shall (i) preserve its business
organization substantially intact, (ii) cause its business to be managed in
accordance with the best interest of such business and substantially as
heretofore managed and conducted, and (iii) use its best efforts, to the
extent that it is in the best interest of the business, to keep available
to the Company the services of the present officers and employees of RA and
to preserve the present relationships and goodwill of the suppliers and
others having business relationships with RA; and (B) without limiting the
generality of the foregoing, RA shall not, without the prior written
consent of the Company, and except as otherwise contemplated by this
Agreement, (i) dispose of any of its assets or properties or incur any
obligation or liability other than as required in connection with this
Agreement, or in arm's-length transactions in the usual and ordinary course
of business consistent with the business practices heretofore followed by
RA; (ii) take or suffer any action which may adversely affect the goodwill
or the normal conduct of its business; (iii) make any change in the
certificate of formation or Limited Liability Company Agreement of RA; (iv)
make any distribution in respect of, or any direct or indirect retirement,
redemption, purchase or other acquisition of, any Units of RA; (v) enter
into any
<PAGE>
-27-
contract involving payments aggregating more than $1,000,000, other than
contracts for artists in the usual and ordinary course of business
consistent with the business practices heretofore followed by RA; (vi)
increase salaries of officers and executive personnel of RA; (vii) change
any accounting policy now in effect for Tax and financial accounting
purposes, except as required by generally accepted accounting principles;
(viii) provide for any new pension, welfare, retirement, or other similar
retirement benefits for any employee of RA or provide for any increase in
any such existing benefits, except in the usual and ordinary course of
business consistent with the business practices heretofore followed by RA;
(ix) amend or modify any Tax Return; or (x) settle or cancel any debts or
claims arising from the conduct of the business and involving an amount
exceeding $100,000.
RA shall notify the Company of any emergency or unanticipated
change in the normal course of RA's business which is or may be material
thereto and shall keep the Company fully informed of such events and permit
their representative to participate in all discussions relating thereto.
(b) The Company. Except as otherwise contemplated by this
Agreement, at all times prior to and including the Closing Date, (A) the
Company shall (i) preserve its business organization substantially intact
and (ii) cause its business to be managed in accordance with the best
interest of such business and substantially as heretofore managed and
conducted; and (B) without limiting the generality of the foregoing, the
Company shall not, without the prior written consent of AT or WP Parent,
and except as otherwise contemplated by this Agreement, (i) dispose of any
of its assets or properties or incur any obligation or liability other than
as required in connection with this Agreement, or in arm's-length
transactions in the usual and ordinary course of business consistent with
the business practices heretofore followed by the Company; (ii) take or
suffer any action which may adversely affect the goodwill or the normal
conduct of its business; (iii) make any change in its certificate of
incorporation or bylaws; (iv) pay any dividend or make any other
distribution in respect of, or any direct or indirect retirement,
redemption, purchase or other acquisition of, any shares of the Company;
(v) enter into any contract involving payments aggregating more than
$500,000 (except as set forth in Schedule 9.6) other than contracts for the
purchase of product in the usual and ordinary course of business consistent
with the business practices heretofore followed by the Company; (vi)
increase salaries of officers and
<PAGE>
-28-
executive personnel of the Company; (vii) change any accounting policy now
in effect, except as required by generally accepted accounting principles;
(viii) provide for any new pension, welfare, retirement, or other similar
retirement benefits for any employee of the Company or provide for any
increase in any such existing benefits, except in the usual and ordinary
course of business consistent with the business practices heretofore fol-
lowed by the Company; or (ix) settle or cancel any debts or claims arising
from the conduct of the business and involving an amount exceeding
$500,000, except for claims arising from contracts for purchase of
merchandise, inventory in the usual and ordinary course of business
consistent with the business practice heretofore followed by the Company;
or (x) take any action which would cause the representations and warranties
contained in Section 6 to not be true and correct in all respects.
The Company shall notify AT and WCI of any emergency or
unanticipated change in the normal course of the Company's business which
is or may be material thereto and shall keep AT and WCI fully informed of
such events and permit their representative to participate in all
discussions relating thereto.
9.7. Maintenance of Authorizations. At all times prior to and
including the Closing Date, AT and WCI shall use their best efforts with
respect to RA, and the Company shall use its best efforts with respect to
itself to maintain in full force and effect (and to renew, when required)
all licenses, permits, consents and authorizations which are material to
the business of RA or the Company, as the case may be, as a whole or the
maintenance and operation of its properties and to prosecute diligently any
pending applications with respect thereto, to perform all obligations
imposed upon RA or the Company, as the case may be, by law and to retain
and maintain, consistent with its existing policies and practices, substan-
tially in accordance with generally accepted industry practices, all the
property used in the operation of RA's or the Company's business.
9.8. No Publicity. AT, WCI and the Company covenant and agree
not to disclose this Agreement and schedules or exhibits hereto or the
transactions contemplated hereby and thereby to third parties without the
consent of the other parties hereto, except as (i) may be required by law;
or (ii) may be required by disclosure requirements as determined by the
Company in good faith from time to time, following consultation with AT and
WCI.
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9.9. HSR Approval. The parties hereto shall each use all
reasonable efforts to furnish information and file such documents as may be
required to comply with the HSR Act. The parties will use all reasonable
efforts to file their respective notification forms under the HSR Act (if
the same has not been filed prior to the date hereof as soon as possible)
of this Agreement, and to promptly comply with all requests, if any, of the
Federal Trade Commission ("FTC") and the Director of Operations of the
Antitrust Division of the Department of Justice ("Justice") for additional
information and documentation and to furnish such additional information
and documentation in accordance with requirements and requests applicable
thereto unless in the opinion of counsel for AT, WCI or the Company such
information and documentation are not required to be produced.
9.10. Contingent Stock/Stockholder Vote. The Company agrees
to use its best efforts to obtain the approval of this Agreement and the
transactions contemplated hereby by the stockholders of the Company as soon
as practicable for purposes of compliance with the rules and regulations of
the New York Stock Exchange so as to permit AT, USEP or WCI to receive Con-
tingent Stock pursuant to the terms of Section 1.9 or 2.4 of this
Agreement. The Company will not, prior to the record date for such
stockholder approval, issue any voting equity securities other than
pursuant to commitments existing on the date hereof and referred to in
Section 6.8. Such record date shall be the Closing Date or as soon
thereafter as practicable.
9.11. Restrictions on Corporate Action. In addition to any
other approvals or consents required by law, the Company shall not take any
of the following actions without the prior written consent of WCI and AT:
(a) the amendment or restatement of the Certificate of
Incorporation of the Company;
(b) (i) the dissolution, liquidation or winding up of the
Company or (ii) the commencement of a voluntary proceeding seeking
reorganization or other relief with respect to the Company under any
bankruptcy or other similar law or seeking the appointment of a
trustee, receiver, custodian or other similar official of the Company
or any substantial part of their property, or the making by the
Company of a general assignment for the benefit of creditors; and
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(c) (i) any merger, consolidation or combination involving the
Company, or (ii) the sale, transfer, lease, sublease, license,
contribution to a joint venture, partnership or similar arrangements
or (iii) other disposition by the Company to a third party of, in the
case of clauses (i), (ii) and (iii), substantially all of its
property or assets, real, personal or mixed (including leasehold
interests and intangible assets).
provided, however, that in the event that (a) WCI Entities shall hold in
the aggregate (i) less than 3,900,000 shares (subject to adjustment for
stock splits, combinations and recapitalization) of Common Stock or
(ii) WCI Entities shall in the aggregate hold less than 5,800,000 shares
(subject to adjustment for stock splits, combinations and recapitalization)
and such amount is less than 4.1% of the fully diluted shares of Common
Stock of the Company (treating all outstanding options, warrants or
convertible securities as being exercised or converted, but not taking into
account the Contingent Shares), then WCI's consent shall no longer be
required hereunder, or (b) AT shall beneficially own less than 380,400
shares (subject to adjustment for stock splits, combinations and
recapitalizations) of Common Stock, then AT's consent shall no longer be
required hereunder.
9.12. Life Insurance. AT and WCI agree to use reasonable
efforts to obtain a key man life insurance policy on the life of AT with a
death benefit of at least $25 million payable to the Company, the premium
of which will be paid for by RA.
9.13. New Board of Directors. The Company shall use its best
efforts to cause, prior to the Closing Date, the composition of the Board
of Directors as listed on Schedule 8.5 (a) to be changed to consist of the
Persons set forth on Schedule 8.5(b) appointed to the Board of Directors of
the Company.
9.14. General. Each of the parties will use its reasonable
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in Sections 7 and 8 hereof).
<PAGE>
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10. INVESTMENT REPRESENTATION.
10.1. Securities Act. Each of AT, USEP and WCI acknowledges
that (a) the securities being acquired by it pursuant to this Agreement
("Acquisition Securities") are not being registered under the Securities
Act on the ground that the issuance thereof is exempt from registration
under Section 4(2) of the Securities Act as not involving any public offer-
ing, and (b) the Company's reliance on such exemption is predicated in part
on the representation hereby made to it by (i) AT that he is an "accredited
investor" within the meaning of Regulation D promulgated under the
Securities Act and (ii) each of USEP and WCI that it is sophisticated in
financial affairs and is able to evaluate the risks inherent in investing
in Company securities and is capable of bearing the economic loss of its
entire investment, and (iii) AT, USEP and WCI that each is acquiring the
Acquisition Securities for investment for its own account, with no present
intention of dividing its participation with others or reselling or
otherwise distributing the same.
10.2. Resales. Neither AT nor WCI nor USEP will sell or
transfer all or any part of the shares of Common Stock received by them
pursuant to this Agreement unless and until it shall first have given
notice to the Company describing such sale or transfer and furnished to the
Company either (i) an opinion, reasonably satisfactory to counsel skilled
in securities matters (selected by AT or WCI and reasonably satisfactory to
the Company) to the effect that the proposed sale or transfer may be made
without registration under the Securities Act, or (ii) an interpretive
letter from the staff of the SEC to the effect that no enforcement action
will be recommended if the proposed sale or transfer is made without
registration under the Securities Act, in either case accompanied by
evidence that such transfer will be in compliance with applicable require-
ments; provided, however, that the foregoing shall not apply with respect
to (1) any transfer pursuant to an effective registration statement under
the Securities Act, or pursuant to Rule 144 thereunder, or (2) any
transfers between AT and WCI and USEP and any affiliate of any of them, who
agrees to be bound by the terms of this Section 10.2.
10.3. Legends. The Company may place appropriate legends on
the certificates for the Common Stock acquired by AT, USEP and WCI hereby
concerning the restrictions set forth in this Section 10 and may refuse to
transfer any of such Common Stock on its books should the holder thereof
attempt to
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transfer any of them otherwise than in compliance herewith and therewith.
11. FURTHER ASSURANCES. Each of the parties shall promptly
and duly execute and deliver such documents, instruments and other
assurances as may be from time to time reasonably necessary or desirable to
carry out more effectively the provisions of this Agreement and the
transactions contemplated hereby, and to establish and protect the rights
created or intended to be created in favor of the parties hereunder.
12. SURVIVAL OF REPRESENTATIONS. All representations and
warranties of the parties contained in this Agreement (i) shall survive the
Closing Date until two years from the date hereof (except for the
representations contained in Section 4.5 hereof, which shall survive and
remain in full force and effect until 60 days following the expiration of
the applicable statute of limitations) and (ii) shall be fully applicable
and effective whether or not a party relies in fact thereon or has
knowledge, acquired either before or after the date hereof and whether from
the other party or from its own investigation, of any fact at variance
with, or of any breach of, any such representation or warranty.
13. INDEMNIFICATION.
13.1. Damages Defined. "Damages" shall mean the full excess
of the amount of all liability, loss, damage, injury, reasonable costs and
expenses (including legal and accounting fees and expenses), fines and
penalties incurred by reason of the events described in Section 13.2 or
13.3, as the case may be, over the dollar amount of any title, casualty or
other insurance proceeds actually received by the indemnified party less
the dollar amount of any net tax benefit to the indemnified party on a
present value basis (with any tax benefit in future years to be discounted
based on the rate of seven percent per annum).
13.2. Indemnification of the Company. (a) Subject to
Sections 13.4 and 13.5, WCI agrees to indemnify, defend and hold harmless
the Company to the extent of its Damages arising out of, attributable to,
or based upon any breach of any representation, warranty, covenant or
agreement of WCI set forth herein; provided, however, that with respect to
breaches of representations and warranties set forth in Section 5 and rep-
resentations and warranties set forth in Section 4.5 hereof to
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the extent relating to Taxes of RA, WCI shall only be liable for 60% of the
amount of Damages arising therefrom.
(b) In the event of any claim against WCI for indemnification
hereunder, the Company shall be entitled to pursue any remedies permitted
by applicable law and this Agreement with respect to the balance of its
Damages, if any, as limited by Section 13.4. At the option of WCI, any
payment due under this indemnity may be paid by reassigning to the Company
such number of shares of Common Stock with an aggregate fair market value,
at the time of the final determination of the liability of WCI, equal to
the amount of the payment that otherwise would have been due.
13.3. Indemnification of WCI and AT. Subject to Sections 13.4
and 13.5, the Company agrees to indemnify, defend and hold harmless WCI and
AT to the extent of its Damages arising out of, attributable to, or based
upon any breach of any representation, warranty, covenant or agreement of
the Company set forth herein. In the event that the Company is required to
make any payment pursuant to this Section 13.3, the Company shall, to the
extent practicable, make such payment by transferring to WCI and AT, as the
case may be, a number of shares of the Company's stock with an aggregate
fair market value, at the time of the final determination of the Company's
liability, equal to the amount of the payment that otherwise would have
been due.
13.4. Extent of Liability. (a) Notwithstanding anything to
the contrary contained in this Agreement, no party shall have any liability
for indemnification in respect of any misrepresentation or breach of any
warranty contained herein or in any document delivered pursuant hereto
unless a notice of claim thereof setting forth the basis of the claim in
reasonable detail shall have been given by the indemnified party not later
than the date which is two years after the Closing Date with respect to all
matters except liabilities under Federal or state securities laws or any
law relating to taxes which may be claimed up to applicable statute of
limitations.
(b) Anything herein contained to the contrary notwithstanding,
WCI shall have no liability under this indemnity unless the aggregate
amount of Damages of the Company exceeds $150,000 (in which case its
liability shall be the amount of the excess over $150,000). In no event
shall the liability of WCI exceed $33,000,000.
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(c) Anything herein contained to the contrary notwithstanding,
the Company shall have no liability under this indemnity unless the
aggregate amount of Damages of WCI and AT exceed $150,000 (in which case
its liability shall be the amount of the excess over $150,000). In no
event shall the liability of the Company exceed $38,000,000.
13.5. Notice, Defense, etc. If any action, suit or proceeding
shall be commenced against, or any written claim or demand be asserted
against, an indemnified party in respect of which it proposes to demand
indemnification hereunder, the indemnified party shall promptly in writing
notify the indemnifying party to that effect and shall consult in good
faith with the indemnifying party with respect thereto, but the failure so
to notify and consult shall not discharge the indemnifying party of its
obligations hereunder except to the extent such failure results in
additional liability to the indemnifying party or adversely affects its
rights. If the indemnifying party shall agree in writing to undertake the
good faith defense of such action, suit or proceeding, then, subject to the
indemnified party's right to participate at its own expense, the defense
and settlement of any such action, suit or proceeding shall be under the
sole direction and control of the indemnifying party, which shall proceed
in good faith at all times; provided that the indemnifying party shall not
consent to the entry of any judgment or enter into any settlement which
includes any term which (a) shall require any act or forbearance on the
part of the indemnified party and which does not unconditionally release
the indemnified party from all liability in respect of such claim, action
or proceeding, or (b) in the case of any action, claim, suit or proceeding
relating to Taxes, reasonably could be expected to affect materially any
liability of the Company or any affiliate for Taxes after the Closing Date,
without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld. In the event that the indemnifying
party refuses to undertake the good faith defense of any such action, then,
subject to the indemnifying party's right to participate at its own
expense, the defense and settlement of any such action, suit or proceeding
shall be under the sole direction and control of the indemnified party,
which shall proceed in good faith at all times.
14. TAX MATTERS
14.1. Tax Indemnities. (a) WCI shall indemnify, defend and
hold harmless the Company (and its affiliates,
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officers and directors), WPI and RA from and against any and all Damages
(as defined in Section 13.1) with respect to (i) all Taxes imposed on WCI
or on any member (other than WPI and RA) of any affiliated group with which
WCI joins in filing a consolidated or combined income Tax Return (including
any liability arising by reason of WPI being severally liable for any Tax
of the affiliated group of corporations of which WCI is the common parent
pursuant to Treasury Regulation section 1.1502-6 or any analogous state,
local or foreign Tax provision), (ii) all Taxes imposed on WPI, and 60% of
any Taxes imposed on RA, with respect to any taxable period that ends on or
before the Closing Date (or is allocable to any period ending on the
Closing Date pursuant to paragraph (c) of this Section 14) or (iii) any Tax
that is occasioned by the transfer of the Exchange Consideration to WCI;
provided, however, that the Company shall indemnify, defend and hold
harmless WCI with respect to any Taxes described in clause (i) or
clause (ii), without regard to the 60% limitation on Taxes of RA attribut-
able to any action out of the ordinary course of business taken by the
Company on the Closing Date after the Closing.
(b) Payment by WCI of any amount due under this Section 14
shall be made within 10 days following written notice by the Company that
payment of such amount to the appropriate Taxing authority is due or has
been paid; provided, however, that payment shall not be required to be made
earlier than two days before payment of such amount is due to the
appropriate Taxing authority.
(c) For purposes of this Agreement, in the case of any Tax
that is imposed on a periodic basis and is payable for a period that begins
on or before the Closing Date and ends after the Closing Date, the portion
of such Tax allocable to the period ending on the Closing Date shall be (i)
in the case of any Tax other than a Tax based upon or measured by income,
the amount of such Tax for the entire period multiplied by a fraction, the
numerator of which is the number of days in the period ending on the
Closing Date and the denominator of which is the number of days in the
entire period and (ii) in the case of any Tax based upon or measured by
income, the amount which would be payable if the taxable year ended on the
Closing Date. Any credit (other than a credit for payment of estimated tax
or a foreign tax credit) shall be prorated based upon the fraction employed
in clause (i) of the preceding sentence.
14.2. Preparation of Tax Returns. WCI shall prepare and file
any Tax Returns relating to WPI that are due (taking
<PAGE>
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into account proper extensions) on or before the Closing Date, and AT shall
cause AT Sub to prepare and file any Tax Returns relating to AT Sub that
are due (taking into account proper extensions) on or before the Closing
Date. WCI shall cause WPI to be included in any consolidated or combined
Tax Return filed with respect to the affiliated group of corporations that
includes WPI for periods ending on or before the Closing Date. Such Tax
Returns (or, in the case of consolidated or combined Tax Returns, the
portions thereof relating to WPI) shall be prepared on a basis consistent
with those prepared for prior Tax years, if any. WPI and AT Sub shall
jointly cause RA to file any Tax Return relating to RA or Ant Enterprises,
Inc. that is due on or before the Closing Date. The Company shall prepare
or cause WPI or AT Sub to prepare any Tax Returns relating to WPI or AT Sub
that are due (taking into account proper extensions) after the Closing
Date, and the Company shall cause WPI or AT Sub to be included in any
consolidated or combined Tax Return filed with respect to the affiliated
group of corporations that includes such companies for periods ending after
the Closing Date. With respect to any Tax Returns of WPI or AT Sub that
are due after the date of this Agreement but on or prior to the Closing
Date, WCI or AT (as appropriate) shall provide the Company with a
reasonable opportunity to review and comment on such Tax Returns (or, in
the case of WPI, the financial information and schedules relating to WPI
that are included in any consolidated or combined Tax Return) prior to
their filing. WCI or AT (as appropriate) and the Company agree to consult
and attempt to resolve in good faith any issues arising as a result of the
Company's review of such Tax Returns. With respect to any Tax Returns of
WPI or AT Sub that are due after the Closing Date but relate to a Taxable
period ending on or prior to, or that include, the Closing Date and that
are filed by the Company pursuant to this Section 14.2, the Company shall
provide WCI and AT with a reasonable opportunity to review and comment on
such Tax Returns prior to their filing, and shall not file any such Tax
Return without the written consent of WCI or AT (as appropriate), such
consent not to be unreasonably withheld or delayed. Notwithstanding any-
thing to the contrary contained in this Section 14.2, AT shall (i) prepare
and file any Tax Returns of AT Sub for the Taxable period or periods ending
on or prior to the day prior to the Closing Date, (ii) provide the Company
with a reasonable opportunity to review and comment on any such Tax Returns
prior to their filing, (iii) attempt to resolve in good faith any issues
arising as a result of the Company's review of such Tax Returns, and
(iv) not amend any such Tax Returns without the
<PAGE>
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written consent of the Company, such consent not to be unreasonably
withheld or delayed.
14.3. Cooperation and Exchange of Information. WPI, AT and
the Company will provide each other with such cooperation and information
as either of them reasonably may request of the other in filing any Tax
Return, amended Tax Return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes or participating in or conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of relevant Tax Returns or
portions thereof, together with accompanying schedules and related work
papers and documents relating to rulings or other determinations by Taxing
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Each party will retain all Tax Returns, schedules and
work papers and all material records or other documents relating to Tax
matters of WPI, AT Sub or RA for the taxable period first ending after the
Closing Date and for all prior taxable periods until the later of (i) the
expiration of the statute of limitations of the taxable periods to which
such Tax Returns and other documents relate, without regard to extensions
except to the extent notified by the other party in writing of such
extensions for the respective Tax periods, or (ii) eight years following
the due date (without extension) for such Tax Returns. Any information
obtained under this Section 14 shall be kept confidential, except as may be
otherwise necessary in connection with the filing of Tax Returns or claims
for refund or in conducting an audit or other proceeding.
14.4. Conveyance Taxes. WCI agrees to assume its liability
for and to pay all sales, transfer, stamp, stock transfer, real property
transfer or gains and similar Taxes incurred as a result of the
Acquisition. AT agrees to assume his liability for, and to pay all, sales,
transfer, stamp, stock transfer, real property transfer or gains and
similar taxes incurred as a result of the Merger.
14.5. Amendment of Tax Returns. The Company shall not amend
or modify (i) the Tax Return of AT Sub for its Taxable period or periods
ending on the day prior to the Closing Date, or (ii) any Tax Return of WPI
or AT Sub that is due after the Closing Date but relates to a Taxable
period ending on or prior to, or that includes, the Closing Date or
(iii) any Tax Return of RA for any Taxable period or periods on or prior
to,
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or that includes, the Closing Date, without the written consent of WCI
and/or AT (as appropriate), such consent not to be unreasonably withheld or
delayed.
14.6. Tax-Free Reorganization. None of AT (as to AT Sub), WCI
(as to WPI) or the Company knows of any reason that the Merger and
Acquisition, respectively, would fail to qualify as a tax-free
reorganization within the meaning of Code section 368(a). The parties
hereto shall take no position for federal, state or local tax purposes that
is inconsistent with such characterization unless required to do so by a
"determination" (within the meaning of Code section 1313(a) or any
analogous state or local statute).
14.7. Miscellaneous. (a) For purposes of this Section 14,
(i) all references to WCI, USEP, AT, AT Sub, RA and the Company shall
include successors, (ii) all references to AT Sub shall include AT Sub as
the corporate successor to the assets and liabilities of Ant Box L.L.C. and
(iii) all references to WPI shall include WPI as corporate successor to the
assets and liabilities of Cypress Entertainment L.L.C.
(b) The representations, covenants and agreements of the
parties hereto contained in this Section 14 shall survive the Closing and
shall remain in full force and effect until 60 days following the
expiration of the applicable statute of limitations with respect to any
Taxes that would be indemnifiable by WCI or AT under Section 13 or 14 of
this Agreement.
(c) The principles of Sections 13.2(b), 13.3, 13.4 and 13.5
hereof shall apply to amounts otherwise determined to be due under
Section 14.1 hereof.
14.8. Definitions. For purposes of this Agreement:
(a) "Tax" or "Taxes" means (i) any federal, state, county,
local or foreign taxes, charges, fees, levies or other assessments,
including all net income, gross income, gross receipts, sales, use,
employment and payroll, disability, license, ad valorem, franchise,
transfer, gains, profits, excise, real and personal property, capital
stock, production, business, occupation, alternative or add-on
minimum, environmental or windfall profits, estimated, severance or
other taxes, fees, stamp taxes and duties or assessments or charges
of any kind whatsoever (whether payable directly or by withholding,
and whether attributable to statutory or nonstatutory rules) imposed
<PAGE>
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by any taxing authority responsible for the imposition of any such
tax, including any interest and penalties (civil or criminal),
additions to tax, interest on penalties or additions to tax, or
additional amounts imposed by any taxing authority with respect
thereto, and (ii) any obligation under any agreement or arrangement
with respect to any taxes described in clause (i);
(b) "Tax Return" means any report, return or other
information, including any supporting schedules, required to be
supplied to a governmental entity with respect to Taxes including,
where required or actually filed, a consolidated U.S. federal income
tax return and any consolidated, combined or unitary tax return for
state or local tax purposes; and
(c) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
15. CONTROVERSIES. Any dispute under this Agreement or
pertaining to any claim or breach of, or any default under, any provision
of this Agreement shall be resolved by arbitration in New York, New York.
The arbitration shall be accomplished in the following manner:
(a) Any party may serve upon the other parties a written
demand that the dispute, specifying the nature thereof, shall be
submitted to arbitration.
(b) Within 10 days after the service of such demand, the
demanding party and the other party shall designate an arbitrator and
serve written notice of such appointment upon the other party. If
either of such parties fails within the specified time to appoint
such arbitrator, the other party shall be entitled to appoint both
arbitrators. The two arbitrators so appointed shall appoint a third
arbitrator. If the two arbitrators appointed fail to agree upon a
third arbitrator within 10 days after their appointment, then an
application may be made by any party, upon notice to the other party,
to the American Arbitration Association ("AAA"), or any successor
thereto, or if the AAA or its successor shall fail to appoint a third
arbitrator within 10 days after such request, then any party may
apply (with notice to the other) to any court of competent
jurisdiction for the appointment of a third arbitrator, and any such
appointment so made shall be binding upon all parties hereto.
<PAGE>
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(c) The arbitration shall be conducted, to the extent
consistent with this Section 15 and Section 17.7, in accordance with
the then prevailing rules of the AAA or its successor. The
arbitrators shall have the right to retain and consult experts and
competent authorities skilled in the matters under arbitration, but
all consultations shall be made in the presence of all parties to the
dispute, who shall have the full right to cross-examine the experts
and authorities. All demands and notices under this Section 15 shall
be served or given in the manner specified in Section 17.5 and shall
be deemed served or given when received.
(d) The arbitrators shall render their award, upon the
concurrence of at least two of their number, not later than 30 days
after the appointment of the third arbitrator. The arbitrators shall
have the right and power to award such relief at law or in equity,
including specific performance, as they shall deem proper; provided,
however, that in rendering their award, the arbitrators shall have no
power to modify any of the provisions of this Agreement or the
document executed in connection herewith and the jurisdiction of the
arbitrators is hereby expressly limited accordingly. Their decision
and award shall be in writing, and counterpart copies shall be
delivered to each of the parties. The decision of the three
arbitrators made in writing shall be final and binding upon the par-
ties. Judgment may be entered on the award of the arbitrators and
may be enforced in any court having jurisdiction. The parties to the
arbitration shall be entitled to conduct discovery in accordance with
the provisions of the New York Civil Practice Law and Rules. Should
any party seek to enforce the terms of this Agreement by arbitration
or judicial process, then the prevailing party shall be entitled to
recover reasonable attorney fees and costs.
16. TERMINATION.
16.1. Termination of Agreement. Certain of the parties may
terminate this Agreement as provided below:
(i) the parties may terminate this Agreement by mutual
written consent at any time prior to the Closing Date;
(ii) the Company may terminate this Agreement by giving
written notice to AT and WCI if the Closing shall not
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have occurred on or before September 20, 1996 by reason of the
failure of any condition precedent under Section 7 hereof (unless the
failure results primarily from the Company itself breaching any
representation, warranty, or covenant contained in this Agreement);
and
(iii) either AT or WCI may terminate this Agreement by giving
written notice to the Company if the Closing shall not have occurred
on or before September 20, 1996 by reason of the failure of any
condition precedent under Section 8 hereof (unless the failure
results primarily from AT's or WP Sub's breaching any representation,
warranty, or covenant contained in this Agreement).
16.2. Effect of Termination. If any party terminates this
Agreement pursuant to Section 16.1 above, all rights and obligations of the
parties hereunder shall terminate without any liability of any party to any
other party (except for any liability of any party then in breach).
17. MISCELLANEOUS.
17.1. Entire Agreement. This Agreement (which includes the
Exhibits hereto) and the other documents and agreements delivered in
connection with this Agreement contain the entire agreement among the
parties hereto with respect to the transactions contemplated herein and
supersede all other prior arrangements made by any of them with respect
thereto. No representation or warranty is made by any party hereto with
respect to the subject matter hereof other than as expressly set forth in
any of the aforementioned documents.
17.2. Modification and Amendment. This Agreement cannot be
orally changed, amended or terminated, and no provision or requirement
hereof may be orally waived. Any change, amendment, termination or waiver
hereof shall only be by agreement in writing signed by the party against
whom enforcement of any change, amendment, termination or waiver is sought.
17.3. Expenses. The parties to this Agreement shall, except
as otherwise specifically provided herein, bear their respective expenses
incurred in connection with the preparation, execution and performance of
this Agreement and the transactions contemplated hereby, including, without
limitation, all fees and expenses of their respective agents.
<PAGE>
-42-
17.4. Binding upon Successors. This Agreement shall be
binding upon and inure to the benefit of each of the parties hereto and
their respective heirs, legal representatives, successors and assigns.
Except as otherwise expressly provided herein, this Agreement shall not be
assignable by any party. Nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies under or by
reason of this Agreement.
17.5. Notices. All notices, consents, requests, instruments,
approvals and other communications provided for herein shall be in writing
and shall be deemed validly given when delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the
following:
If to the Company:
110 E. 59th Street
New York, New York 10022
Attn: Chairman
With a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attn: Stephen A. Greene, Esq.
Facsimile: (212) 269-5420
If to AT:
Alvin N. Teller
900 Stradella Road
Los Angeles, California 90067
With a copy to:
Grubman Indursky Schindler & Goldstein P.C.
152 W. 57th Street
New York, New York 10019
Attn: Paul D. Schindler, Esq.
Facsimile: (212) 554-0477
and
<PAGE>
-43-
Lenard & Gonzalez
2121 Avenue of the Stars
22nd Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
Facsimile: (310) 552-0740
If to WCI, USEP Delaware or USEP Offshore:
31 West 52nd Street
New York, New York 10019
Attn: W. Townsend Ziebold, Jr.
Facsimile: (212) 969-7879
With a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attn: Peter Lyons, Esq.
Facsimile: (212) 848-7179
or at such other address as the parties shall provide by notice as herein
provided. Notice of change of address shall be effective only upon
receipt.
17.6. Counterparts. This Agreement may be executed by one or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
17.7. Governing Law; Section Headings. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
New York, applicable to contracts to be performed entirely in that state.
The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
<PAGE>
-44-
IN WITNESS WHEREOF, each of the parties have caused this
Agreement to be duly executed all as of the day and year first above
written.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Anil K. Narang
Name: Anil K. Narang
Title: President
ALLIANCE ACQUISITION CO. INC.
By: /s/ Anil K. Narang
Name: Anil K. Narang
Title: President
RED ANT BOX, INC.
By: /s/ Alvin N. Teller
Name: Alvin N. Teller
Title: President
WASSERSTEIN & CO. INC.
By: /s/ W. Townsend Ziebold, Jr.
Name: W. Townsend Ziebold, Jr.
Title: Managing Director
/s/ Alvin N. Teller
Alvin N. Teller
<PAGE>
-45-
U.S. EQUITY PARTNERS, L.P.
by its general partner
W.P. Management Partners, L.L.C.
By:/s/ Vincent J. Capurso
-----------------------------
Name: Vincent J. Capurso
Title: Vice President
U.S. EQUITY PARTNERS (Offshore), L.P.
by its general partner
W.P. Management Partners, L.L.C.
By:/s/ Vincent J. Capurso
----------------------------------
Name: Vincent J. Capurso
Title: Vice President
<PAGE>
Exhibits A-1 and A-2
<PAGE>
EXHIBIT A-1
Irrevocable Standby Letter of Credit Number: 3000978
August 14, 1996
Beneficiary: Applicant:
Red Ant, L.L.C. Wasserstein & Co., Inc.
c/o Alliance Entertainment Corp. 31 West 52nd Street
110 East 59th Street New York, NY 10019
18th Floor
New York, NY 10022
Amount:
$2,550,000.00
Two Million Five Hundred
Fifty Thousand and No/100
U.S. Dollars
Expiration:
September 20, 1996
at our counters
We hereby establish Irrevocable Standby Letter of Credit
No. 3000978 in your favor for the account Wasserstein & Co.,
Inc. for the amount of U.S.$2,550,000.00 (Two Million Five Hun-
dred Fifty Thousand and 00/100 US).
We are informed that this Letter of Credit is issued in connec-
tion with the Stock Purchase and Merger Agreement between
Alvin N. Teller, Wasserstein & Co., Inc., Red Ant Box, Inc.,
Alliance Entertainment Corp. and Alliance Acquisition Co., Inc.
dated August 15, 1996. This Letter of Credit is effective
immediately and expires on September 20, 1996.
Funds under this Letter of Credit are available to you against
your sight draft in the form of Annex A attached hereto pre-
sented to us at our office at 333 South Beaudry Avenue, 19th
Floor, Los Angeles, California 90017, or any other office which
may be designated by us by written notice delivered to you.
Each such sight draft shall be accompanied by a Drawing Cer-
tificate duly signed by Alvin N. Teller, C.E.O. of Red Ant,
L.L.C. in the form of Annex B attached hereto.
We hereby agree with the beneficiary that the draft drawn under
and in compliance with the terms of this Letter of Credit will
be duly honored upon presentation, as specified herein.
<PAGE>
This letter of credit is subject to the Uniform Customs and
Practice for Documentary Letters of Credit (1993 Revision)
International Chamber of Commerce Publication No. 500 and
engages us pursuant to the terms therein.
* * * * *
____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX A
Date:
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
At sight pay to the order of Red Ant, L.L.C.
U.S.$__________________________. Drawn under Bank of America
Letter of Credit No. 3000978 dated August 14, 1996.
You are directed to remit payment of this draft to ____________
for credit to our account number ______________________.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
ANNEX B
DRAWING CERTIFICATE
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
Gentlemen:
The undersigned, a duly authorized officer of Red Ant, L.L.C.,
hereby certifies to Bank of America N.T.&S.A. with reference to
Irrevocable Letter of Credit No. 3000978 that Wasserstein &
Co., Inc. failed to properly fulfill its funding requirements
as specified in Section 5.16 of the Stock Purchase and Merger
Agreement between Alvin N. Teller, Wasserstein & Co., Inc., Red
Ant Box, Inc., Alliance Entertainment Corp. and Alliance Acqui-
sition Co., Inc. dated August 15, 1996.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
Irrevocable Standby Letter of Credit Number: 3000979
August 14, 1996
Beneficiary: Applicant:
Red Ant, L.L.C. U.S. Equity Partners, L.P.
c/o Alliance Entertainment Corp. 31 West 52nd Street
110 East 59th Street New York, NY 10019
18th Floor
New York, NY 10022
Amount:
$9,450,000.00
Nine Million Four Hundred
Fifty Thousand and no/100
U.S. Dollars
Expiration:
September 20, 1996
at our counters
We hereby establish Irrevocable Standby Letter of Credit
No. 3000979 in your favor for the account U.S. Equity Partners,
L.P. for the amount of U.S.$9,450,000.00 (Nine Million Four
Hundred Fifty Thousand and 00/100 US).
We are informed that this Letter of Credit is issued in connec-
tion with the Stock Purchase and Merger Agreement between
Alvin N. Teller, Wasserstein & Co., Inc., Red Ant Box, Inc.,
Alliance Entertainment Corp. and Alliance Acquisition Co., Inc.
dated August 15, 1996. This Letter of Credit is effective
immediately and expires on September 20, 1996.
Funds under this Letter of Credit are available to you against
your sight draft in the form of Annex A attached hereto pre-
sented to us at our office at 333 South Beaudry Avenue, 19th
Floor, Los Angeles, California 90017, or any other office which
may be designated by us by written notice delivered to you.
Each such sight draft shall be accompanied by a Drawing Cer-
tificate duly signed by Alvin N. Teller, C.E.O. of Red Ant,
L.L.C. in the form of Annex B attached hereto.
We hereby agree with the beneficiary that the draft drawn under
and in compliance with the terms of this Letter of Credit will
be duly honored upon presentation, as specified herein.
This letter of credit is subject to the Uniform Customs and
Practice for Documentary Letters of Credit (1993 Revision)
<PAGE>
International Chamber of Commerce Publication No. 500 and
engages us pursuant to the terms therein.
* * * * *
____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX A
Date:
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
At sight pay to the order of Red Ant, L.L.C.
U.S.$__________________________. Drawn under Bank of America
Letter of Credit No. 3000979 dated August 14, 1996.
You are directed to remit payment of this draft to ____________
for credit to our account number ______________________.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
ANNEX B
DRAWING CERTIFICATE
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
Gentlemen:
The undersigned, a duly authorized officer of Red Ant, L.L.C.,
hereby certifies to Bank of America N.T.&S.A. with reference to
Irrevocable Letter of Credit No. 3000979 that U.S. Equity Part-
ners, L.P. failed to properly fulfill its funding requirements
as specified in Section 5.16 of the Stock Purchase and Merger
Agreement between Alvin N. Teller, Wasserstein & Co., Inc., Red
Ant Box, Inc., Alliance Entertainment Corp. and Alliance Acqui-
sition Co., Inc. dated August 15, 1996.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
Exhibit A-2
Irrevocable Standby Letter of Credit Number: 3000976
August 14, 1996
Beneficiary: Applicant:
Red Ant, L.L.C. U.S. Equity Partners, L.P.
c/o Alliance Entertainment Corp. 31 West 52nd Street
110 East 59th Street New York, NY 10019
18th Floor
New York, NY 10022
Amount:
$3,150,000.00
Three Million One Hundred
Fifty Thousand and no/100
U.S. Dollars
Expiration:
March 20, 1997
at our counters
We hereby establish Irrevocable Standby Letter of Credit
No. 3000976 in your favor for the account U.S. Equity Partners,
L.P. for the amount of U.S.$3,150,000.00 (Three Million One
Hundred Fifty Thousand and 00/100 US).
We are informed that this Letter of Credit is issued in connec-
tion with the Stock Purchase and Merger Agreement between
Alvin N. Teller, Wasserstein & Co., Inc., Red Ant Box, Inc.,
Alliance Entertainment Corp. and Alliance Acquisition Co., Inc.
dated August 15, 1996. This Letter of Credit is effective
immediately and expires on March 20, 1997.
Funds under this Letter of Credit are available to you against
your sight draft in the form of Annex A attached hereto pre-
sented to us at our office at 333 South Beaudry Avenue, 19th
Floor, Los Angeles, California 90017, or any other office which
may be designated by us by written notice delivered to you.
Each such sight draft shall be accompanied by a Drawing Cer-
tificate duly signed by Alvin N. Teller, C.E.O. of Red Ant,
L.L.C. in the form of Annex B attached hereto.
We hereby agree with the beneficiary that the draft drawn under
and in compliance with the terms of this Letter of Credit will
be duly honored upon presentation, as specified herein.
<PAGE>
This letter of credit is subject to the Uniform Customs and
Practice for Documentary Letters of Credit (1993 Revision)
International Chamber of Commerce Publication No. 500 and
engages us pursuant to the terms therein.
* * * * *
____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX A
Date:
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
At sight pay to the order of Red Ant, L.L.C.
U.S.$__________________________. Drawn under Bank of America
Letter of Credit No. 3000976 dated August 14, 1996.
You are directed to remit payment of this draft to ____________
for credit to our account number ______________________.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
ANNEX B
DRAWING CERTIFICATE
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
Gentlemen:
The undersigned, a duly authorized officer of Red Ant, L.L.C.,
hereby certifies to Bank of America N.T.&S.A. with reference to
Irrevocable Letter of Credit No. 3000976 that U.S. Equity Part-
ners, L.P. failed to properly fulfill its funding requirements
as specified in Section 5.16 of the Stock Purchase and Merger
Agreement between Alvin N. Teller, Wasserstein & Co., Inc., Red
Ant Box, Inc., Alliance Entertainment Corp. and Alliance Acqui-
sition Co., Inc. dated August 15, 1996.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
Irrevocable Standby Letter of Credit Number: 3000977
August 14, 1996
Beneficiary: Applicant:
Red Ant, L.L.C. Wasserstein & Co., Inc.
c/o Alliance Entertainment Corp. 31 West 52nd Street
110 East 59th Street New York, NY 10019
18th Floor
New York, NY 10022
Amount:
$1,850,000.00
One Million Eight Hundred
Fifty Thousand and no/100
U.S. Dollars
Expiration:
March 20, 1997
at our counters
We hereby establish Irrevocable Standby Letter of Credit
No. 3000977 in your favor for the account Wasserstein & Co.,
Inc. for the amount of U.S.$1,850,000.00 (One Million Eight
Hundred Fifty Thousand and 00/100 US).
We are informed that this Letter of Credit is issued in connec-
tion with the Stock Purchase and Merger Agreement between
Alvin N. Teller, Wasserstein & Co., Inc., Red Ant Box, Inc.,
Alliance Entertainment Corp. and Alliance Acquisition Co., Inc.
dated August 15, 1996. This Letter of Credit is effective
immediately and expires on March 20, 1997.
Funds under this Letter of Credit are available to you against
your sight draft in the form of Annex A attached hereto pre-
sented to us at our office at 333 South Beaudry Avenue, 19th
Floor, Los Angeles, California 90017, or any other office which
may be designated by us by written notice delivered to you.
Each such sight draft shall be accompanied by a Drawing Cer-
tificate duly signed by Alvin N. Teller, C.E.O. of Red Ant,
L.L.C. in the form of Annex B attached hereto.
We hereby agree with the beneficiary that the draft drawn under
and in compliance with the terms of this Letter of Credit will
be duly honored upon presentation, as specified herein.
This letter of credit is subject to the Uniform Customs and
Practice for Documentary Letters of Credit (1993 Revision)
<PAGE>
International Chamber of Commerce Publication No. 500 and
engages us pursuant to the terms therein.
* * * * *
____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX A
Date:
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
At sight pay to the order of Red Ant, L.L.C.
U.S.$__________________________. Drawn under Bank of America
Letter of Credit No. 3000977 dated August 14, 1996.
You are directed to remit payment of this draft to ____________
for credit to our account number ______________________.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
ANNEX B
DRAWING CERTIFICATE
Bank of America N.T.&S.A.
333 S. Beaudry Avenue, 19th Floor
Los Angeles, California 90017
Attn: Standby Letter of Credit Department
Gentlemen:
The undersigned, a duly authorized officer of Red Ant, L.L.C.,
hereby certifies to Bank of America N.T.&S.A. with reference to
Irrevocable Letter of Credit No. 3000977 that Wasserstein &
Co., Inc. failed to properly fulfill its funding requirements
as specified in Section 5.16 of the Stock Purchase and Merger
Agreement between Alvin N. Teller, Wasserstein & Co., Inc., Red
Ant Box, Inc., Alliance Entertainment Corp. and Alliance Acqui-
sition Co., Inc. dated August 15, 1996.
Red Ant, L.L.C.
Name: Alvin N. Teller
Title: C.E.O.
<PAGE>
EXHIBIT B
(RESERVED)
<PAGE>
EXHIBIT C
<PAGE>
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of
the 15th day of August, 1996, between Alliance Entertainment
Corp., a Delaware corporation having its principal office at
110 E. 59th Street (the "Company"), and Alvin N. Teller, resid-
ing at 900 Stradella Road, Los Angeles, California 90077 (the
"Executive").
R E C I T A L S :
WHEREAS, the Company considers it essential and in
the best interests of its stockholders to more closely align
the interests of the Executive with those of its shareholders
and that the Executive support the mission, values and strategy
of the Company and desires to retain the services of the Execu-
tive; and
WHEREAS, the Executive desires to accept such employ-
ment by the Company, upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual cove-
nants and agreements set forth herein, the parties agree as
follows:
1. Employment and Duties. During the full term of
this Agreement, the Company agrees to employ the Executive as
Co-Chairman, President and chief executive officer of the Com-
pany and all of its subsidiaries. In such capacity, the Execu-
tive shall be the most senior executive of the Company and all
of its subsidiaries and report solely and directly to the Com-
pany's Board of Directors. The Executive shall have full
authority over the day-to-day operations of the Company and all
of its subsidiaries and over all officers and employees of the
Company, including, without limitation, the power to hire and,
subject to contractual commitments, fire employees. The Execu-
tive accepts such employment and agrees to perform all duties
and services consistent with the Executive's position. The
Executive agrees to devote substantially all of the Executive's
business time, attention and energy to performing the Execu-
tive's duties and services hereunder; provided, however, that
nothing in this Agreement shall preclude the Executive:
(a) from devoting time during reasonable periods to serving as
a director of (i) any company that is not engaged primarily in
the record business or (ii) any company primarily engaged in
<PAGE>
-2-
the record business to which the Board of Directors of the Company shall
consent; or (b) from investing his personal assets in a Passive Investment
(as hereinafter defined). For purposes of this Agreement, a "Passive
Investment" shall mean an investment in a business or entity which does not
require the Executive to render any services in the operations or affairs
of such business or entity and which does not materially adversely affect
or interfere with the performance of the Executive's duties and obligations
to the Company or any of its subsidiaries or affiliates. During the
Employment Period (as defined below), the Company agrees it will nominate
the Executive to serve on the Company's Board of Directors.
1.2. Principal Place of Employment. During the Employment
Period (as defined below), the Executive's place of employment shall be at
the principal offices of the Company in the New York City area.
2. Term of Employment. The term of the Executive's
employment under this Agreement shall commence on August 15, 1996 (the
"Effective Date") and shall end on the fifth anniversary of such date,
unless sooner terminated as provided in Section 5 hereof (the "Employment
Period"); provided, however that commencing on August 15, 2001, and each
August 15 thereafter, the term of this Agreement shall automatically be
renewed for one (1) additional year unless, not less than 120 and not more
than 150 days prior to such date, either party shall have provided written
notice that such party elects not to renew the term of this Agreement.
Each consecutive twelve-month period during the term of this Agreement,
commencing on the Effective Date, and on each subsequent anniversary
thereof, is hereinafter referred to as a "Contract Year."
3. Compensation and Benefits.
3.1 Base Salary. The Company shall pay the Executive a base
salary of not less than One Million Five Hundred Thousand Dollars
($1,500,000) per annum ("Base Salary"). The Base Salary for each Contract
Year after the first Contract Year may be increased from time to time in
the sole discretion of the Board and in any event will be increased
annually to reflect corresponding increases in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban
Consumers, United States City Average, all items (1982-88 = 100). Base
Salary shall be payable at such regular intervals as salaries are paid by
the Company to its other executive employees, not less frequently than
bimonthly.
<PAGE>
-3-
3.2 Annual Bonus. In addition to Base Salary and Signing
Options, with respect to each fiscal year of the Company (a "Fiscal Year")
during the Employment Period, the Executive shall be entitled to
participate in, and be eligible for annual bonuses under, the Company's
Executive Incentive Plan and other annual bonus, incentive, stock plan and
stock option programs of any kind or nature, in accordance with their
terms. Any such bonus amount (a "Bonus") shall be payable at such time as
executive bonuses customarily are paid by the Company, but in no event
later than 30 days after the end of the Company's Fiscal Year. The initial
minimum target Bonus with respect to each Fiscal Year shall be an amount
equal to 95% of Base Salary and the initial maximum target Bonus with
respect to each Fiscal Year shall be equal to 125% of Base Salary for the
applicable Fiscal Year, subject to satisfaction of applicable performance
goals established by the Compensation Committee of the Company's Board of
Directors (the "Compensation Committee"); provided, however, that such
minimum and maximum Bonus amounts shall be subject to such increases as
shall be determined by the Board of Directors.
3.3 Acquisition Bonus. If, at any time during the period
commencing on the Effective Date and terminating on the first anniversary
of the termination of Executive's employment hereunder (the "First
Acquisition Period"), a Change of Control (as defined) occurs pursuant to
which more than 50% of the outstanding shares of common stock of the
Company are acquired at a price, or receive value, in cash or marketable
securities equal to or in excess of $11.00 per share (the "Acquisition
Share Price"), then immediately prior to consummation of such acquisition,
the Executive shall receive a cash bonus (the "Acquisition Bonus") equal to
1,000,000 multiplied by the difference between the Acquisition Share Price
and $11.00; provided, however, that if the term of the Executive's
employment shall extend past the third anniversary of the Effective Date,
such period shall terminate on the second anniversary of the termination of
Executive's employment hereunder (the "Second Acquisition Period");
provided, however, that if such acquisition occurs during the last six (6)
months of the First Acquisition Period or the last twelve (12) months of
the Second Acquisition Period, the Executive shall be entitled to 50% of
the amount payable hereunder, and provided further that no Acquisition
Bonus shall be payable to Executive if Executive's employment is terminated
for Cause or if Executive terminates his employment for other than Good
Reason, death or Disability. As used in this Agreement, "Change of
Control" shall mean (i) the acquisition of all or substantially all of the
assets of
<PAGE>
-4-
the Company, (ii) the acquisition by any party (or group, as such term is
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) not currently a holder of more than 5% of the outstanding Common
Stock of the Company of more than 50% of the outstanding Common Stock of
the Company, or (iii) any merger, combination, consolidation or similar
transaction involving the Company following which the holders of Common
Stock of the Company immediately prior to such transaction will not own
more than 50% of the Common Stock of the Company.
3.4 Stock Options. The Company hereby grants to the Executive
on the Effective Date stock options to acquire five million (5,000,000)
shares of common stock of the Company at an exercise price of $6 per share
(the "Signing Options"). One million of the Signing Options shall vest
immediately. The remaining 4,000,000 Signing Options shall vest in four
equal installments, commencing on the first anniversary of the Effective
Date and annually on each anniversary of the Effective Date for four years.
The 1,000,000 options vesting immediately, as well as the 1,000,000 options
vesting on the first anniversary of the Effective Date, shall expire six
(6) years from the date of vesting with the remaining options expiring five
(5) years from the date of vesting, subject to earlier termination in the
event of death, Disability, termination for Cause or other termination of
the Executive's employment, as provided below.
3.5 Benefit Plans. During the Employment Period, the
Executive shall be entitled to participate in all plans adopted for the
general benefit of the Company's employees or executive employees, such as
pension plans, medical plans, disability plans, incentive plans, stock
plans, investment plans and group or other insurance plans and benefits, to
the extent that the Executive is and remains eligible to participate
therein and subject to the eligibility provisions of such plans in effect
from time to time. In addition to the Signing Options, the Executive shall
be eligible to receive grants of options to purchase shares of Common Stock
of the Company and other awards which the Company is permitted to grant
under its Long-Term Incentive and Share Award Plan and such other stock
option or incentive plans as may be maintained by the Company, in such
amounts and at such times as shall be determined by the Compensation
Committee. The Executive's participation in such plans shall be at the
highest level afforded to officers and employees of the Company.
<PAGE>
-5-
3.6 Business Expenses. The Executive shall be reimbursed for
his reasonable out-of-pocket expenses, commensurate with his position,
incurred in the performance of his duties upon submission of appropriate
evidence thereof in conformity with normal Company policy. The Executive
shall be entitled to travel first class and first class accommodations and
the Company shall reimburse the Executive for the cost of his spouse's air
fare when she accompanies him. In addition, the Executive shall receive a
per diem of $1,000 for each day or portion thereof he is working in the Los
Angeles area and maintains his residence in Los Angeles. The Company shall
also reimburse the Executive for all reasonable expenses incurred by him in
moving to the New York City area. Reimbursable expenses shall include:
(i) cost of selling Executive's Los Angeles residence, including brokerage
commission; and (ii) moving and relocation expenses. Following completion
of (i) an equity offering for cash in an amount of at least $35 million or
(ii) a bank refinancing, the Company shall (a) reimburse the Executive for
any loss not to exceed $1,500,000 on a net after tax basis, incurred by the
Executive in selling his Los Angeles residence, based on Executive's cost
basis (including improvements) or (b) at the Company's option (subject to
Executive's consent) purchase the residence from the Executive for a price
equal to Executive's cost basis in the residence (including improvements).
3.7 Automobile. The Company shall lease a luxury automobile
and provide a driver therefor in New York City for the exclusive use and
benefit of the Executive. In addition, the Company shall lease a luxury
automobile for the exclusive use and benefit of the Executive in Los
Angeles. In connection therewith, the Company shall provide (i) insurance
for both such automobiles; (ii) a parking space at a garage in New York
City designated by the Company; and (iii) all maintenance, gas and repairs
for such automobiles. If any automobile is leased, such lease shall
contain a clause allowing the Executive to purchase the automobile at the
termination of the term of the lease. With respect to any automobile
provided to the Executive pursuant to this Section 3.7 which is owned by
the Company, the Executive shall have the right to purchase such automobile
at its depreciated book value.
3.8 Perquisites. In addition to the other benefits provided
to the Executive under this Section 3, the Executive shall be entitled to
business and other perquisites commensurate with his position and/or
generally afforded to senior executives of the Company, including an office
in the Company's
<PAGE>
-6-
New York City headquarters, office furnishings and secretarial assistance
at least comparable to those of the other Co-Chairman.
4. Vacation. For each Contract Year, the Executive shall be
entitled to paid vacation in accordance with the Company's standard policy
for any of the Company's most senior executives, but not to be less than
four weeks.
5. Termination.
5.1 Death. This Agreement shall automatically terminate upon
the death of the Executive, whereupon the Company shall be obligated to pay
to the Executive's estate any unpaid Base Salary and accrued and unpaid
benefits and Bonus through the date of death and an amount equal to the
greater of (i) the Executive's Bonus for the prior Fiscal Year prorated for
that portion of the Fiscal Year which expired prior to the Executive's
death or (ii) the Executive's pro rata Bonus for the current Fiscal Year,
if any, as determined by the Compensation Committee through the date of
death. The Executive's estate shall be paid an amount equal to one-half of
the Acquisition Bonus to which the Executive would have been entitled
pursuant to Section 3.3 hereof. Amounts payable under this Section 5.1
shall be payable at the times and intervals set forth in Sections 3.1, 3.2
and 3.3 hereof. Upon such termination, 50% of the not yet vested Signing
Options shall vest, and all then vested Signing Options shall be
exercisable by the persons to whom the Executive's rights under the Signing
Options pass by will or the laws of descent and distribution in accordance
with the terms of such options.
5.2 Disability. The Company shall have the right to terminate
this Agreement after the occurrence and during the continuance of any
Disability of the Executive, as hereinafter defined, upon thirty (30) days'
prior notice to the Executive during the continuance of the Disability.
"Disability" for purposes of this Agreement shall mean and be deemed to
occur upon the Executive's inability to perform his material duties
hereunder by reason of physical or mental incapacity or disability for a
total of one hundred eighty (180) days or more in any consecutive period of
three hundred and sixty-five (365) days, in the reasonable judgment of a
physician selected by the Executive and reasonably acceptable to the
Company, which in the reasonable judgment of such physician shall be deemed
reasonably likely to continue. In the event of a termination by reason of
the Executive's Disability, the Company shall be
<PAGE>
-7-
obligated to assist the Executive in obtaining payment under the existing
disability insurance maintained by the Company for the Executive. In
addition, the Company shall be obligated to pay the Executive any unpaid
Base Salary and accrued and unpaid benefits and Bonus through the date of
termination, and the greater of (i) the amount payable to the Executive
under the Company's disability insurance or (ii) 50% of the Executive's
Bonus paid for the Fiscal Year prior to the year in which the Disability
occurred. The Executive shall be paid an amount equal to one-half of the
Acquisition Bonus to which the Executive would have been entitled pursuant
to Section 3.3 hereof. Amounts payable under this Section 5.2 shall be
payable at the times and intervals set forth in Sections 3.1, 3.2 and 3.3
hereof. Upon such termination, 50% of the not yet vested Signing Options
shall vest, and all then vested Signing Options shall be exercisable by the
Executive or the persons to whom the Executive's rights under the Signing
Options pass by will or the laws of descent and distribution in accordance
with the terms of such options.
5.3 Termination for Cause or by Executive for Other than Good
Reason.
5.3.1 Upon the early termination of this Agreement by the
Company for Cause or by the Executive during the Employment Period for
other than Good Reason, death or Disability, the Company shall only be
obligated to pay the Executive his Base Salary prorated to the date of
termination and any then accrued benefits (excluding any amount of bonus
which the Executive may be eligible to receive). Upon such termination,
the Signing Options, to the extent not vested by such termination date,
shall be terminated. For purposes of this Agreement, "Cause" shall mean
(i) any willful and continuing material failure by the Executive to perform
his material duties under this Agreement, taken as a whole; (ii) the
Executive's conviction of, or plea of nolo contendere to, a felony; (iii)
the Executive's conviction of fraud or embezzlement against the Company;
(iv) any willful or intentional misconduct having the effect of materially
injuring the business of the Company; or (v) any willful and material
breach by the Executive of any of the provisions of the Confidentiality and
Non-Competition Agreement attached hereto as Attachment A. Termination for
Cause shall become effective upon notice to the Executive. Anything
contained herein to the contrary notwithstanding, none of the foregoing
events or circumstances shall constitute Cause for purposes of this
Agreement unless the Company gives the Executive written notice of such
event or circumstance (a
<PAGE>
-8-
"Termination Notice") at or following a meeting of the Board of Directors
of the Company for which the Executive was given at least thirty (30) days'
advance written notice and an opportunity to be heard, and the Executive
shall have failed to commence to cure such event or circumstance within
thirty (30) days following the giving of the Termination Notice; provided,
however, that the parties acknowledge that the mere failure of the Company
to achieve projected or budgeted results or to attain creative or artistic
success at any time or from time to time shall not constitute Cause for
purposes of this Agreement unless such failure is accompanied by one or
more of the circumstances described above.
5.3.2 For purposes of this Agreement, "Good Reason"
shall mean any of the following: (i) a reduction or adverse change in, or
a change which is inconsistent with, the Executive's responsibilities,
duties, authority, reporting, power, functions, title, working conditions
or status; (ii) a reassignment to another geographic location outside of
the New York City area; (iii) a material breach by the Company of this
Agreement; (iv) the Company requiring the Executive to render material
services wholly inconsistent with the services to be rendered by the
Executive hereunder; (v) any time after the occurrence of a Change of
Control; (vi) any time after the Executive shall not be a member of the
Board of Directors of the Company; or (vii) any other action by the Company
which materially interferes with the Executive's ability to carry out his
responsibilities under this Agreement.
5.4 Termination for Other Reason. If the Executive's
employment is terminated during the term of this Agreement by the Executive
for Good Reason or by the Company without Cause, then the Company shall pay
the Executive a cash lump sum in an amount equal to the greater of: (A)
four times the sum of the Executive's Base Salary in effect at the time of
the termination of his employment plus the maximum target Bonus amounts
payable to the Executive with respect to the Fiscal Year in which such
termination occurs; or (B) the Base Salary and maximum target Bonus amounts
payable to the Executive for the remainder of the Employment Period. Such
amount shall be payable no later than thirty (30) days following the Execu-
tive's termination pursuant to this Section 5.4. For the four year period
after the Executive's termination of employment pursuant to this Section
5.4, the Executive (i) shall be entitled to continued participation in all
of the Company's employee benefit plans, including, without limitation,
continued accrual for retirement benefits and continued coverage
<PAGE>
-9-
under the Company's medical and hospitalization and life insurance plans,
and all of the other benefits and perquisites provided for under this
Agreement or (ii) be paid a cash lump sum equal to the aggregate amounts
which the Executive would have been credited or received under all of such
benefit plans, incentive plans, benefits and perquisites. In addition, the
Company shall be obligated to: (i) pay the Acquisition Bonus pursuant to
Section 3.3 hereof; (ii) provide that all options granted to the Executive
under the Company's Long-Term Incentive and Share Award Plan and such other
stock option or incentive plans as may be maintained by the Company shall
vest upon such termination; (iii) transfer to the Executive all right and
title to the automobiles provided to the Executive pursuant to Section 3.7
herein; (iv) provide coverage for the Executive under the Company's
automobile insurance policies, for which the Company shall be reimbursed by
the Executive; and (v) provide the Executive coverage under the Company's
medical plans and life insurance plans or other similar medical or life
insurance coverage, or the economic equivalent of such coverage, for so
long as the Executive shall live. Upon termination of the Executive
pursuant to this Section 5.4, all of the Signing Options and any other
awards received under any stock, incentive and benefit plans shall vest in
full and be exercisable by the Executive in accordance with their terms.
5.5 Nature of Payments. If the Executive's employment
hereunder shall be terminated, the Executive shall be under no duty to seek
or accept other employment (or otherwise mitigate damages). Any payments
pursuant to the provisions of this Section 5 shall not be subject to any
offset right of the Company.
5.6 Tax Gross-Up. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution made, or benefit provided, by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 5.6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended and then in
effect (the "Code") (or any similar excise tax) or any interest or
penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Execu-
tive shall be entitled to receive an additional payment (a
<PAGE>
-10-
"Gross-Up Payment") in an amount such that after payment by the Executive
of all Federal, state, local or other taxes (including any interest or
penalties imposed with respect to any such taxes), including, without
limitation, any such income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(i) Subject to the provisions of paragraph (ii) of this
Section 5.6, all determinations required to be made under this Section 5.6,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by Coopers & Lybrand (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the
Company and the Executive within 20 calendar days of the receipt of written
notice from the Executive that there has been a Payment, or such earlier
time as is requested by the Company. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the change in control, the Executive shall have the right by
written notice to the Company to appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and shall be paid by the Company upon demand of the
Executive as incurred or billed by the Accounting Firm. Any Gross-Up
Payment, as determined pursuant to this Section 5.6, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall furnish the Executive with an
unqualified written opinion in form and substance satisfactory to the Exec-
utive that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies
described in paragraph (ii) of this Section 5.6 and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the
<PAGE>
-11-
Underpayment that has occurred and any such Underpayment shall be paid by
the Company to or for the benefit of the Executive within five days of the
receipt of the Accounting Firm's determination. All determinations made by
the Accounting Firm in connection with any Gross-Up Payment or Underpayment
shall be final and binding upon the Company and the Executive.
(ii) The Executive shall notify the Company in writing of any
claim asserted in writing by the Internal Revenue Service to the Executive
that, if successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon as practicable
but not later than 60 days after the Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall at the Company's expense:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(c) cooperate with the Company in good faith in order
effectively to contest such claim, and
(d) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly as incurred
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or any
Federal, state, local or other income or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 5.6, the Company shall
<PAGE>
-12-
control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any per-
missible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or Federal, state, local or other income or other tax (including
interest or penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(iii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (ii) of this Section 5.6, the
Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying with the
requirements of paragraph (ii) of this Section 5.6) promptly pay to the
Company the amount of such refund (together with any interest paid or cred-
ited thereon after taxes applicable thereto) upon receipt thereof. If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph (ii) of this Section 5.6, a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be paid.
<PAGE>
-13-
In the event that the Executive is subject to any Federal,
state, local or other income taxes or any interest or penalties relating
thereto with respect to the Executive's receipt of any non-cash
consideration from the Company from any transaction or event between the
Company and the Executive (such income taxes, together with any such
interest and penalties, are hereinafter referred to as the "Income Tax"),
the Company shall lend the amount of such Income Tax to the Executive,
subject to any applicable bank loan restrictions or public indenture
restrictions. Such loan shall bear interest at the lowest interest rate at
which the Company borrows funds, shall be due and payable 10 years from the
date of the loan, and shall be evidenced by a full recourse, unsecured
promissory note.
6. Confidentiality and Non-Competition Agreement. The
Executive shall be bound by the terms of the Confidentiality and
Non-Competition Agreement, a copy of which is annexed hereto as Exhibit A,
during the Employment Period and for such period following the Employment
Period as is set forth in the Confidentiality and Non-Competition
Agreement. The Executive and the Company shall execute a copy of the
Confidentiality and Non-Competition Agreement simultaneously with the
execution of this Agreement.
7. Miscellaneous Provisions.
7.1 Reimbursement. Except as otherwise provided in Section
5.6 hereof, the Executive shall reimburse the Company for any withholding
tax liability (but not any interest or penalty) respecting amounts treated
as compensation to the Executive actually paid by the Company with the
Executive's consent or when the Company's obligation to pay the same is
ultimately determined to be due, the Company using counsel of the Execu-
tive's choice, which counsel is reasonably acceptable to the Company.
7.2 Entire Agreement. This Agreement, the Confidentiality and
Non-Competition Agreement attached hereto as Exhibit A, and the 1996
Restricted Stock Plan attached hereto as Exhibit B set forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersede all prior agreements, arrangements, and under-
standings between the parties with respect to the subject matter hereof.
<PAGE>
-14-
7.3 Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants
hereof may be waived, only by a written instrument executed by both of the
parties or in the case of a waiver, by the party waiving compliance.
7.4 Waiver. The failure of either party at any time or times
to require performance of any provision hereof in no manner shall affect
the right at a later time to enforce the same. No waiver by either party
of a breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such breach or a
waiver of any other term or covenant contained in this Agreement.
7.5 Notices. All notices, demands, consents or other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given) upon the earlier of receipt, one
business day after being sent by nationally-recognized overnight courier or
three business days after being sent by registered or certified mail to the
parties at the addresses set forth above or to such other address as either
party shall hereafter specify by notice to the other party. A copy of each
notice, demand, consent or communication given to the Executive hereunder
shall simultaneously be given to Allen Lenard, Esq., Lenard & Gonzalez,
2121 Avenue of the Stars, 22nd Floor, Los Angeles, California 90067.
Irrespective of the foregoing, notice of change of address shall be effec-
tive only upon receipt.
7.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York
applicable to contracts made and to be performed wholly within such state.
7.7 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach
thereof, other than a claim solely for injunctive relief for any alleged
breach of the provisions of the Confidentiality and Non-Competition
Agreement as to which the parties shall have the right to apply for
specific performance to any court having equity jurisdiction, shall be
resolved by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award tendered by the arbitrators may be entered in any
court having jurisdiction
<PAGE>
-15-
thereof and any party to the arbitration may, if such party so elects,
institute proceedings in any court having jurisdiction for the specific
performance of any such award. The powers for the arbitrator or
arbitrators shall include, but not be limited to, the awarding of
injunctive relief. The arbitrator shall include in any award in the
prevailing party's favor the amount of his or its reasonable attorney's
fees and expenses and all other reasonable costs and expenses of the
arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided
above, each party shall bear his or its own attorney's fees and expenses
and the parties shall bear equally all other costs and expenses of the
arbitration.
7.8 Indemnification. The Company agrees that the Executive
shall be entitled to indemnification and payment or reimbursement of
expenses (including attorneys' fees and expenses) to the fullest extent
provided in the Company's Certificate of Incorporation, as in effect on the
date hereof and as it may be hereafter amended (but in no event on terms
less favorable to the Executive than those in effect on the date hereof),
for all damages, losses and expenses incurred by the Executive in
connection with any claim, action, suit or proceeding which arises from the
Executive's services and/or activities as an officer and/or employee of the
Company or any affiliate thereof. This Section shall survive any
termination of the term of this Agreement.
7.9 HSR Filings and Approvals. Anything in this Agreement or
in any other agreement as to which the Company and the Executive are
parties notwithstanding, if any governmental or other filings or approvals
relating to or required by Hart-Scott-Rodino are required before the
Company can issue or transfer any stock to the Executive or the Executive
could receive any stock from the Company (including from the exercise of
any options granted to the Executive) pursuant to the terms of this
Agreement or any such other agreement or otherwise, then the Company shall
bear and pay directly as incurred all costs and expenses (including,
without limitation, any filing fees or any legal, accounting or other
expenses) incurred by the Executive or the Company in connection with any
such filings or in applying for any such approvals. If, after making any
such filings or applying for any such approvals, the
<PAGE>
-16-
Company is prohibited by governmental or administrative rule, determination
or otherwise from issuing or transferring any such stock to the Executive,
or the Executive is prohibited by governmental or administrative rule,
determination or otherwise from receiving any such stock from the Company,
then the Company shall use its best efforts to exhaust all reasonable
administrative or judicial remedies that may be available and shall bear
and pay directly as incurred all costs and expenses (including, without
limitation, all legal, accounting or other expenses) incurred by the
Executive or the Company in pursuing any such remedies. If, after
exhausting all such remedies, the Company is still legally prohibited from
issuing or transferring any such stock to the Executive, or the Executive
is still legally prohibited from receiving any such stock from the Company,
then the Company shall engage an investment bank (at its sole cost and
expense), which investment bank shall be acceptable to the Executive, to
develop a method of providing the Executive with equivalent consideration
which shall be reasonably acceptable to the Executive and in accordance
with the essential intent and principles of this Agreement or any such
other agreement, as the case may be.
7.10 Assignability. This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive,
except by operation of law, and except that Executive's rights, but not his
obligations, hereunder may be assigned to a trust for the benefit of
Executive, his spouse, and any of the children of either. The Company may
assign its rights, together with its obligations hereunder, only to a suc-
cessor by merger or by the purchase of all or substantially all of the
assets and business of the Company and such rights and obligations shall
inure to, and be binding upon, any such successor.
7.11 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective legal
representatives, heirs, permitted successors and permitted assigns.
7.12 Headings and Word Meanings. Headings and titles in this
Agreement are for convenience of reference only and shall not control the
construction or interpretation of any provisions hereof. The words
"herein," "hereof," "hereunder" and words of similar import, when used
anywhere in this Agreement, refer to this Agreement as a whole and not
merely to a subdivision in which such words appear, unless the context
<PAGE>
-17-
otherwise requires. The singular shall include the plural unless the
context otherwise requires.
7.13 Separability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.
7.14 1996 Restricted Stock Plan. During the period commencing
on the Effective Date and terminating on the day after the fourth
anniversary of the Effective Date, the Company hereby adopts and shall
maintain in effect the 1996 Restricted Stock Plan in the form annexed
hereto as Exhibit B.
<PAGE>
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ALLIANCE ENTERTAINMENT CORP.
By:
Name:
Title:
Alvin N. Teller
<PAGE>
Exhibit A
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (the
"Agreement"), entered into and effective as of the 15th day of August,
1996, is by and between ALLIANCE ENTERTAINMENT CORP. (the "Company") and
ALVIN N. TELLER ("Employee").
In consideration of Employee's employment by the Company, and
for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as follows:
1. Confidential Information. By virtue of Employee's
employment at the Company, Employee may obtain confidential or proprietary
information developed, or to be developed, by the Company. "Confidential
Information" means all information, whether in oral, written, graphic or
machine-readable form, including but not limited to all: software used or
developed in whole or in part by the Company (including source code);
algorithms; computer processing systems and techniques; price lists;
customer lists; procedures; improvements, concepts and ideas; business
plans and proposals; technical plans and proposals; research and
development; budgets and projections; technical memoranda, research
reports, designs and specifications; new product and service developments;
comparative analyses of competitive products, services and operating proce-
dures; and other information, data and documents now existing or later
acquired by the Company, regardless of whether any of such information,
data or documents qualify as a "trade secret" under applicable Federal or
State law. All such information is collectively referred to as the
"Confidential Information". For purposes of this Agreement, "Confidential
Information" shall not include information which: (i) was previously known
to Employee prior to his employment with the Company; (ii) is generally
known in the music industry or otherwise generally known to the public;
(iii) is in the public domain; (iv) is independently obtained by Employee
from third parties under no obligation of confidentiality to the Company or
to any third party; or (v) is required to be disclosed by law or in any
legal or governmental investigation or proceeding.
2. Non-Disclosure. Employee agrees that, except as directed
by the Company, he will not at any time (during the term of Employee's
employment by the Company or at any time thereafter), except as may be
expressly authorized by the Company in writing and except to the Company
and its officers,
<PAGE>
-2-
directors and employees, disclose to any person or use any Confidential
Information whatsoever for any purpose whatsoever, or permit any person
whatsoever to examine and/or make copies of any reports or any documents or
software (whether in written form or stored on magnetic, optical or other
mass storage media) prepared by him or that come into his possession or
under his control by reason of his employment by the Company or by reason
of any consulting or software development services he has performed or may
in the future perform for the Company which contain or are derived from
Confidential Information. Employee further agrees that while employed at
the Company, he shall not remove Confidential Information from the
Company's business premises, without the prior written consent of the
Company.
3. Company Property. As used in this Agreement, the term
"Company Property" means all documents, papers, computer printouts and
disks, records, customer or prospect lists, files, manuals, supplies,
computer hardware and software, equipment, inventory and other materials
that have been created, used or obtained by the Company, or otherwise
belonging to the Company, as well as any other materials containing Con-
fidential Information as defined in Section 1 above. Employee recognizes
and agrees that:
3.1 All Company Property shall be and remain the property of
the Company;
3.2 Employee will preserve, use and hold Company Property only
for the benefit of the Company and to carry out the Company's business; and
3.3 When Employee's employment is terminated, Employee will
immediately deliver to the Company all Company Property, including all
copies or any other types of reproductions which Employee has in his
possession or control.
4. Non-Solicitation. During the period of his employment
and for a period of one (1) year after termination of his employment at the
Company for any reason, Employee shall not, on his own behalf or on behalf
of any person, firm or corporation, or in any capacity whatsoever,
(i) hire, offer to hire, or otherwise entice away any officer, employee,
agent or consultant of the Company or anyone who has served in such
capacities during the most recent 6-month period during Employee's
employment (not including external accountants, counsel or financial
advisors), (ii) solicit any persons or entities with
<PAGE>
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which the Company had contracts or was negotiating contracts regarding
products or services during the one-year period preceding the termination
of Employee's employment, or (iii) induce, suggest, persuade or recommend
to any such persons or entities that they terminate, alter or refrain from
renewing or extending, their relationship with the Company or become a
client of Employee or any third party, and Employee shall not himself and
shall not knowingly induce or permit any other person to approach any such
person or entity for any purpose. Should Employee become aware that any
other employee or third party has engaged in such conduct, Employee agrees
to immediately advise the Company of the circumstances of any such conduct.
5. Restrictive Covenant. Employee acknowledges that his
employment with the Company will enable him to obtain knowledge about the
computer software the Company develops or uses, as well as of the
entertainment and other fields in which the Company does business, and will
also enable him to form certain relationships with individuals and entities
in the geographic area in which the Company furnishes its services.
Employee further acknowledges that the goodwill and other proprietary
interests of the Company will suffer irreparable and continuing damage in
the event Employee enters into competition with the Company within three
(3) years subsequent to the termination of his employment. Therefore,
Employee agrees that during the term of his employment and for a period of
three (3) years thereafter, regardless of the cause of the termination of
Employee's employment, he will not, without prior written consent of the
Company, engage directly or indirectly in any conduct, activity, or
business whatsoever which would provide revenue to Employee or to any third
party, with any person or entity manufacturing, distributing or supplying a
product or service competing with the Company's products or services mate-
rial to the Company's business as of the date of Employee's termination;
provided, however, that nothing herein shall prohibit Employee from owning
less than five (5) percent of the capital stock of a publicly traded
company. Employee further acknowledges that his employment with the
Company constitutes fair and adequate consideration for his agreement not
to engage in such conduct within three (3) years of the termination of his
employment, regardless of the cause of such termination. Employee further
agrees that should the Company, in its sole discretion, determine that it
is desirable or appropriate to make any payment to Employee upon
termination of employment ("Severance Pay"), such Severance Pay shall be
deemed additional consideration for Employee's binding obligation not to
<PAGE>
-4-
engage in such conduct during the three (3) year period. However, and
notwithstanding any other provision of this Agreement, it is understood and
agreed by the Company and Employee that any decision made by the Company
regarding Severance Pay, regardless of whether termination occurs with or
without cause, shall in no way discharge or release Employee from the
obligation not to engage in such conduct during the three (3) year period.
In the event that during the period of two years following the
Effective Date, the price of the Common Stock of the Company remains at or
above $9.00, $10.00, $11.00 or 12.00 per share for 25 trading days out of a
period of 30 consecutive trading days, the non-compete period of three
years shall be reduced by three (3) months, six (6) months, nine (9) months
or twelve (12) months, respectively. At any time Employee may elect to
reduce the non-compete period to two years by transferring to the Company
160,000 shares of Common Stock of the Company.
6. Work Product. Employee agrees that, during the term of
his employment with the Company:
6.1 He will disclose promptly and fully to the Company all
works of authorship, inventions, discoveries, improvements, designs,
processes, software, or any improvements, enhancements, or documentation of
or to the same that he makes, works on or conceives, individually or
jointly with others, in the course of his employment by the Company or with
the use of the Company's time, materials or facilities, in any way related
or pertaining to or connected with the present or anticipated business,
development, work or research of the Company or which results from or are
suggested by any work he may do for the Company and whether produced during
normal business hours or on personal time (collectively, the "Work
Product").
6.2 All Work Product of Employee shall be deemed to be "work
made for hire" within the meaning of { 101 of the Copyright Act and all
rights to copyright shall be vested entirely in the Company. If for any
reason the Work Product is deemed not to be "work made for hire," and its
rights to copyright are thereby in doubt, this Agreement shall constitute
an irrevocable assignment by Employee to the Company of all right, title
and interest in the copyright of all Work Product created under this
Agreement. The parties intend that any and all copyright and other
intellectual property rights in the Work Product, including, without
limitation, any and all rights of
<PAGE>
-5-
whatever kind and nature now or hereafter to distribute and reproduce such
Work Product in any and all media throughout the world, are the sole
property of the Company. Employee hereby agrees to assist the Company in
any manner as shall be reasonably requested by the Company to protect the
Company's interest in such copyright and/or other intellectual property
rights, and to execute and deliver such legal instruments or documents as
the Company shall request in order for the Company to register the
Company's worldwide copyright in the Work Product with the U.S. Copyright
Office and to register and protect the Company's copyright or other
intellectual property rights in the Work Product throughout the world.
Likewise, Employee hereby agrees to assist the Company by executing such
other documents and instruments which the Company deems necessary to enable
it to evidence, perfect and protect its right, title and interest in and to
the Work Product.
6.3 Employee shall make and maintain adequate and current
written records and evidence of all Work Product, including drawings, work
papers, graphs, computer records and any other document which shall be and
remain the property of the Company, and which shall be surrendered to the
Company upon request and upon the termination of Employee's employment with
the Company, regardless of cause. The provisions of this section and the
term Work Product as used herein do not apply to any invention for which no
equipment, supplies, facilities or confidential, proprietary or trade
secret information of the Company was used, and which was developed
entirely on Employee's own time, while not on the Company's business
premises, and which does not relate to the Company's business, unless: (i)
the invention relates to the Company's actual or demonstratively
anticipated research development or (ii) the invention results from any
work performed by Employee for the Company.
7. Enforcement. The breach or threatened breach by Employee
of any of the provisions of this Agreement shall: (i) constitute cause for
the termination of Employee's employment and (ii) entitle the Company to
seek a permanent injunction or other injunctive relief in order to prevent
or restrain any such breach or threatened breach by Employee or his
partners, agents, representatives, servants, independent contractors, or
any and all persons or entities directly or indirectly acting for or with
Employee. The rights and remedies of the Company under this Agreement
shall be in addition to and not in limitation of any of the rights,
remedies, and monetary or other damages or redress available to it at law
or equity.
<PAGE>
-6-
8. Acknowledgment. Employee acknowledges that he has
carefully read and considered the provisions of this Agreement, and having
done so, agrees that the restrictions set forth are fair and reasonably
required for the protection of the interests of the Company. In the event
that, notwithstanding the foregoing, any part of the covenants set forth
shall be held to be invalid or unenforceable, the remaining parts thereof
shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable parts had not been included therein. In the event
that any provision of this Agreement shall be declared by a court of
competent jurisdiction to be unreasonable or unenforceable, the court shall
enforce the provision in a way which it deems to be reasonable and
enforceable.
9. Survival. This Agreement shall survive any termination
of Employee's employment, whether or not for cause.
10. The Company Defined. As used in this Agreement, the term
"the Company" includes the Company, any assignee or other successor in
interest of the Company, and any parent, subsidiary, or other corporation
or partnership under common ownership or control with the Company.
11. Notices. All notices in accordance with this Agreement
shall be in writing and given by hand delivery, overnight express delivery,
or certified U.S. mail, return receipt requested, and properly addressed to
the party for whom it is intended at the following addresses or such other
address as is most recently noticed for such party:
If to the Company: Alliance Entertainment Corp.
110 E. 59th Street
New York, New York 10022
Attn: Joseph Bianco,
Co-Chairman
If to Employee: Alvin N. Teller
900 Stradella Road
Los Angeles, California 90077
With a copy to:
Lenard & Gonzalez
2121 Avenue of the Stars
<PAGE>
-7-
22nd Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
12. Miscellaneous. This Agreement is legally binding on both
Employee and the Company and benefits their successors and assigns. This
Agreement is only assignable by the Company to the same extent as is set
forth in Section 7.10 of the Employment Agreement dated as of August 15,
1996 and the Employee.It may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument. It represents the parties' entire understanding
regarding the subject matter of this Agreement and supersedes any and all
other prior agreements regarding the same subject matter. The terms and
provisions of this Agreement cannot be terminated, modified, or amended
except in a writing signed by the party against whom enforcement is sought.
This Agreement shall be construed in accordance with the laws of the State
of New York, and any suit, action or proceeding arising out of or relating
to this Agreement shall be commenced and maintained in any court of compe-
tent subject-matter jurisdiction in the State of New York, with exclusive
venue in New York County. In any suit, action or proceeding arising out of
or in connection with this Agreement, the prevailing party shall be
entitled to an award of the amount of attorneys' fees and disbursements
actually billed to such party, including fees and disbursements on one or
more appeals.
13. No Guarantee of Employment. Nothing in this Agreement
shall be interpreted or construed to be a guarantee of ongoing employment,
or to otherwise limit the Company's right to terminate Employee's
employment at any time.
<PAGE>
-8-
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
_________________________ _________________________
(signature) (signature)
________________________ _________________________
(name printed) (name printed)
_________________________
(title)
<PAGE>
EXHIBIT B
ALLIANCE ENTERTAINMENT CORP.
1996 RESTRICTED STOCK PLAN
1. Purpose. The purpose of the Alliance Entertainment Corp.
(the "Company") 1996 Restricted Stock Plan (the "Plan") is to provide
incentive to certain employees of the Company to remain in the employ or
service of the Company and its present and future subsidiary corporations
and affiliates ("Subsidiaries"), to encourage ownership of shares in the
Company by such employees and to provide additional incentive for such
employees to promote the success of the Company's business.
2. Effective Date of the Plan. The Plan shall become
effective on the earlier to occur of: (i) the date of approval of the Plan
by the Board of Directors of the Company (the "Board"); and (ii) the date
of commencement of employment as Chief Executive Officer ("CEO") of Alvin
N. Teller (the "Effective Date").
3. Stock Subject to Plan. 500,000 of the authorized but
unissued shares of common stock, $.0001 par value (the "Common Stock"), of
the Company are hereby reserved for issuance under the Plan; provided,
however, that the number of shares so reserved may be reduced to the extent
that the total of the Tranche 1 Shares and the Tranche 2 Shares (as herein-
after defined) available for distribution is less than 500,000. The shares
available for distribution by the Plan are hereinafter referred to as
"Restricted Shares."
(a) Tranche 1. If, at any time during the period from
the Effective Date to the second anniversary of the Effective Date, the
price of the Common Stock remains at or above the Target Prices indicated
on the schedule below for any 25 trading days out of a period of 30
consecutive days, then the corresponding percentage of 250,000 shares of
Common Stock shall become available for distribution (the "Tranche 1
Shares") by the Plan.
Target Price % of Tranche 1 Stock
$ 9.00 25.00%
$ 9.25 31.25%
$ 9.50 37.50%
$ 9.75 43.75%
<PAGE>
-2-
$ 10.00 50.00%
$ 10.25 56.25%
$ 10.50 63.50%
$ 10.75 69.75%
$ 11.00 75.00%
$ 11.25 81.25%
$ 11.50 87.50%
$ 11.75 93.75%
$ 12.00 100.00%
(b) Tranche 2. If, at any time during the period from
the Effective Date to the fourth anniversary of the Effective Date, the
price of the Common Stock remains at or above the Target Prices indicated
on the schedule below for any 85 trading days out of a period of 90
consecutive trading days, then the corresponding percentage of 250,000
shares of Common Stock shall become available for distribution (the
"Tranche 2 Shares") by the Plan.
Target Price % of Tranche 2 Stock
$ 13.00 50.00%
$ 13.50 56.50%
$ 14.00 62.50%
$ 14.50 68.75%
$ 15.00 75.00%
$ 15.50 81.25%
$ 16.00 87.50%
$ 16.50 93.75%
$ 17.00 100.00%
(c) Change of Control. In the event of a Change of
control of the Company, all of the Tranche 1 Shares and the Tranche 2
Shares not previously available for distribution shall become immediately
available for distribution by the Plan. As used herein, "Change of
Control" shall mean (i) the acquisition of all or substantially all of the
assets of the Company, (ii) the acquisition by any party (or group, as such
term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) not currently a holder of more than 5% of the outstanding
Common Stock of the Company of more than 50% of the outstanding Common
Stock of the Company, (iii) any merger, combination, consolidation or
similar transaction involving the Company following which the holders of
Common Stock of the Company immediately prior to such transaction will not
own more than 50% of the Common Stock of the Company.
<PAGE>
-3-
(d) Adjustments. In the event that the Company shall
at any time (i) subdivide (by any stock split, stock dividend or otherwise)
one or more classes of its outstanding Common Stock into a greater number
of shares of Common Stock, (ii) combine (by reverse stock split or
otherwise) one or more classes of its outstanding Common Stock into a
smaller number of shares or (iii) pay any extraordinary cash dividend on
one or more classes of its outstanding Common Stock; then the number of
shares subject to the Plan and the target prices shall be proportionately
adjusted.
4. Administration and Eligibility. The CEO shall allocate,
in his sole and absolute discretion, the Restricted Shares subject to the
Plan to any employee or employees of the Company, including himself, on the
terms and conditions set forth herein; provided, however, that no
Restricted Shares shall be delivered until such shares become available for
distribution by the Plan pursuant to the terms hereof. The CEO shall also
have authority to interpret the Plan and to prescribe, amend and rescind
rules and regulations relating to it. Any determination by the CEO in
carrying out, administering or construing the Plan shall be final and
binding for all purposes and upon all interested persons and their
respective heirs, successors and personal representatives.
5. Registration. The issuance by the Company of the Shares
shall be registered by the Company under the Securities Act of 1933 on an
effective registration statement as promptly as reasonably practicable
following the adoption of the Plan, which registration statement shall be
maintained in effect for not less than 5 years after the Effective Date.
6. Restrictions. (a) The Restricted Shares shall be
subject to such restrictions, if any, as the CEO shall determine in his
sole discretion, including but not limited to, vesting schedules and
provisions relating to forfeiture.
(b) The employee receiving Restricted Shares shall (i) agree
that such employee's Restricted Shares shall be subject to, and shall be
held by him or her in accordance with all of the applicable terms and
provisions of, the Plan, and (ii) agree that the Company may place on the
certificates representing the Restricted Shares or new or additional or
different shares or securities distributed with respect to the Restricted
Shares such legend or legends as the Company may deem appropriate and that
the Company may place a stop transfer
<PAGE>
-4-
order with respect to such Restricted Shares with the Transfer Agent(s) for
the Common Stock.
(c) Any Restricted Shares that are forfeited by the
Participant shall become immediately available for reallocation and
redistribution under the Plan.
(d) Restricted Shares issued under the Plan must be held for
not less than six months from the date of issue unless the allocation and
distribution of such shares has been approved by the Board or a Committee
of the Board consisting solely of two (2) or more non-employee members of
the Board.
7. Expenses of Administration. All costs and expenses
incurred in the operation and administration of the Plan shall be borne by
the Company.
8. No Employment Right. Neither the existence of the Plan
nor the allocation of any Restricted Shares hereunder shall require the
Company to continue any Participant in the employ of the Company or any
Subsidiary.
9. Amendment of Plan. The Company shall, at any time and
from time to time, at the request of the CEO, make such modifications of
the Plan as it shall deem advisable. No amendment of the Plan may, without
the consent of the Participants to whom any Restricted Shares shall
theretofore have been allocated, adversely affect the rights or obligations
of such Participants with respect to such Restricted Shares. The CEO may,
in his discretion, cause the restrictions imposed in accordance with the
provisions of Section 6 hereof with respect to any Restricted Shares to
terminate, in whole or in part, prior to the time when they would otherwise
terminate.
10. Expiration and Termination of the Plan. The Plan shall
terminate the day after the fourth anniversary of the Effective Date;
provided, however, that such termination shall not, without the consent of
the Participants to whom any Restricted Shares shall theretofore have been
allocated, adversely affect the rights or obligations of such Participants
with respect to such Restricted Shares.
11. Governing Law. The Plan shall be governed by the laws of
the State of New York applicable to agreements made and to be performed
wholly therein.
<PAGE>
EXHIBIT D-1 AND D-2
<PAGE>
Exhibit D-1
STOCK PURCHASE AGREEMENT
between
WASSERSTEIN & CO., INC.,
U.S. EQUITY PARTNERS
and
JOSEPH J. BIANCO
Dated
August 15, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, dated August 15, 1996, by and between WASSERSTEIN &
CO., INC., a Delaware corporation ("WCI") and U.S. EQUITY PARTNERS, L.P., a
Delaware limited partnership ("USEP Delaware"), U.S. EQUITY PARTNERS
(OFFSHORE), L.P., a Cayman Islands limited partnership ("USEP Offshore" and
together with USEP Delaware, "USEP," and USEP and WCI are collectively
referred to herein as the "Buyers"), and JOSEPH J. BIANCO (the "Seller").
The Seller is the record and beneficial owner of 1,350,000
shares of common stock, par value $.0001 per share (the "Common Stock"), of
Alliance Entertainment Corp., a Delaware corporation ("Company") (the
"Shares"). The Seller wishes to sell the Shares and the Buyers wish to
purchase the Shares upon the terms and subject to the conditions of this
Agreement. Capitalized terms used herein but not otherwise defined shall
have the meanings given them in Section 7.1 hereof.
Accordingly, the parties agree as follows:
1. Sale and Purchase of Shares.
1.1 Sale and Purchase of Shares. At the Closing (as
hereinafter defined), (i) the Seller shall sell, and the Buyers shall
purchase, all of the Shares, free of any Liens, (ii) the Seller shall
deliver or cause to be delivered to the WCI and USEP certificates
representing 499,500 and
<PAGE>
-2-
850,500, respectively, of the Shares accompanied by stock powers duly
executed in blank, in proper form for transfer, and with all appropriate
stock transfer tax stamps affixed, and (iii) the Buyers shall deliver the
Purchase Price (as hereinafter defined) to the Seller.
1.2 Purchase Price. The aggregate purchase price for
the Shares (the "Purchase Price") shall be $6.00 per share (the "Closing
Payment"). The Buyers shall pay the Closing Payment to the Seller, against
receipt of the Shares at the Closing, by a certified or official bank
check, or cash by wire transfer of immediately available funds.
2. Closing; Closing Date. The closing of the purchase and
sale of the Shares (the "Closing") shall take place simultaneously with the
closing of the transactions (the "Acquisition") contemplated by the Stock
Acquisition and Merger Agreement dated as of the date hereof (the
"Acquisition Agreement") among Company, Acquisition Sub, USEP, WCI, AT and
AT Sub at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York,
New York 10005 or at such other place and time as the parties may agree in
writing (such time and date being referred to herein as the "Closing
Date"). The Closing shall be effective as of the close of business on that
date.
<PAGE>
-3-
3. Representations and Warranties of Seller. The Seller
represents and warrants to the Buyers as follows:
3.1 Title to the Shares. As of the Closing Date, the
Seller shall own of record, free and clear of any Lien, the Shares, and,
upon delivery of and payment for such Shares as herein provided, the Seller
will convey to the Buyers good and valid title thereto, free and clear of
any Lien.
3.2 Authority to Execute and Perform Agreement. The
Seller has the full legal right, power and all authority required to enter
into, execute and deliver this Agreement and to perform fully the Seller's
obligations hereunder. This Agreement has been duly executed and delivered
by the Seller and (assuming the due authorization, execution and delivery
hereof by the Buyers) is a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting creditors' rights and to general equity principles (regardless of
whether enforcement is sought in a proceeding at law or in equity).
3.3 Representations and Warranties on Closing Date. The
representations and warranties contained in this Section 3 shall be true on
and as of the Closing Date with the
<PAGE>
-4-
same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
4. Conditions Precedent to the Obligation of the Buyers to
Close. The obligation of the Buyers to enter into and complete the Closing
is subject, at the option of the Buyers, to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may
be waived by it:
4.1 Representations and Warranties. The representations
and warranties of the Seller contained in this Agreement shall be true on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
4.2 No Orders. There shall be no Order of any nature in
effect that prevents the consummation of the transactions contemplated
hereby.
4.3 Tag-Along Rights. All tag-along or similar rights
relating to the Shares shall have been waived, expired or lapsed, and to
the knowledge of the Buyers and the Seller, no claim of tag-along or
similar rights relating to the Shares shall have been made.
<PAGE>
-5-
4.4 Acquisition. The Acquisition shall be consummated
at the same time as the Closing.
5. Conditions Precedent to the Obligation of the Seller to
Close. The obligation of the Seller to enter into and complete the Closing
is subject, at the option of the Seller, to the fulfillment on or prior to
the Closing Date of the condition, which may be waived by the Seller, that
the Acquisition shall be consummated at the same time as the Closing.
6. Termination of Agreement.
This Agreement shall terminate prior to the Closing as
follows:
(i) upon the termination of the Acquisition
Agreement; or
(ii) at any time on or prior to the Closing Date,
by mutual written consent of the Seller and the Buyers.
7. Miscellaneous.
7.1 Certain Definitions. (a) As used in this
Agreement, the following terms have the following meanings:
<PAGE>
-6-
(i) "Lien" means any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
(ii) "Order" means any order, judgment,
injunction, award, decision, determination, decree or writ.
(iii) "Person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
7.2 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
<PAGE>
-7-
(i) if to any of the Buyers, to:
31 West 52nd Street
New York, New York 10019
Attention: W. Townsend Ziebold
Facsimile: (212) 969-7879
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Peter Lyons, Esq.
Facsimile: (212) 848-7179
(ii) if to the Seller, to:
Joseph J. Bianco
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Stephen A. Greene, Esq.
Facsimile: (212) 269-5420
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices
hereunder.
7.3 Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the purchase of the
Shares and supersede all prior agreements, written or oral, with respect
thereto.
<PAGE>
-8-
7.4 Waivers and Amendments. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by the Buyers and the
Seller or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege.
7.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
7.6 Binding Effect; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties and their
respective successors and legal representatives. This Agreement is not
assignable, except that the Buyers may assign its rights hereunder to any
of its affiliates.
<PAGE>
-9-
7.7 Variations in Pronouns. All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
7.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed
by all of the parties hereto.
7.9 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
7.10 Severability of Provisions. If any provision or
any portion of any provision of this Agreement, or the application of any
such provision or any portion thereof to any Person or circumstance, shall
be held invalid or unenforceable, the remaining portion of such provision
and the remaining provisions of this Agreement, and the application of such
provision or portion of such provision as is held invalid or unenforceable
to Persons or circumstances other than those as to
<PAGE>
-10-
which it is held invalid or unenforceable, shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
WASSERSTEIN & CO., INC.
By:
Name:
Title:
U.S. EQUITY PARTNERS, L.P.
by its general partner,
W.P. Management Partners, L.L.C.
By:
Name:
Title:
U.S. EQUITY PARTNERS (OFFSHORE), L.P.
by its general partner,
W.P. Management Partners, L.L.C.
By:
Name:
Title:
Joseph J. Bianco
<PAGE>
Exhibit D-2
STOCK PURCHASE AGREEMENT
between
WASSERSTEIN & CO., INC.,
U.S. EQUITY PARTNERS
and
ANIL K. NARANG
Dated
August 15, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT, dated August 15, 1996, by and between WASSERSTEIN &
CO., INC., a Delaware corporation ("WCI"), and U.S. EQUITY PARTNERS, L.P.,
a Delaware limited partnership ("USEP Delaware"), U.S. EQUITY PARTNERS
(OFFSHORE), L.P., a Cayman Islands limited partnership ("USEP Offshore" and
together with USEP Delaware, "USEP," and USEP and WCI are collectively
referred to herein as the "Buyers"), and ANIL K. NARANG (the "Seller").
The Seller is the record and beneficial owner of 1,350,000
shares of common stock, par value $.0001 per share (the "Common Stock"), of
Alliance Entertainment Corp., a Delaware corporation ("Company") (the
"Shares"). The Seller wishes to sell the Shares and the Buyers wish to
purchase the Shares upon the terms and subject to the conditions of this
Agreement. Capitalized terms used herein but not otherwise defined shall
have the meanings given them in Section 7.1 hereof.
Accordingly, the parties agree as follows:
1. Sale and Purchase of Shares.
1.1 Sale and Purchase of Shares. At the Closing (as
hereinafter defined), (i) the Seller shall sell, and the Buyers shall
purchase, all of the Shares, free of any Liens, (ii) the Seller shall
deliver or cause to be delivered to WCI and USEP certificates representing
185,000 and 315,000,
<PAGE>
-2-
respectively, of the Shares accompanied by stock powers duly executed in
blank, in proper form for transfer, and with all appropriate stock transfer
tax stamps affixed, and (iii) the Buyers shall deliver the Purchase Price
(as hereinafter defined) to the Seller.
1.2 Purchase Price. The aggregate purchase price for
the Shares (the "Purchase Price") shall be $6.00 per share (the "Closing
Payment"). The Buyers shall pay the Closing Payment to the Seller, against
receipt of the Shares at the Closing, by a certified or official bank
check, or cash by wire transfer of immediately available funds.
2. Closing; Closing Date. The closing of the purchase and
sale of the Shares (the "Closing") shall take place simultaneously with the
closing of the transactions (the "Acquisition") contemplated by the Stock
Acquisition and Merger Agreement dated as of the date hereof (the
"Acquisition Agreement") among Company, Acquisition Sub, USEP, WCI, AT and
AT Sub at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York,
New York 10005 or at such other place and time as the parties may agree in
writing (such time and date being referred to herein as the "Closing
Date"). The Closing shall be effective as of the close of business on that
date.
<PAGE>
-3-
3. Representations and Warranties of Seller. The Seller
represents and warrants to the Buyers as follows:
3.1 Title to the Shares. As of the Closing Date, the
Seller shall own of record, free and clear of any Lien, the Shares, and,
upon delivery of and payment for such Shares as herein provided, the Seller
will convey to the Buyers good and valid title thereto, free and clear of
any Lien.
3.2 Authority to Execute and Perform Agreement. The
Seller has the full legal right, power and all authority required to enter
into, execute and deliver this Agreement and to perform fully the Seller's
obligations hereunder. This Agreement has been duly executed and delivered
by the Seller and (assuming the due authorization, execution and delivery
hereof by the Buyers) is a legal, valid and binding obligation of Seller
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting creditors' rights and to general equity principles (regardless of
whether enforcement is sought in a proceeding at law or in equity).
3.3 Representations and Warranties on Closing Date. The
representations and warranties contained in this Section 3 shall be true on
and as of the Closing Date with the
<PAGE>
-4-
same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
4. Conditions Precedent to the Obligation of the Buyers to
Close. The obligation of the Buyers to enter into and complete the Closing
is subject, at the option of the Buyers, to the fulfillment on or prior to
the Closing Date of the following conditions, any one or more of which may
be waived by it:
4.1 Representations and Warranties. The representations
and warranties of the Seller contained in this Agreement shall be true on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
4.2 No Orders. There shall be no Order of any nature in
effect that prevents the consummation of the transactions contemplated
hereby.
4.3 Tag-Along Rights. All tag-along or similar rights
relating to the Shares shall have been waived, expired or lapsed, and to
the knowledge of the Buyers and the Seller, no claim of tag-along or
similar rights relating to the Shares shall have been made.
<PAGE>
-5-
4.4 Acquisition. The Acquisition shall be consummated
at the same time as the Closing.
5. Conditions Precedent to the Obligation of the Seller to
Close. The obligation of the Seller to enter into and complete the Closing
is subject, at the option of the Seller, to the fulfillment on or prior to
the Closing Date of the condition, which may be waived by the Seller, that
the Acquisition shall be consummated at the same time as the Closing.
6. Termination of Agreement.
This Agreement shall terminate prior to the Closing as
follows:
(i) upon the termination of the Acquisition
Agreement; or
(ii) at any time on or prior to the Closing Date,
by mutual written consent of the Seller and the Buyers.
7. Miscellaneous.
7.1 Certain Definitions. (a) As used in this
Agreement, the following terms have the following meanings:
<PAGE>
-6-
(i) "Lien" means any lien, pledge, mortgage,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
(ii) "Order" means any order, judgment,
injunction, award, decision, determination, decree or writ.
(iii) "Person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
7.2 Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
<PAGE>
-7-
(i) if to any of the Buyers, to:
31 West 52nd Street
New York, New York 10019
Attention: W. Townsend Ziebold
Facsimile: (212) 969-7879
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Peter Lyons, Esq.
Facsimile: (212) 848-7179
(ii) if to the Seller, to:
Anil K. Narang
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Stephen A. Greene, Esq.
Facsimile: (212) 269-5420
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices
hereunder.
7.3 Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the purchase of the
Shares and supersede all prior agreements, written or oral, with respect
thereto.
<PAGE>
-8-
7.4 Waivers and Amendments. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms hereof
may be waived, only by a written instrument signed by the Buyers and the
Seller or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege.
7.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
7.6 Binding Effect; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties and their
respective successors and legal representatives. This Agreement is not
assignable, except that the Buyers may assign its rights hereunder to any
of its affiliates.
<PAGE>
-9-
7.7 Variations in Pronouns. All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
7.8 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed
by all of the parties hereto.
7.9 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
7.10 Severability of Provisions. If any provision or
any portion of any provision of this Agreement, or the application of any
such provision or any portion thereof to any Person or circumstance, shall
be held invalid or unenforceable, the remaining portion of such provision
and the remaining provisions of this Agreement, and the application of such
provision or portion of such provision as is held invalid or unenforceable
to Persons or circumstances other than those as to
<PAGE>
-10-
which it is held invalid or unenforceable, shall not be affected thereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
WASSERSTEIN & CO., INC.
By:
Name:
Title:
U.S. EQUITY PARTNERS, L.P.
by its general partner,
W.P. Management Partners, L.L.C.
By:
Name:
Title:
U.S. EQUITY PARTNERS (OFFSHORE),
L.P. by its general partner,
W.P. Management Partners, L.L.C.
By:
Name:
Title:
Anil K. Narang
<PAGE>
EXHIBIT E
<PAGE>
VOTING AGREEMENT
Voting Agreement, dated as of August 15, 1996 (this
"Agreement") among Joseph Bianco, John Friedman, Peter
Kaufmann, Elliot Newman, Robert Marx, Alvin Teller, Bain Capi-
tal, Inc., BT Capital Partners, Inc., U.S. Equity Partners,
L.P., U.S. Equity Partners (Offshore), L.P., and Wasserstein &
Co. Inc. (individually a "Party", and collectively "Parties")
which are or will become record or beneficial owners of Common
Stock, par value $.0001 per share ("Common Stock") of Alliance
Entertainment Corp., a Delaware corporation (the "Company").
WHEREAS, pursuant to a Stock Acquisition and Merger
Agreement dated as of August 15, 1996, among Alvin Teller
("AT"), Wasserstein & Co., Inc., ("WCI"), U.S. Equity Partners,
L.P. ("USEP Delaware"), U.S. Equity Partners (Offshore), L.P.
("USEP Offshore" and, together with USEP Delaware, "USEP"), the
Company and the parties thereto (the "Acquisition Agreement"),
AT, USEP, and WCI will receive shares of Common Stock of the
Company, and
WHEREAS, pursuant to Stock Purchase Agreements dated
as of August 15, 1996, WCI and USEP will purchase from certain
officers of the Company an aggregate of 1,850,000 shares of
Common Stock, and
<PAGE>
-2-
WHEREAS, the Parties are the owners of, or by proxy or
otherwise exercise irrevocable voting control over shares of Common Stock
of the Company as set forth in Exhibit A hereto,
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements hereinafter contained, the Parties
hereby agree as follows:
1. Voting of Shares by Parties. Each Party agrees to vote
all of the shares of Common Stock which are now or hereafter owned by such
Party, beneficially or of record, or which he or it is entitled to vote by
proxy or otherwise, including without limitation those shares identified on
Exhibit A attached hereto, at any special or annual meeting of the
stockholders of the Company, or by any written consent, whereat or whereby
the same are considered for approval by the stockholders of the Company,
for (a) the approval of the conversion rights of the Series A Convertible
Preferred Stock issued to BT Capital Partners, Inc. and BCI Growth IV, L.P.
(the "Purchasers") pursuant to a Preferred Stock Purchase Agreement dated
July 16, 1996, as set forth in the Certificate of Designations attached
thereto, (b) the approval of the Company's issuance of Common Stock
pursuant to any Party's exercise of any such conversion rights, (c) the
approval of the
<PAGE>
-3-
Purchase Agreement and the transactions contemplated thereby, including the
issuance of the contingent shares of Common Stock as contemplated by
Sections 1.9 and 2.4 thereof, and (d) the election of directors of the
Company designated by WCI and AT pursuant to Section 9.2 of the Acquisition
Agreement, two (2) directors designated by BT Capital Partners, Inc., one
(1) director designated by Bain Capital Inc. and the remainder of the
directors designated by Joseph Bianco.
2. Changes in Common Stock. In the event that subsequent to
the date of this Agreement any shares or other securities (other than any
shares or securities of another corporation issued to the stockholders of
the Company pursuant to a plan of merger) are issued on, or in exchange
for, any of the shares of the Common Stock or Preferred Stock held by the
Parties by reason of any stock divided, stock split, consolidation of
shares, reclassification, or consolidation involving the Company, such
shares or securities shall be deemed to be Common Stock for purposes of
this Agreement.
3. Representations of Parties. Each Party hereby represents
and warrants that (i) such Party owns and/or has the right to vote the
number of shares of the Common Stock set forth opposite his or its name on
Exhibit A attached hereto,
<PAGE>
-4-
(ii) such Party has full power to enter into this Agreement and has not,
prior to the date of this Agreement, executed or delivered any proxy or
entered into any other voting agreement or similar arrangement that would
conflict with the purposes or provisions of this Agreement, (iii) such
Party will not take any action inconsistent with the purposes and
provisions of this Agreement and (iv) this Agreement is a valid, binding
and enforceable obligation of such Party.
4. Proxy. Joseph Bianco agrees to use his best efforts to
cause each of the signatories to the Restated and Amended Stockholders'
Agreement dated as of November 30, 1993, as amended on May 18, 1995 (the
"Stockholders' Agreement"), who granted an irrevocable proxy to Joseph
Bianco with respect to the shares of stock of the Company which they own,
to grant an irrevocable proxy to Al Teller with respect to the shares of
stock of the Company which they own to the same extent as set forth in the
Stockholders' Agreement; provided, that such proxy shall be effective only
upon the death of Mr. Bianco. Mr. Bianco shall also use his best efforts
to cause such persons to agree that they shall not grant any other proxy
with respect to their shares of stock.
<PAGE>
-5-
5. Enforceability. Each Party expressly agrees that this
Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against each of the parties
hereto.
6. Benefit. This Agreement shall be binding upon and inure
to the benefit of the respective parties hereto and their successors.
7. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within the State
of New York.
8. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
<PAGE>
-6-
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
Joseph Bianco
John Friedman
Peter Kaufmann
Robert Marx
Elliot Newman
______________________________
Alvin Teller
BAIN CAPITAL, INC.
______________________________
By:
Title:
BT CAPITAL PARTNERS, INC.
______________________________
By:
Title:
<PAGE>
-7-
U.S. EQUITY PARTNERS, L.P.
by its general partner,
W.P. Management Partners, L.L.C.
______________________________
By:
Title:
U.S. EQUITY PARTNERS (OFFSHORE),
L.P. by its general partner,
W.P. Management Partners, L.L.C.
______________________________
By:
Title:
WASSERSTEIN & CO., INC.
______________________________
By:
Title
<PAGE>
Exhibit A
Common Stock
Joseph Bianco 7,604,250
John Friedman 101,000
Peter Kaufmann 315,000
Robert Marx 60,000
Elliot Newman 112,000
Alvin Teller 760,823*
Bain Capital, Inc. 3,306,972
BT Capital Partners, Inc. 3,974,937
U.S. Equity Partners, L.P. 4,903,162*
Wasserstein & Co., Inc. 2,904,766*
___________________
* Shares to be acquired upon the closing of the Acquisition
Agreement.
<PAGE>
EXHIBITS F-1, F-2 AND F-3
<PAGE>
EXHIBIT F-1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as
of the 15th day of August, 1996, by and between Alliance Enter-
tainment Corp., a Delaware corporation having its principal
office at 110 East 59th Street, New York, New York 10022 (the
"Company"), and Joseph J. Bianco, residing at 23 West 12th
Street, New York, New York 10012 (the "Executive").
R E C I T A L S:
WHEREAS, the Company considers it essential and in
the best interests of its stockholders to more closely align
the interests of the Executive with those of its shareholders
and that the Executive support the mission, values and strategy
of the Company and desires to retain the services of the Execu-
tive; and
WHEREAS, the Executive desires to accept such employ-
ment by the Company, upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual cove-
nants and agreements set forth herein, the parties agree as
follows:
1. Employment and Duties. The Company agrees to
employ the Executive as Co-Chairman of the Company and the
Executive accepts such employment and agrees to perform all
duties and services consistent with the Executive's position.
As Co-Chairman, the Executive shall be the second highest rank-
ing officer of the Company. The Executive agrees to devote
substantially all of the Executive's business time, attention
and energy to perform the Executive's duties and services
hereunder.
2. Term of Employment. The term of the Executive's
employment under this Agreement shall commence on March 15,
1995 and shall end on the fifth anniversary of such date,
unless sooner terminated as provided in Section 5 hereof (the
"Employment Period"); provided, however, that commencing on
March 15, 2000, and each March 15 thereafter, the term of this
Agreement shall automatically be renewed for one (1) additional
year unless, not earlier than 210 days nor later than 180 days
prior to such date, either party shall have provided written
notice that such party elects not to renew the term of this
Agreement.
<PAGE>
-2-
3. Compensation and Benefits.
3.1 Base Salary. For the year commencing
March 15, 1996, the Company shall pay the Executive a base sal-
ary of Five Hundred Seventy-Eight Thousand ($578,000) Dollars
per annum ("Base Salary"). The Base Salary for each year after
the first year may be increased from time to time in the sole
discretion of the Board and in any event will be increased
annually to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Con-
sumer Price Index, All Urban Consumers, United States City
Average, all items (1982-88 = 100). Base Salary shall be pay-
able at such intervals as salaries are paid by the Company to
its other executive employees.
3.2 Bonus. In addition to Base Salary, with
respect to each fiscal year during the Employment Period, the
Executive shall be entitled to participate in, and be eligible
for annual bonuses under, the Company's Executive Incentive
Plan or other annual bonus program which shall be no less
favorable to the Executive than the Executive Incentive Plan.
Any such bonus amount (a "Bonus") shall be payable at such time
as executive bonuses customarily are paid by the Company, but
in no event later than 30 days after the end of the Company's
fiscal year. The Executive's target Bonus shall be an amount
equal to sixty percent (60%) of Base Salary and the Executive's
maximum Bonus shall be equal to ninety percent (90%) of Base
Salary, subject to satisfaction of applicable performance goals
established by the Compensation Committee of the Company's
board of directors (the "Compensation Committee"). Notwith-
standing the foregoing, in any year the Compensation Committee
may recommend for good reason a reduction in bonus for such
year.
3.3 Benefit Plans. During the Employment
Period, the Company shall provide Executive with the use of the
office in the Company's New York City headquarters currently
occupied by Executive, with appropriate administrative ser-
vices, including a secretary, and the Executive shall be enti-
tled to participate in all plans adopted for the general bene-
fit of the Company's employees or executive employees, such as
pension plans, medical plans, disability plans, investment
plans and group or other insurance plans and benefits, to the
extent that the Executive is and remains eligible to partici-
pate therein and subject to the eligibility provisions of such
plans in effect from time to time; provided, however, that such
benefits shall not be less, in the aggregate, than those in
<PAGE>
-3-
effect on March 15, 1995. The Executive has received, and
shall be eligible to continue to receive, grants of performance
units under the Company's Long-Term Incentive and Share Award
Plan and such other stock option or incentive plans as may be
maintained by the Company, in such amounts and at such times as
shall be determined by the Compensation Committee. The Execu-
tive shall be reimbursed for his reasonable out-of-pocket
expenses incurred in the performance of his duties upon submis-
sion of appropriate evidence thereof in conformity with normal
Company policy for executive officers. In addition, the Execu-
tive shall receive a per diem of $1,000 for each day or portion
thereof he is working in Florida.
3.4 Automobile. The Company shall provide
[two] luxury automobiles for the exclusive use and benefit of
the Executive. The automobiles shall be of a type similar to
the automobiles currently provided by the Company for the bene-
fit of the Executive. With respect to any automobile provided
to the Executive pursuant to this Section 3.4 which is subject
to a lease, the Executive shall have the right to purchase the
automobile at the termination of the term of such lease. With
respect to any automobile provided to the Executive pursuant to
this Section 3.4 which is owned by the Company, the Executive
shall have the right to purchase such automobile at its depre-
ciated book value.
4. Vacation. For each year during the Employment
Agreement, the Executive shall be entitled to paid vacation in
accordance with the Company's standard policy for executive
officers.
5. Termination.
5.1 Death. This Agreement shall automatically
terminate upon the death of the Executive, whereupon the Com-
pany shall be obligated to pay to the Executive's estate any
unpaid Base Salary and pro rata Bonus, if any, as determined by
the Compensation Committee, through the date of death. Amounts
payable under this Section 5.1 shall be payable at the times
and intervals set forth in Sections 3.1 and 3.2 hereof.
5.2 Disability. The Company shall have the
right to terminate this Agreement during the continuance of any
Disability of the Executive, as hereinafter defined, upon fif-
teen (15) days' prior notice to the Executive during the con-
tinuance of the Disability. "Disability" for purposes of this
Section 5.2 shall mean an inability by the Executive to perform
<PAGE>
-4-
a substantial portion of the Executive's duties hereunder by
reason of physical or mental incapacity of disability for a
total of one hundred eighty (180) days or more in any consecu-
tive period of three hundred and sixty-five (365) days, as
determined by the Board of Directors in its good faith judg-
ment. In the event of a termination by reason of the Execu-
tive's Disability, the Company shall be obligated to assist the
Executive in obtaining payment under the existing disability
insurance maintained for the Executive by the Company. Amounts
payable under this Section 5.2 shall be payable at the times
and intervals set forth in Sections 3.1 and 3.2 hereof.
5.3 Termination for Cause. Upon the early ter-
mination of this Agreement by the Company for Cause, the Com-
pany shall only be obligated to pay the Executive his Base Sal-
ary pro-rated to the date of termination and any then accrued
benefits. For purposes of this Agreement, "Cause" shall mean
(i) any willful and continuing material failure by the Execu-
tive to perform his material duties under this Agreement, taken
as a whole; (ii) the Executive's conviction of or plea of nolo
contendere to a Felony; (iii) the Executive's conviction of
fraud or embezzlement against the Company; (iv) any willful or
intentional misconduct having the effect of materially injuring
the business of the Company, or (v) any willful and material
breach by the Executive of any of the provisions of the Confi-
dentiality and Non-Competition Agreement attached hereto as
Exhibit A. Termination for Cause shall become effective upon
notice to the Executive.
5.4 Termination by Executive for Other than
Good Reason. Upon the early termination of this Agreement by
the Executive for other than Good Reason, the Company shall be
obligated to: (i) pay the Executive his Base Salary pro-rated
to the date of termination plus any then accrued benefits; (ii)
pay the Executive, on a monthly basis or more frequently, a
consulting fee of 75% of the Executive's Base Salary at the
time of termination through March 15, 2000, or if this Agree-
ment is renewed pursuant to Section 2, through the date to
which this Agreement has been renewed; (iii) provide that all
options granted to the Executive under the Company's Long-Term
Incentive and Share Award Plan and such other stock option or
incentive plans as may be maintained by the Company shall vest
upon such termination; (iv) transfer to the Executive all right
and title to the automobiles provided to the Executive pursuant
to Section 3.4 herein; (v) transfer to the Executive for con-
sideration of $10,000 all right and title to the Company's
facility located on Lake Tenanah in Roscoe, New York; (vi) pay
<PAGE>
-5-
all premiums with respect to the split dollar life insurance
policy maintained by the Company on the Executive's life exist-
ing as of the date of this Agreement; (vii) provide coverage
for the Executive under the Company's automobile insurance pol-
icies, for which the Company shall be reimbursed by the Execu-
tive; and (viii) provide the Executive coverage under the Com-
pany's medical plans and life insurance plans or other similar
medical and life insurance coverage, or the economic equivalent
of such coverage, for so long as the Executive shall live. For
purposes of this Agreement, "Good Reason" shall mean any of the
following: (i) a reduction or adverse change in, or a change
which is inconsistent with, the Executive's responsibilities,
duties, authority, power, functions, title, working conditions
or status; or (ii) a reassignment to another geographic loca-
tion more than fifty (50) miles from the Executive's place of
employment; or (iii) a material breach by the Company of this
Agreement.
5.5 Termination for Other Reason. If the Exec-
utive's employment is terminated during the term of this Agree-
ment by the Executive for Good Reason or by the Company other
than by reason of (i) death, (ii) Disability, or (iii) for
Cause, then the Company shall pay the Executive a cash lump sum
in an amount equal to (i) four (4) times his Base Salary in
effect at the time of his termination of employment, plus
(ii) the higher of the Bonus which the Executive received in
the prior fiscal year, or the target Bonus applicable to the
Executive in the fiscal year of such termination. Such amount
shall be payable no later than thirty (30) days following the
Executive's termination pursuant to this Section 5.5. For the
three year period after the Executive's termination of employ-
ment pursuant to this Section 5.5, the Executive shall be
(i) entitled to continued participation in all of the Company's
employee benefit plans, including, without limitation, contin-
ued accrual for retirement benefits, and all of the other bene-
fits and perquisites provided for under this Agreement (other
than those benefits set forth in clause (vi) below) or
(ii) provided the economic equivalent of such continued par-
ticipation and perquisites. In addition, the Company shall
be obligated to: (i) provide that all options granted to the
Executive under the Company's Long-Term Incentive and Share
Award Plan and such other stock option or incentive plans as
may be maintained by the Company shall vest upon such termina-
tion; (ii) transfer to the Executive all right and title to the
automobiles provided to the Executive pursuant to Section 3.4
herein; (iii) transfer to the Executive for consideration of
$10,000 all right and title to the Company's facility located
<PAGE>
-6-
on Lake Tenanah in Roscoe, New York; (iv) pay all premiums with
respect to the split dollar life insurance policy maintained by
the Company on the Executive's life existing as of the date of
this Agreement; (v) provide coverage for the Executive under
the Company's automobile insurance policies, for which the Com-
pany shall be reimbursed by the Executive; and (vi) provide the
Executive coverage under the Company's medical plans and life
insurance plans or other similar medical or life insurance
coverage, or the economic equivalent of such coverage, for so
long as the Executive shall live.
5.6 Nature of Payments. Any payments pursuant
to the provisions of this Section 5 shall not be subject to any
requirement as to mitigation or offset.
5.7 Tax Gross-up. Anything in this Agreement
to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution made, or benefit
provided, by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursu-
ant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this
Section 5.7) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended and then in effect (the "Code") (or any similar
excise tax) or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Execu-
tive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all Federal, state, local or other taxes (includ-
ing any interest or penalties imposed with respect to any such
taxes), including, without limitation, any such income taxes
(and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(i) Subject to the provisions of paragraph (ii) of
this Section 5.7, all determinations required to be made under
this Section 5.7, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and the Executive within 20 calendar days of the
<PAGE>
-7-
receipt of written notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the change in control, the Executive shall have the
right by written notice to the Company to appoint another
nationally recognized accounting firm to make the determina-
tions required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company and shall be paid by the Company upon demand of the
Executive as incurred or billed by the Accounting Firm. Any
Gross-Up Payment, as determined pursuant to this Section 5.7,
shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with an unqualified
written opinion in form and substance satisfactory to the Exec-
utive that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpay-
ment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
described in paragraph (ii) of this Section 5.7 and the Execu-
tive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be paid by the Company to or for the benefit of the Executive
within five days of the receipt of the Accounting Firm's deter-
mination. All determinations made by the Accounting Firm in
connection with any Gross-Up Payment or Underpayment shall be
final and binding upon the Company and the Executive.
(ii) The Executive shall notify the Company in writ-
ing of any claim asserted in writing by the Internal Revenue
Service to the Executive that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notifica-
tion shall be given as soon as practicable but not later than
60 days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such
<PAGE>
-8-
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall at the Company's expense:
a. give the Company any information reasonably requested
by the Company relating to such claim,
b. take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney rea-
sonably selected by the Company,
c. cooperate with the Company in good faith in order
effectively to contest such claim, and
d. permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly
as incurred all costs and expenses (including additional inter-
est and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or any Federal, state, local or
other income or other tax (including interest and penalties
with respect thereto) imposed as a result of such representa-
tion and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 5.7, the Company shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any per-
missible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such pay-
ment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or Federal, state, local or other
income or other tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
<PAGE>
-9-
respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limita-
tions relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be lim-
ited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(iii) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (ii) of
this Section 5.7, the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of paragraph
(ii) of this Section 5.7) promptly pay to the Company the
amount of such refund (together with any interest paid or cred-
ited thereon after taxes applicable thereto) upon receipt
thereof. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (ii) of this
Section 5.7, a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
6. Confidentiality and Non-Competition Agreement.
The Executive shall be bound by the terms of the Confidential-
ity and Non-Competition Agreement, a copy of which is annexed
hereto as Exhibit A, during the Employment Period and for such
period following the Employment Period as is set forth in the
Confidentiality and Non-Competition Agreement. The Executive
and the Company shall execute a copy of the Confidentiality and
Non-Competition Agreement simultaneously with the execution of
this Agreement.
7. Settlement of Performance Unit Awards. As con-
sideration for entering into this Amended and Restated Employ-
ment Agreement and for waiving any rights the Executive has to
receive amounts payable to the Executive under grants made
prior to the date of this Agreement of Performance Unit Awards
under the Company's Long-Term Incentive and Share Award Plan,
<PAGE>
-10-
the Company hereby agrees to pay to the Executive $2,100,000 on
the date of this Agreement.
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement and the
Confidentiality and Non-Competition Agreement attached hereto
as Exhibit A set forth the entire agreement and understanding
between the parties with respect to the subject matter hereof
and supersede all prior agreements, arrangements, and under-
standings between the parties with respect to the subject mat-
ter hereof. Upon execution of this Agreement and the Confiden-
tiality and Non-Competition Agreement, the employment agreement
between the Executive and the Company dated March 15, 1995,
shall be superseded and shall be of no further force and
effect.
8.2 Modification. This Agreement may be
amended, modified, superseded, canceled, renewed or extended,
and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties or in the
case of a waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any
time or times to require performance of any provision hereof in
no manner shall affect the right at a later time to enforce the
same. No waiver by either party of a breach of any term or
covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such
breach or a waiver of any other term or covenant contained in
this Agreement.
8.4 Notices. All notices, demands, consents or
other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given) upon the
earlier of receipt, one business day after being sent by
telecopier or three business days after being sent by regis-
tered or certified mail to the parties at the addresses set
forth above or to such other address as either party shall
hereafter specify by notice to the other party. Irrespective
of the foregoing, notice of change of address shall be effec-
tive only upon receipt.
<PAGE>
-11-
8.5 Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of New York applicable to contracts made and to be per-
formed wholly within such state.
8.6 Arbitration. Any controversy or claim
arising out of or relating to this Agreement, the making,
interpretation or the breach thereof, other than a claim solely
for injunctive relief for any alleged breach of the provisions
of the Confidentiality and Non-Competition Agreement as to
which the parties shall have the right to apply for specific
performance to any court having equity jurisdiction, shall be
resolved by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitra-
tion Association and judgment upon the award tendered by the
arbitrators may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if such party so
elects, institute proceedings in any court having jurisdiction
for the specific performance of any such award. The powers for
the arbitrator or arbitrators shall include, but not be limited
to, the awarding of injunctive relief. The arbitrator shall
include in any award in the prevailing party's favor the amount
of his or its reasonable attorney's fees and expenses and all
other reasonable costs and expenses of the arbitration. In the
event the arbitrator does not rule in favor of the prevailing
party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevail-
ing party the amount of his or its reasonable costs and
expenses of the arbitration as he deems just and equitable
under the circumstances. Except as provided above, each party
shall bear his or its own attorney's fees and expenses and the
parties shall bear equally all other costs and expenses of the
arbitration.
8.7 Assignability. This Agreement, and the
Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign its rights,
together with its obligations hereunder, only to a successor by
merger or by the purchase of all or substantially all of the
assets and business of the Company and such rights and obliga-
tions shall inure to, and be binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties and
their respective legal representatives, heirs, permitted suc-
cessors and permitted assigns.
<PAGE>
-12-
8.9 Headings and Word Meanings. Headings and
titles in this Agreement are for convenience of reference only
and shall not control the construction or interpretation of any
provisions hereof. The words "herein," "hereof," "hereunder"
and words of similar import, when used anywhere in this Agree-
ment, refer to this Agreement as a whole and not merely to a
subdivision in which such words appear. unless the context
otherwise requires. The singular shall include the plural
unless the context otherwise requires.
8.10 Separability. Any term or provision of
this Agreement which is invalid or unenforceable in any juris-
diction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without rendering
invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other
jurisdiction.
<PAGE>
-13-
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By:
THE EXECUTIVE
Joseph J. Bianco
<PAGE>
Exhibit A
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(the "Agreement"), entered into and effective as of the day
of _________________, 1996, is by and between ALLIANCE ENTER-
TAINMENT CORP. (the "Company") and _____________ ("Employee").
In Consideration of Employee's employment by the Com-
pany, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the par-
ties agree as follows:
1. Confidential Information. By virtue of Employ-
ee's employment at the Company, Employee may obtain confiden-
tial or proprietary information developed, or to be developed,
by the Company. "Confidential Information" means all informa-
tion, whether in oral, written, graphic or machine-readable
form, including but not limited to all: software used or
developed in whole or in part by the Company (including source
code); algorithms; computer processing systems and techniques;
price lists; customer lists; procedures; improvements, concepts
and ideas; business plans and proposals; technical plans and
proposals; research and development; budgets and projections;
technical memoranda, research reports, designs and specifica-
tions; new product and service develpments; comparative anal-
yses of competitive products, services and operating proce-
dures; and other information, data and documents now existing
or later acquired by the Company, regardless of whether any of
such information, data or documents qualify as a "trade secret"
under applicable Federal or State law. All such information is
collectively referred to as the "Confidential Information".
2. Non-Disclosure. The Employee agrees that,
except as directed by the Company, he will not at any time
(during the term of Employee's employment by the Company or at
any time thereafter), except as may be expressly authorized by
the Company in writing, disclose to any person or use any Con-
fidential Information whatsoever for any purpose whatsoever, or
permit any person whatsoever to examine and/or make copies of
any reports or any documents or software (whether in written
form or stored on magnetic, optical or other mass storage
media) prepared by him or that come into his possession or
under his control by reason of his employment by the Company or
by reason of any consulting or software development services he
has performed or may in the future perform for the Company
which contain or are derived from Confidential Information.
<PAGE>
-2-
The Employee further agrees that while employed at the Company,
no Confidential Information shall be removed from the Company's
business premises, without the prior written consent of the
Company.
3. Company Property. As used in this Agreement,
the term "Company Property" means all documents, papers, com-
puter printouts and disks, records, customer or prospect lists,
files, manuals, supplies, computer hardware and software,
equipment, inventory and other materials that have been cre-
ated, used or obtained by the Company, or otherwise belonging
to the Company, as well as any other materials containing Con-
fidential Information as defined in Section 1 above. Employee
recognizes and agrees that:
3.1 All Company Property shall be and remain the
property of the Company;
3.2 Employee will preserve, use and hold Company
Property only for the benefit of the Company and to carry out
the Company's business; and
3.3 When Employee's employment is terminated,
Employee will immediately deliver to the Company all Company
Property, including all copies or any other types of reproduc-
tions which Employee has in his possession or control.
4. Non-Solicitation. During the period of his
employment and for a period of one (1) year after termination
of his employment at Alliance for any reason, Employee shall
not, on his own behalf or on behalf of any person, firm or cor-
poration, or in any capacity whatsoever, (i) solicit any per-
sons or entities with which Alliance had contracts or was nego-
tiating contracts regarding products or services during the
term of Employee's employment, or (ii) induce, suggest, per-
suade or recommend to any such persons or entities that they
terminate, alter or refrain from renewing or extending, their
relationship with Alliance or become a client of Employee or
any third party, and Employee shall not himself and shall not
induce or permit any other person to approach any such person
or entity for any purpose. Should Employee become aware that
any other Employee or third party has engaged in such conduct,
Employee agrees to immediately advise Alliance of the circum-
stances of any such conduct.
5. Restrictive Covenant. Employee acknowledges
that his employment with the Company will enable him to obtain
<PAGE>
-3-
knowledge about the computer software the Company develops or
uses, as well as of the entertainment and other fields in which
the Company does business, and will also enable him to form
certain relationships with individuals and entities in the geo-
graphic area in which the Company furnishes its services.
Employee further acknowledges that the goodwill and other pro-
prietary interests of the Company will suffer irreparable and
continuing damage in the event Employee enters into competition
with the Company within one (1) year subsequent to the termina-
tion of his employment. Therefore, Employee agrees that during
the term of his employment and for a period of one (1) year
thereafter, regardless of the cause of the termination of
Employee's employment, he will not, without prior written con-
sent of the Company, engage directly or indirectly in any con-
duct, activity, or business whatsoever which would provide
revenue to Employee or to any third party, with any person or
entity manufacturing, distributing or supplying a product or
service competing with the Company's products or services.
Employee further acknowledges that his employment with the Com-
pany constitutes fair and adequate consideration for his agree-
ment not to engage in such conduct within one (1) year of the
termination of his employment, regardless of the cause of such
termination. Employee further agrees that should the Company,
in its sole discretion, determine that it is desirable or
appropriate to make any payment to Employee upon termination of
employment ("Severance Pay"), such Severance Pay shall be
deemed additional consideration for Employee's binding obliga-
tion not to engage in such conduct during the one (1) year
period. However, and notwithstanding any other provision of
this Agreement, it is understood and agreed by the Company and
Employee that any decision made by the Company regarding Sever-
ance Pay, regardless of whether termination occurs with or
without cause, shall in no way discharge or release Employee
from the obligation not to engage in such conduct during the
one (1) year period.
6. Work Product. Employee agrees that, during the
term of his employment with the Company:
6.1 He will disclose promptly and fully to the Com-
pany all works of authorship, inventions, discoveries, improve-
ments, designs, processes, software, or any improvements,
enhancements, or documentation of or to the same that he makes,
works on or conceives, individually or jointly with others, in
the course of his employment by the Company or with the use of
the Company's time, materials or facilities, in any way related
or pertaining to or connected with the present or anticipated
<PAGE>
-4-
business, development, work or research of the Company or which
results from or are suggested by any work he may do for the
Company and whether produced during normal business hours or on
personal time (collectively the "Work Product");
6.2 All Work Product of the Employee shall be deemed
to be "work made for hire" within the meaning of { 101 of the
Copyright Act and all rights to copyright shall be vested
entirely in the Company. If for any reason the Work Product is
deemed not to be "work made for hire," and its rights to copy-
right are thereby in doubt, this Agreement shall constitute an
irrevocable assignment by the Employee to the Company of all
right, title and interest in the copyright of all Work Product
created under this Agreement. The parties intend that any and
all copyright and other intellectual property rights in the
Work Product, including, without limitation, any and all rights
of whatever kind and nature now or hereafter to distribute and
reproduce such Work Product in any and all media throughout the
world, are the sole property of the Company. The Employee
hereby agrees to assist the Company in any manner as shall be
reasonably requested by the Company to protect the Company's
interest in such copyright and/or other intellectual property
rights, and to execute and deliver such legal instruments or
documents as the Company shall request in order for the Company
to register the Company's worldwide copyright in the Work Prod-
uct with the U.S. Copyright Office and to register and protect
the Company's copyright or other intellectual property rights
in the Work Product throughout the world. Likewise, the
Employee hereby agrees to assist the Company by executing such
other documents and instruments which the Company deems neces-
sary to enable it to evidence, perfect and protect its right,
title and interest in and to the Work Product.
6.3 Employee shall make and maintain adequate and
current written records and evidence of all Work Product,
including drawings, work papers, graphs, computer records and
any other document which shall be and remain the property of
the Company, and which shall be surrendered to the Company upon
request and upon the termination of Employee's employment with
the Company, regardless of cause. The provisions of this sec-
tion and the term Work Product as used herein do not apply to
any invention for which no equipment, supplies, facilities or
confidential, proprietary or trade secret information of the
Company was used, and which was developed entirely on Employ-
ee's own time, while not on the Company's business premises,
and which does not relate to the Company's business, unless:
(i) the invention relates to the Company's actual or
<PAGE>
-5-
demonstratively anticipated research development or (ii) the
invention results from any work performed by Employee for the
Company.
7. Enforcement. The breach or threatened breach by
Employee of any of the provisions of this Agreement shall: (i)
constitute cause for the termination of Employee's employment
and (ii) entitle the Company to a permanent injunction or other
injunctive relief in order to prevent or restrain any such
breach or threatened breach by Employee or his partners,
agents, representatives, servants, independent contractors, or
any and all persons or entities directly or indirectly acting
for or with Employee. The rights and remedies of the Company
under this Agreement shall be in addition to and not in limita-
tion of any of the rights, remedies, and monetary or other dam-
ages or redress available to it at law or equity.
8. Acknowledgment. Employee acknowledges that he
has carefully read and considered the provisions of this Agree-
ment, and having done so, agrees that the restrictions set
forth are fair and reasonably required for the protection of
the interests of the Company. In the event that, notwithstand-
ing the foregoing, any part of the covenants set forth shall be
held to be invalid or unenforceable, the remaining parts
thereof shall nevertheless continue to be valid and enforceable
as though the invalid or unenforceable parts had not been
included therein. In the event that any provision of this
Agreement shall be declared by a court of competent jurisdic-
tion to be unreasonable or unenforceable, the court shall
enforce the provision in a way which it deems to be reasonable
and enforceable.
9. Survival. This Agreement shall survive any ter-
mination of Employee's employment, whether or not for cause.
10. The Company Defined. As used in this Agreement,
the term "the Company" includes the Company, any assignee or
other successor in interest of the Company, and any parent,
subsidiary, or other corporation or partnership under common
ownership or control with the Company.
11. Notices. All notices in accordance with this
Agreement shall be in writing and given by hand delivery, over-
night express delivery, or certified U.S. mail, return receipt
requested, and properly addressed to the party for whom it is
intended at the following addresses or such other address as is
most recently noticed for such party:
<PAGE>
-6-
If to the Company: Alliance Entertainment Corp.
[Address]
Attn: ____________________
If to Employee: __________________________
__________________________
__________________________
12. Miscellaneous. This Agreement is legally bind-
ing on both Employee and the Company and benefits their succes-
sors and assigns. It may be executed in counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument. It represents
the parties' entire understanding regarding the subject matter
of this Agreement and supersedes any and all other prior agree-
ments regarding the same subject matter. The terms and provi-
sions of this Agreement cannot be terminated, modified, or
amended except in a writing signed by the party against whom
enforcement is sought. This Agreement shall be construed in
accordance with the laws of the State of New York, and any
suit, action or proceeding arising out of or relating to this
Agreement shall be commenced and maintained in any court of
competent subject-matter jurisdiction in the State of New York,
with exclusive venue in New York County. In any suit, action
or proceeding arising out of or in connection with this Agree-
ment, the prevailing party shall be entitled to an award of the
amount of attorneys' fees and disbursements actually billed to
such party, including fees and disbursements on one or more
appeals.
13. No Guarantee of Employment. Nothing in this
Agreement shall be interpreted or construed to be a guarantee
of ongoing employment, or to otherwise limit the Company's
right to terminate Employee's employment at any time.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
_________________________ _________________________
(signature) (signature)
________________________ _________________________
(name printed) (name printed)
_________________________
(title)
<PAGE>
EXHIBIT F-2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as
of the 15th day of August, 1996, by and between Alliance Enter-
tainment Corp., a Delaware corporation having its principal
office at 110 East 59th Street, New York, New York 10022 (the
"Company"), and Anil K. Narang, residing at 328> East 83rd
Street, New York, New York 10028 (the "Executive").
R E C I T A L S:
WHEREAS, the Company considers it essential and in
the best interests of its stockholders to more closely align
the interests of the Executive with those of its shareholders
and that the Executive support the mission, values and strategy
of the Company and desires to retain the services of the Execu-
tive; and
WHEREAS, the Executive desires to accept such employ-
ment by the Company, upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual cove-
nants and agreements set forth herein, the parties agree as
follows:
1. Employment and Duties. The Company agrees to
employ the Executive as Vice Chairman of the Company and the
Executive accepts such employment and agrees to perform all
duties and services consistent with the Executive's position.
The Executive agrees to devote substantially all of the Execu-
tive's business time, attention and energy to perform the Exec-
utive's duties and services hereunder.
2. Term of Employment. The term of the Executive's
employment under this Agreement shall commence on March 15,
1995 and shall end on the fifth anniversary of such date,
unless sooner terminated as provided in Section 5 hereof (the
"Employment Period"); provided, however, that commencing on
March 15, 2000, and each March 15 thereafter, the term of this
Agreement shall automatically be renewed for one (1) additional
year unless, not earlier than 210 days nor later than 180 days
prior to such date, either party shall have provided written
notice that such party elects not to renew the term of this
Agreement.
<PAGE>
-2-
3. Compensation and Benefits.
3.1 Base Salary. For the year commencing
March 15, 1996, the Company shall pay the Executive a base sal-
ary of Four Hundred Eighty-Four Thousand ($484,000) Dollars per
annum ("Base Salary"). The Base Salary for each year after the
first year may be increased from time to time in the sole dis-
cretion of the Board and in any event will be increased annu-
ally to reflect corresponding increases in the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all
items (1982-88 = 100). Base Salary shall be payable at such
intervals as salaries are paid by the Company to its other
executive employees.
3.2 Bonus. In addition to Base Salary, with
respect to each fiscal year during the Employment Period, the
Executive shall be entitled to participate in, and be eligible
for annual bonuses under, the Company's Executive Incentive
Plan or other annual bonus program which shall be no less
favorable to the Executive than the Executive Incentive Plan.
Any such bonus amount (a "Bonus") shall be payable at such time
as executive bonuses customarily are paid by the Company, but
in no event later than 30 days after the end of the Company's
fiscal year. The Executive's target Bonus shall be an amount
equal to fifty percent (50%) of Base Salary and the Executive's
maximum Bonus shall be equal to seventy-five percent (75%) of
Base Salary, subject to satisfaction of applicable performance
goals established by the Compensation Committee of the Compa-
ny's board of directors (the "Compensation Committee"). Not-
withstanding the foregoing, in any year the Compensation Com-
mittee may recommend for good reason a reduction in bonus for
such year.
3.3 Benefit Plans. During the Employment
Period, the Company shall provide the Executive with the use of
the office in the Company's New York City headquarters cur-
rently occupied by Executive, with appropriate administrative
services, including a secretary, and the Executive shall be
entitled to participate in all plans adopted for the general
benefit of the Company's employees or executive employees, such
as pension plans, medical plans, disability plans, investment
plans and group or other insurance plans and benefits, to the
extent that the Executive is and remains eligible to partici-
pate therein and subject to the eligibility provisions of such
plans in effect from time to time; provided, however, that such
benefits shall not be less, in the aggregate, than those in
<PAGE>
-3-
effect on March 15, 1995. The Executive has received, and
shall be eligible to continue to receive, grants of performance
units under the Company's Long-Term Incentive and Share Award
Plan and such other stock option or incentive plans as may be
maintained by the Company, in such amounts and at such times as
shall be determined by the Compensation Committee. The Execu-
tive shall be reimbursed for his reasonable out-of-pocket
expenses incurred in the performance of his duties upon submis-
sion of appropriate evidence thereof in conformity with normal
Company policy for executive officers.
3.4 Automobile. The Company shall provide
[two] luxury automobiles for the exclusive use and benefit of
the Executive. The automobiles shall be of a type similar to
the automobiles currently provided by the Company for the bene-
fit of the Executive. With respect to any automobile provided
to the Executive pursuant to this Section 3.4 which is subject
to a lease, the Executive shall have the right to purchase the
automobile at the termination of the term of such lease. With
respect to any automobile provided to the Executive pursuant to
this Section 3.4 which is owned by the Company, the Executive
shall have the right to purchase such automobile at its depre-
ciated book value.
4. Vacation. For each year during the Employment
Agreement, the Executive shall be entitled to paid vacation in
accordance with the Company's standard policy for executive
officers.
5. Termination.
5.1 Death. This Agreement shall automatically
terminate upon the death of the Executive, whereupon the Com-
pany shall be obligated to pay to the Executive's estate any
unpaid Base Salary and pro rata Bonus, if any, as determined by
the Compensation Committee, through the date of death. Amounts
payable under this Section 5.1 shall be payable at the times
and intervals set forth in Sections 3.1 and 3.2 hereof.
5.2 Disability. The Company shall have the
right to terminate this Agreement during the continuance of any
Disability of the Executive, as hereinafter defined, upon fif-
teen (15) days' prior notice to the Executive during the con-
tinuance of the Disability. "Disability" for purposes of this
Section 5.2 shall mean an inability by the Executive to perform
a substantial portion of the Executive's duties hereunder by
reason of physical or mental incapacity of disability for a
<PAGE>
-4-
total of one hundred eighty (180) days or more in any consecu-
tive period of three hundred and sixty-five (365) days, as
determined by the Board of Directors in its good faith judg-
ment. In the event of a termination by reason of the Execu-
tive's Disability, the Company shall be obligated to assist the
Executive in obtaining payment under the existing disability
insurance maintained for the Executive by the Company. Amounts
payable under this Section 5.2 shall be payable at the times
and intervals set forth in Sections 3.1 and 3.2 hereof.
5.3 Termination for Cause. Upon the early ter-
mination of this Agreement by the Company for Cause, the Com-
pany shall only be obligated to pay the Executive his Base Sal-
ary pro-rated to the date of termination and any then accrued
benefits. For purposes of this Agreement, "Cause" shall mean
(i) any willful and continuing material failure by the Execu-
tive to perform his material duties under this Agreement, taken
as a whole; (ii) the Executive's conviction of or plea of nolo
contendere to a felony; (ii) the Executive's conviction of
fraud or embezzlement against the Company; (iv) any willful or
intentional misconduct having the effect of materially injuring
the business of the Company, or (v) any willful and material
breach by the Executive of any of the provisions of the Confi-
dentiality and Non-Competition Agreement attached hereto as
Exhibit A. Termination for Cause shall become effective upon
notice to the Executive.
5.4 Termination by Executive for Other than
Good Reason. Upon the early termination of this Agreement by
the Executive for other than Good Reason, the Company shall be
obligated to: (i) pay the Executive his Base Salary pro-rated
to the date of termination plus any then accrued benefits; (ii)
pay the Executive, on a monthly basis or more frequently, a
consulting fee of 75% of the Executive's Base Salary at the
time of termination through March 15, 2000, or if this Agree-
ment is renewed pursuant to Section 2, through the date to
which this Agreement has been renewed; (iii) provide that all
options granted to the Executive under the Company's Long-Term
Incentive and Share Award Plan and such other stock option or
incentive plans as may be maintained by the Company shall vest
upon such termination; (iv) transfer to the Executive all right
and title to the automobiles provided to the Executive pursuant
to Section 3.4 herein; (v) provide the Executive coverage under
the Company's medical plans and life insurance plans or other
similar medical and life insurance coverage, or the economic
equivalent of such coverage, for so long as the Executive shall
live; (vi) pay all premiums with respect to the split dollar
<PAGE>
-5-
life insurance policy maintained by the Company on the Execu-
tive's life existing on the date of this Agreement, and (vii)
provide coverage for the Executive under the Company's automo-
bile insurance policy. For purposes of this Agreement, "Good
Reason" shall mean any of the following: (i) a reduction or
adverse change in, or a change which is inconsistent with, the
Executive's responsibilities, duties, authority, power, func-
tions, title, working conditions or status; or (ii) a reassign-
ment to another geographic location more than fifty (50) miles
from the Executive's place of employment; or (iii) a material
breach by the Company of this Agreement.
5.5 Termination for Other Reason. If the Exec-
utive's employment is terminated during the term of this Agree-
ment by the Executive for Good Reason or by the Company other
than by reason of (i) death, (ii) Disability, or (iii) for
Cause, then the Company shall pay the Executive a cash lump sum
in an amount equal to (i) four (4) times his Base Salary in
effect at the time of his termination of employment, plus
(ii) the higher of the Bonus which the Executive received in
the prior fiscal year, or the target Bonus applicable to the
Executive in the fiscal year of such termination. Such amount
shall be payable no later than thirty (30) days following the
Executive's termination pursuant to this Section 5.5. For the
three year period after the Executive's termination of employ-
ment pursuant to this Section 5.5, the Executive shall be
(i) entitled to continued participation in all of the Company's
employee benefit plans, including, without limitation, contin-
ued accrual for retirement benefits, and all of the other bene-
fits and perquisites provided for under this Agreement (other
than those benefits referred to in clause (iii) below) or
(ii) provided the economic equivalent of such continued par-
ticipation and perquisites. In addition, the Company shall be
obligated to: (i) provide that all options granted to the
Executive under the Company's Long-Term Incentive and Share
Award Plan and such other stock option or incentive plans as
may be maintained by the Company shall vest upon such termina-
tion; (ii) transfer to the Executive all right and title to the
automobiles provided to the Executive pursuant to Section 3.4
herein; and (iii) provide the Executive coverage under the Com-
pany's medical plans and life insurance plans or other similar
medical and life insurance coverage, or the economic equivalent
of such coverage, for so long as the Executive shall live.
5.6 Nature of Payments. Any payments pursuant
to the provisions of this Section 5 shall not be subject to any
requirement as to mitigation or offset.
<PAGE>
-6-
5.7 Tax Gross-up. Anything in this Agreement
to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution made, or benefit
provided, by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursu-
ant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this
Section 5.7) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended and then in effect (the "Code") (or any similar
excise tax) or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Execu-
tive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the
Executive of all Federal, state, local or other taxes (includ-
ing any interest or penalties imposed with respect to any such
taxes), including, without limitation, any such income taxes
(and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(i) Subject to the provisions of paragraph (ii) of
this Section 5.7, all determinations required to be made under
this Section 5.7, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and the Executive within 20 calendar days of the
receipt of written notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the change in control, the Executive shall have the
right by written notice to the Company to appoint another
nationally recognized accounting firm to make the determina-
tions required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company and shall be paid by the Company upon demand of the
Executive as incurred or billed by the Accounting Firm. Any
Gross-Up Payment, as determined pursuant to this Section 5.7,
shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. If the
<PAGE>
-7-
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with an unqualified
written opinion in form and substance satisfactory to the Exec-
utive that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. As a result of
the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpay-
ment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
described in paragraph (ii) of this Section 5.7 and the Execu-
tive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall
be paid by the Company to or for the benefit of the Executive
within five days of the receipt of the Accounting Firm's deter-
mination. All determinations made by the Accounting Firm in
connection with any Gross-Up Payment or Underpayment shall be
final and binding upon the Company and the Executive.
(ii) The Executive shall notify the Company in writ-
ing of any claim asserted in writing by the Internal Revenue
Service to the Executive that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notifica-
tion shall be given as soon as practicable but not later than
60 days after the Executive is informed in writing of such
claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall at the Company's expense:
a. give the Company any information reasonably requested
by the Company relating to such claim,
b. take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney rea-
sonably selected by the Company,
<PAGE>
-8-
c. cooperate with the Company in good faith in order
effectively to contest such claim, and
d. permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly
as incurred all costs and expenses (including additional inter-
est and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or any Federal, state, local or
other income or other tax (including interest and penalties
with respect thereto) imposed as a result of such representa-
tion and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 5.7, the Company shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any per-
missible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such pay-
ment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or Federal, state, local or other
income or other tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limita-
tions relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be lim-
ited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(iii) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to paragraph (ii) of
this Section 5.7, the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject
<PAGE>
-9-
to the Company's complying with the requirements of paragraph
(ii) of this Section 5.7) promptly pay to the Company the
amount of such refund (together with any interest paid or cred-
ited thereon after taxes applicable thereto) upon receipt
thereof. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (ii) of this
Section 5.7, a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
6. Confidentiality and Non-Competition Agreement.
The Executive shall be bound by the terms of the Confidential-
ity and Non-Competition Agreement, a copy of which is annexed
hereto as Exhibit A, during the Employment Period and for such
period following the Employment Period as is set forth in the
Confidentiality and Non-Competition Agreement. The Executive
and the Company shall execute a copy of the Confidentiality and
Non-Competition Agreement simultaneously with the execution of
this Agreement.
7. Other Payments.
7.1 Settlement of Performance Unit Awards. As con-
sideration for entering into this Amended and Restated Employ-
ment Agreement and for waiving any rights the Executive has to
receive amounts payable to the Executive under grants made
prior to the date of this Agreement of Performance Unit Awards
under the Company's Long-Term Incentive and Share Award Plan,
the Company hereby agrees to pay to the Executive $1,900,000 on
the date of this Agreement.
7.2 Forgiveness of Loan. Commencing on March 15,
1997 and on the anniversary thereof for the following two
years, the Company shall forgive $66,666.67 of the $200,000
loan owed by the Executive to the Company; provided that if the
Executive's employment is terminated for any reason except by
the Company for Cause, the entire amount of the $200,000 loan
shall be forgiven upon such termination.
<PAGE>
-10-
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement and the
Confidentiality and Non-Competition Agreement attached hereto
as Exhibit A set forth the entire agreement and understanding
between the parties with respect to the subject matter hereof
and supersede all prior agreements, arrangements, and under-
standings between the parties with respect to the subject mat-
ter hereof. Upon execution of this Agreement and the Confiden-
tiality and Non-Competition Agreement, the employment agreement
between the Executive and the Company dated March 15, 1995,
shall be superseded and shall be of no further force and
effect.
8.2 Modification. This Agreement may be
amended, modified, superseded, canceled, renewed or extended,
and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties or in the
case of a waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any
time or times to require performance of any provision hereof in
no manner shall affect the right at a later time to enforce the
same. No waiver by either party of a breach of any term or
covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such
breach or a waiver of any other term or covenant contained in
this Agreement.
8.4 Notices. All notices, demands, consents or
other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given) upon the
earlier of receipt, one business day after being sent by
telecopier or three business days after being sent by regis-
tered or certified mail to the parties at the addresses set
forth above or to such other address as either party shall
hereafter specify by notice to the other party. Irrespective
of the foregoing, notice of change of address shall be effec-
tive only upon receipt.
8.5 Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of New York applicable to contracts made and to be per-
formed wholly within such state.
<PAGE>
-11-
8.6 Arbitration. Any controversy or claim
arising out of or relating to this Agreement, the making,
interpretation or the breach thereof, other than a claim solely
for injunctive relief for any alleged breach of the provisions
of the Confidentiality and Non-Competition Agreement as to
which the parties shall have the right to apply for specific
performance to any court having equity jurisdiction, shall be
resolved by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitra-
tion Association and judgment upon the award tendered by the
arbitrators may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if such party so
elects, institute proceedings in any court having jurisdiction
for the specific performance of any such award. The powers for
the arbitrator or arbitrators shall include, but not be limited
to, the awarding of injunctive relief. The arbitrator shall
include in any award in the prevailing party's favor the amount
of his or its reasonable attorney's fees and expenses and all
other reasonable costs and expenses of the arbitration. In the
event the arbitrator does not rule in favor of the prevailing
party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevail-
ing party the amount of his or its reasonable costs and
expenses of the arbitration as he deems just and equitable
under the circumstances. Except as provided above, each party
shall bear his or its own attorney's fees and expenses and the
parties shall bear equally all other costs and expenses of the
arbitration.
8.7 Assignability. This Agreement, and the
Executive's rights and obligations hereunder, may not be
assigned by the Executive. The Company may assign its rights,
together with its obligations hereunder, only to a successor by
merger or by the purchase of all or substantially all of the
assets and business of the Company and such rights and obliga-
tions shall inure to, and be binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties and
their respective legal representatives, heirs, permitted suc-
cessors and permitted assigns.
8.9 Headings and Word Meanings. Headings and
titles in this Agreement are for convenience of reference only
and shall not control the construction or interpretation of any
provisions hereof. The words "herein," "hereof," "hereunder"
and words of similar import, when used anywhere in this
<PAGE>
-12-
Agreement, refer to this Agreement as a whole and not merely to
a subdivision in which such words appear. unless the context
otherwise requires. The singular shall include the plural
unless the context otherwise requires.
8.10 Separability. Any term or provision of
this Agreement which is invalid or unenforceable in any juris-
diction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without rendering
invalid or unenforceable the remaining terms and provisions of
this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other
jurisdiction.
<PAGE>
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IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By:
THE EXECUTIVE
Anil K. Narang
<PAGE>
Exhibit A
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(the "Agreement"), entered into and effective as of the day
of _________________, 1996, is by and between ALLIANCE ENTER-
TAINMENT CORP. (the "Company") and ______________ ("Employee").
In Consideration of Employee's employment by the Com-
pany, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the par-
ties agree as follows:
1. Confidential Information. By virtue of Employ-
ee's employment at the Company, Employee may obtain confiden-
tial or proprietary information developed, or to be developed,
by the Company. "Confidential Information" means all informa-
tion, whether in oral, written, graphic or machine-readable
form, including but not limited to all: software used or
developed in whole or in part by the Company (including source
code); algorithms; computer processing systems and techniques;
price lists; customer lists; procedures; improvements, concepts
and ideas; business plans and proposals; technical plans and
proposals; research and development; budgets and projections;
technical memoranda, research reports, designs and specifica-
tions; new product and service develpments; comparative anal-
yses of competitive products, services and operating proce-
dures; and other information, data and documents now existing
or later acquired by the Company, regardless of whether any of
such information, data or documents qualify as a "trade secret"
under applicable Federal or State law. All such information is
collectively referred to as the "Confidential Information".
2. Non-Disclosure. The Employee agrees that,
except as directed by the Company, he will not at any time
(during the term of Employee's employment by the Company or at
any time thereafter), except as may be expressly authorized by
the Company in writing, disclose to any person or use any Con-
fidential Information whatsoever for any purpose whatsoever, or
permit any person whatsoever to examine and/or make copies of
any reports or any documents or software (whether in written
form or stored on magnetic, optical or other mass storage
media) prepared by him or that come into his possession or
under his control by reason of his employment by the Company or
by reason of any consulting or software development services he
has performed or may in the future perform for the Company
which contain or are derived from Confidential Information.
<PAGE>
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The Employee further agrees that while employed at the Company,
no Confidential Information shall be removed from the Company's
business premises, without the prior written consent of the
Company.
3. Company Property. As used in this Agreement,
the term "Company Property" means all documents, papers, com-
puter printouts and disks, records, customer or prospect lists,
files, manuals, supplies, computer hardware and software,
equipment, inventory and other materials that have been cre-
ated, used or obtained by the Company, or otherwise belonging
to the Company, as well as any other materials containing Con-
fidential Information as defined in Section 1 above. Employee
recognizes and agrees that:
3.1 All Company Property shall be and remain the
property of the Company;
3.2 Employee will preserve, use and hold Company
Property only for the benefit of the Company and to carry out
the Company's business; and
3.3 When Employee's employment is terminated,
Employee will immediately deliver to the Company all Company
Property, including all copies or any other types of reproduc-
tions which Employee has in his possession or control.
4. Non-Solicitation. During the period of his
employment and for a period of one (1) year after termination
of his employment at Alliance for any reason, Employee shall
not, on his own behalf or on behalf of any person, firm or cor-
poration, or in any capacity whatsoever, (i) solicit any per-
sons or entities with which Alliance had contracts or was nego-
tiating contracts regarding products or services during the
term of Employee's employment, or (ii) induce, suggest, per-
suade or recommend to any such persons or entities that they
terminate, alter or refrain from renewing or extending, their
relationship with Alliance or become a client of Employee or
any third party, and Employee shall not himself and shall not
induce or permit any other person to approach any such person
or entity for any purpose. Should Employee become aware that
any other Employee or third party has engaged in such conduct,
Employee agrees to immediately advise Alliance of the circum-
stances of any such conduct.
5. Restrictive Covenant. Employee acknowledges
that his employment with the Company will enable him to obtain
<PAGE>
-3-
knowledge about the computer software the Company develops or
uses, as well as of the entertainment and other fields in which
the Company does business, and will also enable him to form
certain relationships with individuals and entities in the geo-
graphic area in which the Company furnishes its services.
Employee further acknowledges that the goodwill and other pro-
prietary interests of the Company will suffer irreparable and
continuing damage in the event Employee enters into competition
with the Company within one (1) year subsequent to the termina-
tion of his employment. Therefore, Employee agrees that during
the term of his employment and for a period of one (1) year
thereafter, regardless of the cause of the termination of
Employee's employment, he will not, without prior written con-
sent of the Company, engage directly or indirectly in any con-
duct, activity, or business whatsoever which would provide
revenue to Employee or to any third party, with any person or
entity manufacturing, distributing or supplying a product or
service competing with the Company's products or services.
Employee further acknowledges that his employment with the
Company constitutes fair and adequate consideration for his
agreement not to engage in such conduct within one (1) year of
the termination of his employment, regardless of the cause of
such termination. Employee further agrees that should the
Company, in its sole discretion, determine that it is desirable
or appropriate to make any payment to Employee upon termination
of employment ("Severance Pay"), such Severance Pay shall be
deemed additional consideration for Employee's binding
obligation not to engage in such conduct during the one (1)
year period. However, and notwithstanding any other provision
of this Agreement, it is understood and agreed by the Company
and Employee that any decision made by the Company regarding
Severance Pay, regardless of whether termination occurs with or
without cause, shall in no way discharge or release Employee
from the obligation not to engage in such conduct during the
one (1) year period.
6. Work Product. Employee agrees that, during the
term of his employment with the Company:
6.1 He will disclose promptly and fully to the Com-
pany all works of authorship, inventions, discoveries, improve-
ments, designs, processes, software, or any improvements,
enhancements, or documentation of or to the same that he makes,
works on or conceives, individually or jointly with others, in
the course of his employment by the Company or with the use of
<PAGE>
-4-
the Company's time, materials or facilities, in any way related
or pertaining to or connected with the present or anticipated
business, development, work or research of the Company or which
results from or are suggested by any work he may do for the
Company and whether produced during normal business hours or on
personal time (collectively the "Work Product");
6.2 All Work Product of the Employee shall be deemed
to be "work made for hire" within the meaning of { 101 of the
Copyright Act and all rights to copyright shall be vested
entirely in the Company. If for any reason the Work Product is
deemed not to be "work made for hire," and its rights to copy-
right are thereby in doubt, this Agreement shall constitute an
irrevocable assignment by the Employee to the Company of all
right, title and interest in the copyright of all Work Product
created under this Agreement. The parties intend that any and
all copyright and other intellectual property rights in the
Work Product, including, without limitation, any and all rights
of whatever kind and nature now or hereafter to distribute and
reproduce such Work Product in any and all media throughout the
world, are the sole property of the Company. The Employee
hereby agrees to assist the Company in any manner as shall be
reasonably requested by the Company to protect the Company's
interest in such copyright and/or other intellectual property
rights, and to execute and deliver such legal instruments or
documents as the Company shall request in order for the Company
to register the Company's worldwide copyright in the Work Prod-
uct with the U.S. Copyright Office and to register and protect
the Company's copyright or other intellectual property rights
in the Work Product throughout the world. Likewise, the
Employee hereby agrees to assist the Company by executing such
other documents and instruments which the Company deems neces-
sary to enable it to evidence, perfect and protect its right,
title and interest in and to the Work Product.
6.3 Employee shall make and maintain adequate and
current written records and evidence of all Work Product,
including drawings, work papers, graphs, computer records and
any other document which shall be and remain the property of
the Company, and which shall be surrendered to the Company upon
request and upon the termination of Employee's employment with
the Company, regardless of cause. The provisions of this sec-
tion and the term Work Product as used herein do not apply to
any invention for which no equipment, supplies, facilities or
confidential, proprietary or trade secret information of the
Company was used, and which was developed entirely on Employ-
ee's own time, while not on the Company's business premises,
<PAGE>
-5-
and which does not relate to the Company's business, unless:
(i) the invention relates to the Company's actual or demonstra-
tively anticipated research development or (ii) the invention
results from any work performed by Employee for the Company.
7. Enforcement. The breach or threatened breach by
Employee of any of the provisions of this Agreement shall: (i)
constitute cause for the termination of Employee's employment
and (ii) entitle the Company to a permanent injunction or other
injunctive relief in order to prevent or restrain any such
breach or threatened breach by Employee or his partners,
agents, representatives, servants, independent contractors, or
any and all persons or entities directly or indirectly acting
for or with Employee. The rights and remedies of the Company
under this Agreement shall be in addition to and not in limita-
tion of any of the rights, remedies, and monetary or other dam-
ages or redress available to it at law or equity.
8. Acknowledgment. Employee acknowledges that he
has carefully read and considered the provisions of this Agree-
ment, and having done so, agrees that the restrictions set
forth are fair and reasonably required for the protection of
the interests of the Company. In the event that, notwithstand-
ing the foregoing, any part of the covenants set forth shall be
held to be invalid or unenforceable, the remaining parts
thereof shall nevertheless continue to be valid and enforceable
as though the invalid or unenforceable parts had not been
included therein. In the event that any provision of this
Agreement shall be declared by a court of competent jurisdic-
tion to be unreasonable or unenforceable, the court shall
enforce the provision in a way which it deems to be reasonable
and enforceable.
9. Survival. This Agreement shall survive any ter-
mination of Employee's employment, whether or not for cause.
10. The Company Defined. As used in this Agreement,
the term "the Company" includes the Company, any assignee or
other successor in interest of the Company, and any parent,
subsidiary, or other corporation or partnership under common
ownership or control with the Company.
11. Notices. All notices in accordance with this
Agreement shall be in writing and given by hand delivery, over-
night express delivery, or certified U.S. mail, return receipt
requested, and properly addressed to the party for whom it is
<PAGE>
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intended at the following addresses or such other address as is
most recently noticed for such party:
If to the Company: Alliance Entertainment Corp.
[Address]
Attn: ____________________
If to Employee: __________________________
__________________________
__________________________
12. Miscellaneous. This Agreement is legally bind-
ing on both Employee and the Company and benefits their succes-
sors and assigns. It may be executed in counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument. It represents
the parties' entire understanding regarding the subject matter
of this Agreement and supersedes any and all other prior agree-
ments regarding the same subject matter. The terms and provi-
sions of this Agreement cannot be terminated, modified, or
amended except in a writing signed by the party against whom
enforcement is sought. This Agreement shall be construed in
accordance with the laws of the State of New York, and any
suit, action or proceeding arising out of or relating to this
Agreement shall be commenced and maintained in any court of
competent subject-matter jurisdiction in the State of New York,
with exclusive venue in New York County. In any suit, action
or proceeding arising out of or in connection with this Agree-
ment, the prevailing party shall be entitled to an award of the
amount of attorneys' fees and disbursements actually billed to
such party, including fees and disbursements on one or more
appeals.
13. No Guarantee of Employment. Nothing in this
Agreement shall be interpreted or construed to be a guarantee
of ongoing employment, or to otherwise limit the Company's
right to terminate Employee's employment at any time.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
_________________________ _________________________
(signature) (signature)
________________________ _________________________
(name printed) (name printed)
_________________________
(title)
<PAGE>
EXHIBIT F-3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as
of the 15th day of August, 1996, by and between Alliance Enter-
tainment Corp., a Delaware corporation having its principal
office at 110 East 59th Street, New York, New York 10022 (the
"Company"), and Elliot B. Newman, residing at 12366 Classic
Drive, Coral Springs, Florida 33071 (the "Executive").
R E C I T A L S:
WHEREAS, the Company considers it essential and in
the best interests of its stockholders to more closely align
the interests of the Executive with those of its shareholders
and that the Executive support the mission, values and strategy
of the Company and desires to retain the services of the Execu-
tive; and
WHEREAS, the Executive desires to accept such employ-
ment by the Company, upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual cove-
nants and agreements set forth herein, the parties agree as
follows:
1. Employment and Duties. The Company agrees to
employ the Executive as Senior Executive Vice President - Busi-
ness Affairs and Secretary of the Company and the Executive
accepts such employment and agrees to perform all duties and
services consistent with the Executive's position. The Execu-
tive agrees to devote substantially all of the Executive's
business time, attention and energy to perform the Executive's
duties and services hereunder.
2. Term of Employment. The term of the Executive's
employment under this Agreement shall commence on March 15,
1995 and shall end on the fifth anniversary of such date,
unless sooner terminated as provided in Section 5 hereof (the
"Employment Period"); provided, however, that commencing on
March 15, 2000, and each March 15 thereafter, the term of this
Agreement shall automatically be renewed for one (1) additional
year unless, not earlier than 210 days nor later than 180 days
prior to such date, either party shall have provided written
notice that such party elects not to renew the term of this
Agreement.
<PAGE>
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3. Compensation and Benefits.
3.1 Base Salary. For the year commencing March 15,
1996, the Company shall pay the Executive a base salary of Four Hundred
Thirteen Thousand ($413,000) Dollars per annum ("Base Salary"). The Base
Salary for each year after the first year may be increased from time to
time in the sole discretion of the Board and in any event will be increased
annually to reflect corresponding increases in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban
Consumers, United States City Average, all items (1982-88 = 100). Base
Salary shall be payable at such intervals as salaries are paid by the
Company to its other executive employees.
3.2 Bonus. In addition to Base Salary, with respect to
each fiscal year during the Employment Period, the Executive shall be
entitled to participate in, and be eligible for annual bonuses under, the
Company's Executive Incentive Plan or other annual bonus program which
shall be no less favorable to the Executive than the Executive Incentive
Plan. Any such bonus amount (a "Bonus") shall be payable at such time as
executive bonuses customarily are paid by the Company, but in no event
later than 30 days after the end of the Company's fiscal year. The
Executive's target Bonus shall be an amount equal to thirty percent (30%)
of Base Salary and the Executive's maximum Bonus shall be equal to
forty-five percent (45%) of Base Salary, subject to satisfaction of
applicable performance goals established by the Compensation Committee of
the Company's board of directors (the "Compensation Committee").
Notwithstanding the foregoing, in any year the Compensation Committee may
recommend for good reason a reduction in bonus for such year.
3.3 Benefit Plans. During the Employment Period, the
Executive shall be entitled to participate in all plans adopted for the
general benefit of the Company's employees or executive employees, such as
pension plans, medical plans, disability plans, investment plans and group
or other insurance plans and benefits, to the extent that the Executive is
and remains eligible to participate therein and subject to the eligibility
provisions of such plans in effect from time to time; provided, however,
that such benefits shall not be less, in the aggregate, than those in
effect on March 15, 1995. The Executive has received, and shall be
eligible to continue to receive, grants of performance units under the
Company's Long-Term Incentive and Share Award Plan and such other stock
<PAGE>
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option or incentive plans as may be maintained by the Company, in such
amounts and at such times as shall be determined by the Compensation
Committee. The Executive shall be reimbursed for his reasonable out-of-
pocket expenses incurred in the performance of his duties upon submission
of appropriate evidence thereof in conformity with normal Company policy
for executive officers.
3.4 Automobile. The Company shall provide a luxury
automobile for the exclusive use and benefit of the Executive. The
automobile shall be of a type similar to the automobile currently provided
by the Company for the benefit of the Executive. With respect to any
automobile provided to the Executive pursuant to this Section 3.4 which is
subject to a lease, the Executive shall have the right to purchase the
automobile at the termination of the term of such lease. In the event that
the Executive is required to relocate to the Company's offices in the New
York City area, the Executive shall be provided a second luxury car by the
Company.
4. Vacation. For each year during the Employment Agreement,
the Executive shall be entitled to paid vacation in accordance with the
Company's standard policy for executive officers.
5. Termination.
5.1 Death. This Agreement shall automatically terminate
upon the death of the Executive, whereupon the Company shall be obligated
to pay to the Executive's estate any unpaid Base Salary and pro rata Bonus,
if any, as determined by the Compensation Committee, through the date of
death. Amounts payable under this Section 5.1 shall be payable at the
times and intervals set forth in Sections 3.1 and 3.2 hereof.
5.2 Disability. The Company shall have the right to
terminate this Agreement during the continuance of any Disability of the
Executive, as hereinafter defined, upon fifteen (15) days' prior notice to
the Executive during the continuance of the Disability. "Disability" for
purposes of this Section 5.2 shall mean an inability by the Executive to
perform a substantial portion of the Executive's duties hereunder by reason
of physical or mental incapacity of disability for a total of one hundred
eighty (180) days or more in any consecutive period of three hundred and
sixty-five (365) days, as determined by the Board of Directors in its good
faith judgment. In the event of a termination by reason of the
<PAGE>
-4-
Executive's Disability, the Company shall be obligated to assist the
Executive in obtaining payment under the existing disability insurance
maintained for the Executive by the Company. Amounts payable under this
Section 5.2 shall be payable at the times and intervals set forth in
Sections 3.1 and 3.2 hereof.
5.3 Termination for Cause or by Executive for other than
Good Reason. Upon the early termination of this Agreement by the Company
for Cause or by the Executive for other than Good Reason, the Company shall
only be obligated to pay the Executive his Base Salary pro-rated to the
date of termination and any then accrued benefits. For purposes of this
Agreement, "Cause" shall mean (i) any willful and continuing material
failure by the Executive to perform his material duties under this
Agreement, taken as a whole; (ii) the Executive's conviction of or plea of
nolo contendere to a felony; (iii) the Executive's conviction of fraud or
embezzlement against the Company; (iv) any willful or intentional act
having the effect of materially injuring the business of the Company, or
(v) any willful and material breach by the Executive of any of the
provisions of the Confidentiality and Non-Competition Agreement attached
hereto as Exhibit A. Termination for Cause shall become effective upon
notice to the Executive. For purposes of this Agreement, "Good Reason"
shall mean any of the following: (i) a reduction or adverse change in, or a
change which is inconsistent with, the Executive's responsibilities,
duties, authority, power, functions, title, working conditions or status;
or (ii) a reassignment to another geographic location more than fifty (50)
miles from the Executive's place of employment; or (iii) a material breach
by the Company of this Agreement.
5.4 Termination for Other Reason. If the Executive's
employment is terminated during the term of this Agreement by the Executive
for Good Reason or by the Company other than by reason of (i) death,
(ii) Disability, or (iii) for Cause, then the Company shall pay the
Executive a cash lump sum in an amount equal to (i) four (4) times his Base
Salary in effect at the time of his termination of employment, plus
(ii) the higher of the Bonus which the Executive received in the prior
fiscal year, or the target Bonus applicable to the Executive in the fiscal
year of such termination. Such amount shall be payable no later than
thirty (30) days following the Executive's termination pursuant to this
Section 5.4. For the three year period after the Executive's termination
of employment pursuant to this Section 5.4, the Executive shall be
<PAGE>
-5-
(i) entitled to continued participation in all of the Company's employee
benefit plans, including, without limitation, continued accrual for
retirement benefits and continued coverage under the Company's medical and
hospitalization and life insurance plans, and all of the other benefits and
perquisites provided for under this Agreement or (ii) provided the economic
equivalent of such continued participation and perquisites. In addition,
the Company shall be obligated to (i) pay all premiums with respect to the
split dollar life insurance policy maintained by the Company on the
Executive's life existing as of the date of this Agreement; (ii) provide
coverage for the Executive under the Company's automobile insurance
policies, for which the Company shall be reimbursed by the Executive; and
(iii) provide the Executive coverage under the Company's medical plans and
life insurance plans or other similar medical or life insurance coverage,
or the economic equivalent of such coverage, for so long as the Executive
shall live.
5.5 Nature of Payments. Any payments pursuant to the
provisions of this Section 5 shall not be subject to any requirement as to
mitigation or offset.
5.6 Tax Gross-up. Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any
payment or distribution made, or benefit provided, by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 5.6) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended and then in
effect (the "Code") (or any similar excise tax) or any interest or
penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Execu-
tive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
Federal, state, local or other taxes (including any interest or penalties
imposed with respect to any such taxes), including, without limitation, any
such income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
<PAGE>
-6-
(i) Subject to the provisions of paragraph (ii) of this
Section 5.6, all determinations required to be made under this
Section 5.6, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
Coopers & Lybrand (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the
Executive within 20 calendar days of the receipt of written notice
from the Executive that there has been a Payment, or such earlier
time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the change in control, the
Executive shall have the right by written notice to the Company to
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company
and shall be paid by the Company upon demand of the Executive as
incurred or billed by the Accounting Firm. Any Gross-Up Payment, as
determined pursuant to this Section 5.6, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it shall furnish the
Executive with an unqualified written opinion in form and substance
satisfactory to the Executive that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. As a
result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In
the event that the Company exhausts its remedies described in
paragraph (ii) of this Section 5.6 and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and
any such Underpayment shall be paid by the Company to or for the
benefit of the Executive within five days of the receipt of the
Accounting Firm's determination. All determinations made by the
Accounting Firm in connection with any
<PAGE>
-7-
Gross-Up Payment or Underpayment shall be final and binding upon the
Company and the Executive.
(ii) The Executive shall notify the Company in writing of any
claim asserted in writing by the Internal Revenue Service to the
Executive that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but not later than 60 days after the Executive is
informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the
Executive shall at the Company's expense:
a. give the Company any information reasonably
requested by the Company relating to such claim,
b. take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
c. cooperate with the Company in good faith in order
effectively to contest such claim, and
d. permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly as
incurred all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or any Federal, state, local or other income or other
tax (including interest and penalties with respect thereto) imposed
as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 5.6,
the Company shall control
<PAGE>
-8-
all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or
Federal, state, local or other income or other tax (including
interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(iii) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to paragraph (ii) of this
Section 5.6, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of paragraph (ii) of this
Section 5.6) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto) upon receipt thereof. If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
paragraph (ii) of this Section 5.6, a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30
days after such determination, then such advance shall be forgiven
and shall not be required to be
<PAGE>
-9-
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
6. Confidentiality and Non-Competition Agreement. The
Executive shall be bound by the terms of the Confidentiality and
Non-Competition Agreement, a copy of which is annexed hereto as Exhibit A,
during the Employment Period and for such period following the Employment
Period as is set forth in the Confidentiality and Non-Competition
Agreement. The Executive and the Company shall execute a copy of the
Confidentiality and Non-Competition Agreement simultaneously with the
execution of this Agreement.
7. Other Payments.
7.1 Settlement of Performance Unit Awards. As
consideration for entering into this Amended and Restated Employment
Agreement and for waiving any rights the Executive has to receive amounts
payable to the Executive under grants made prior to the date of this
Agreement of Performance Unit Awards under the Company's Long-Term
Incentive and Share Award Plan, the Company hereby agrees to pay to the
Executive $750,000 on the date of this Agreement.
7.2 Forgiveness of Loan. On each of October 1, 1996 and
the first day of each of the twelve calendar quarters thereafter, the
Company shall forgive $13,461.54 of the $175,000 loan owed by the Executive
to the Company.
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement and the
Confidentiality and Non-Competition Agreement attached hereto as Exhibit A
set forth the entire agreement and understanding between the parties with
respect to the subject matter hereof and supersede all prior agreements,
arrangements, and understandings between the parties with respect to the
subject matter hereof. Upon execution of this Agreement and the Confiden-
tiality and Non-Competition Agreement, the employment agreement between the
Executive and the Company, dated March 15, 1995, shall be superseded and
shall be of no further force and effect.
8.2 Modification. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms or
covenants hereof may be waived, only by a
<PAGE>
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written instrument executed by both of the parties or in the case of a
waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any time or
times to require performance of any provision hereof in no manner shall
affect the right at a later time to enforce the same. No waiver by either
party of a breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
breach or a waiver of any other term or covenant contained in this
Agreement.
8.4 Notices. All notices, demands, consents or other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given) upon the earlier of receipt, one
business day after being sent by telecopier or three business days after
being sent by registered or certified mail to the parties at the addresses
set forth above or to such other address as either party shall hereafter
specify by notice to the other party. Irrespective of the foregoing,
notice of change of address shall be effective only upon receipt.
8.5 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York
applicable to contracts made and to be performed wholly within such state.
8.6 Arbitration. Any controversy or claim arising out
of or relating to this Agreement, the making, interpretation or the breach
thereof, other than a claim solely for injunctive relief for any alleged
breach of the provisions of the Confidentiality and Non-Competition
Agreement as to which the parties shall have the right to apply for
specific performance to any court having equity jurisdiction, shall be
resolved by arbitration in New York, New York in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award tendered by the arbitrators may be entered in any
court having jurisdiction thereof and any party to the arbitration may, if
such party so elects, institute proceedings in any court having
jurisdiction for the specific performance of any such award. The powers
for the arbitrator or arbitrators shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator shall include in any award
in the prevailing party's favor the amount of his or its reasonable
attorney's fees and expenses and all
<PAGE>
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other reasonable costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all
the claims alleged by such party, the arbitrator shall include in any award
in favor of the prevailing party the amount of his or its reasonable costs
and expenses of the arbitration as he deems just and equitable under the
circumstances. Except as provided above, each party shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all
other costs and expenses of the arbitration.
8.7 Assignability. This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive.
The Company may assign its rights, together with its obligations hereunder,
only to a successor by merger or by the purchase of all or substantially
all of the assets and business of the Company and such rights and obliga-
tions shall inure to, and be binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be binding
upon and shall inure to the benefit of the parties and their respective
legal representatives, heirs, permitted successors and permitted assigns.
8.9 Headings and Word Meanings. Headings and titles in
this Agreement are for convenience of reference only and shall not control
the construction or interpretation of any provisions hereof. The words
"herein," "hereof," "hereunder" and words of similar import, when used
anywhere in this Agreement, refer to this Agreement as a whole and not
merely to a subdivision in which such words appear. unless the context
otherwise requires. The singular shall include the plural unless the
context otherwise requires.
8.10 Separability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction.
<PAGE>
-12-
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By:
THE EXECUTIVE
Elliot B. Newman
<PAGE>
Exhibit A
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT (the
"Agreement"), entered into and effective as of the day of
_________________, 1996, is by and between ALLIANCE ENTERTAINMENT CORP.
(the "Company") and ________ ("Employee").
In Consideration of Employee's employment by the Company, and
for other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as follows:
1. Confidential Information. By virtue of Employee's
employment at the Company, Employee may obtain confidential or proprietary
information developed, or to be developed, by the Company. "Confidential
Information" means all information, whether in oral, written, graphic or
machine-readable form, including but not limited to all: software used or
developed in whole or in part by the Company (including source code);
algorithms; computer processing systems and techniques; price lists;
customer lists; procedures; improvements, concepts and ideas; business
plans and proposals; technical plans and proposals; research and
development; budgets and projections; technical memoranda, research
reports, designs and specifications; new product and service develpments;
comparative analyses of competitive products, services and operating proce-
dures; and other information, data and documents now existing or later
acquired by the Company, regardless of whether any of such information,
data or documents qualify as a "trade secret" under applicable Federal or
State law. All such information is collectively referred to as the
"Confidential Information".
2. Non-Disclosure. The Employee agrees that, except as
directed by the Company, he will not at any time (during the term of
Employee's employment by the Company or at any time thereafter), except as
may be expressly authorized by the Company in writing, disclose to any
person or use any Confidential Information whatsoever for any purpose
whatsoever, or permit any person whatsoever to examine and/or make copies
of any reports or any documents or software (whether in written form or
stored on magnetic, optical or other mass storage media) prepared by him or
that come into his possession or under his control by reason of his
employment by the Company or by reason of any consulting or software
development services he has performed or may in the future perform for the
Company which contain or are derived from Confidential Information.
<PAGE>
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The Employee further agrees that while employed at the Company, no
Confidential Information shall be removed from the Company's business
premises, without the prior written consent of the Company.
3. Company Property. As used in this Agreement, the term
"Company Property" means all documents, papers, computer printouts and
disks, records, customer or prospect lists, files, manuals, supplies,
computer hardware and software, equipment, inventory and other materials
that have been created, used or obtained by the Company, or otherwise
belonging to the Company, as well as any other materials containing Con-
fidential Information as defined in Section 1 above. Employee recognizes
and agrees that:
3.1 All Company Property shall be and remain the property of
the Company;
3.2 Employee will preserve, use and hold Company Property only
for the benefit of the Company and to carry out the Company's business; and
3.3 When Employee's employment is terminated, Employee will
immediately deliver to the Company all Company Property, including all
copies or any other types of reproductions which Employee has in his
possession or control.
4. Non-Solicitation. During the period of his employment
and for a period of one (1) year after termination of his employment at
Alliance for any reason, Employee shall not, on his own behalf or on behalf
of any person, firm or corporation, or in any capacity whatsoever,
(i) solicit any persons or entities with which Alliance had contracts or
was negotiating contracts regarding products or services during the term of
Employee's employment, or (ii) induce, suggest, persuade or recommend to
any such persons or entities that they terminate, alter or refrain from
renewing or extending, their relationship with Alliance or become a client
of Employee or any third party, and Employee shall not himself and shall
not induce or permit any other person to approach any such person or entity
for any purpose. Should Employee become aware that any other Employee or
third party has engaged in such conduct, Employee agrees to immediately
advise Alliance of the circumstances of any such conduct.
5. Restrictive Covenant. Employee acknowledges that his
employment with the Company will enable him to obtain
<PAGE>
-3-
knowledge about the computer software the Company develops or uses, as well
as of the entertainment and other fields in which the Company does
business, and will also enable him to form certain relationships with
individuals and entities in the geographic area in which the Company
furnishes its services. Employee further acknowledges that the goodwill
and other proprietary interests of the Company will suffer irreparable and
continuing damage in the event Employee enters into competition with the
Company within one (1) year subsequent to the termination of his
employment. Therefore, Employee agrees that during the term of his
employment and for a period of one (1) year thereafter, regardless of the
cause of the termination of Employee's employment, he will not, without
prior written consent of the Company, engage directly or indirectly in any
conduct, activity, or business whatsoever which would provide revenue to
Employee or to any third party, with any person or entity manufacturing,
distributing or supplying a product or service competing with the Company's
products or services. Employee further acknowledges that his employment
with the Company constitutes fair and adequate consideration for his
agreement not to engage in such conduct within one (1) year of the
termination of his employment, regardless of the cause of such termination.
Employee further agrees that should the Company, in its sole discretion,
determine that it is desirable or appropriate to make any payment to
Employee upon termination of employment ("Severance Pay"), such Severance
Pay shall be deemed additional consideration for Employee's binding
obligation not to engage in such conduct during the one (1) year period.
However, and notwithstanding any other provision of this Agreement, it is
understood and agreed by the Company and Employee that any decision made by
the Company regarding Severance Pay, regardless of whether termination
occurs with or without cause, shall in no way discharge or release Employee
from the obligation not to engage in such conduct during the one (1) year
period.
6. Work Product. Employee agrees that, during the term of
his employment with the Company:
6.1 He will disclose promptly and fully to the Company all
works of authorship, inventions, discoveries, improvements, designs,
processes, software, or any improvements, enhancements, or documentation of
or to the same that he makes, works on or conceives, individually or
jointly with others, in the course of his employment by the Company or with
the use of
<PAGE>
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the Company's time, materials or facilities, in any way related or
pertaining to or connected with the present or anticipated business,
development, work or research of the Company or which results from or are
suggested by any work he may do for the Company and whether produced during
normal business hours or on personal time (collectively the "Work
Product");
6.2 All Work Product of the Employee shall be deemed to be
"work made for hire" within the meaning of { 101 of the Copyright Act and
all rights to copyright shall be vested entirely in the Company. If for
any reason the Work Product is deemed not to be "work made for hire," and
its rights to copyright are thereby in doubt, this Agreement shall
constitute an irrevocable assignment by the Employee to the Company of all
right, title and interest in the copyright of all Work Product created
under this Agreement. The parties intend that any and all copyright and
other intellectual property rights in the Work Product, including, without
limitation, any and all rights of whatever kind and nature now or hereafter
to distribute and reproduce such Work Product in any and all media
throughout the world, are the sole property of the Company. The Employee
hereby agrees to assist the Company in any manner as shall be reasonably
requested by the Company to protect the Company's interest in such
copyright and/or other intellectual property rights, and to execute and
deliver such legal instruments or documents as the Company shall request in
order for the Company to register the Company's worldwide copyright in the
Work Product with the U.S. Copyright Office and to register and protect the
Company's copyright or other intellectual property rights in the Work
Product throughout the world. Likewise, the Employee hereby agrees to
assist the Company by executing such other documents and instruments which
the Company deems necessary to enable it to evidence, perfect and protect
its right, title and interest in and to the Work Product.
6.3 Employee shall make and maintain adequate and current
written records and evidence of all Work Product, including drawings, work
papers, graphs, computer records and any other document which shall be and
remain the property of the Company, and which shall be surrendered to the
Company upon request and upon the termination of Employee's employment with
the Company, regardless of cause. The provisions of this section and the
term Work Product as used herein do not apply to any invention for which no
equipment, supplies, facilities or confidential, proprietary or trade
secret information of the Company was used, and which was developed
entirely on Employee's own time, while not on the Company's business
premises,
<PAGE>
-5-
and which does not relate to the Company's business, unless: (i) the
invention relates to the Company's actual or demonstratively anticipated
research development or (ii) the invention results from any work performed
by Employee for the Company.
7. Enforcement. The breach or threatened breach by Employee
of any of the provisions of this Agreement shall: (i) constitute cause for
the termination of Employee's employment and (ii) entitle the Company to a
permanent injunction or other injunctive relief in order to prevent or
restrain any such breach or threatened breach by Employee or his partners,
agents, representatives, servants, independent contractors, or any and all
persons or entities directly or indirectly acting for or with Employee.
The rights and remedies of the Company under this Agreement shall be in
addition to and not in limitation of any of the rights, remedies, and
monetary or other damages or redress available to it at law or equity.
8. Acknowledgment. Employee acknowledges that he has
carefully read and considered the provisions of this Agreement, and having
done so, agrees that the restrictions set forth are fair and reasonably
required for the protection of the interests of the Company. In the event
that, notwithstanding the foregoing, any part of the covenants set forth
shall be held to be invalid or unenforceable, the remaining parts thereof
shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable parts had not been included therein. In the event
that any provision of this Agreement shall be declared by a court of
competent jurisdiction to be unreasonable or unenforceable, the court shall
enforce the provision in a way which it deems to be reasonable and
enforceable.
9. Survival. This Agreement shall survive any termination
of Employee's employment, whether or not for cause.
10. The Company Defined. As used in this Agreement, the term
"the Company" includes the Company, any assignee or other successor in
interest of the Company, and any parent, subsidiary, or other corporation
or partnership under common ownership or control with the Company.
11. Notices. All notices in accordance with this Agreement
shall be in writing and given by hand delivery, overnight express delivery,
or certified U.S. mail, return receipt requested, and properly addressed to
the party for whom it is
<PAGE>
-6-
intended at the following addresses or such other address as is most
recently noticed for such party:
If to the Company: Alliance Entertainment Corp.
[Address]
Attn: ____________________
If to Employee: __________________________
__________________________
__________________________
12. Miscellaneous. This Agreement is legally binding on both
Employee and the Company and benefits their successors and assigns. It may
be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. It
represents the parties' entire understanding regarding the subject matter
of this Agreement and supersedes any and all other prior agreements
regarding the same subject matter. The terms and provisions of this
Agreement cannot be terminated, modified, or amended except in a writing
signed by the party against whom enforcement is sought. This Agreement
shall be construed in accordance with the laws of the State of New York,
and any suit, action or proceeding arising out of or relating to this
Agreement shall be commenced and maintained in any court of competent
subject-matter jurisdiction in the State of New York, with exclusive venue
in New York County. In any suit, action or proceeding arising out of or in
connection with this Agreement, the prevailing party shall be entitled to
an award of the amount of attorneys' fees and disbursements actually billed
to such party, including fees and disbursements on one or more appeals.
13. No Guarantee of Employment. Nothing in this Agreement
shall be interpreted or construed to be a guarantee of ongoing employment,
or to otherwise limit the Company's right to terminate Employee's
employment at any time.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
_________________________ _________________________
(signature) (signature)
________________________ _________________________
(name printed) (name printed)
_________________________
(title)
<PAGE>
EXHIBIT G
<PAGE>
Exhibit G
REVISED & RESTATED
BY-LAWS
OF
ALLIANCE ENTERTAINMENT CORP.
Effective August __, 1996
<PAGE>
Exhibit G
TABLE OF CONTENTS
Page
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office........................... 1
SECTION 2. Other Offices........................................ 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting....................................... 1
SECTION 2. Special Meetings..................................... 1
SECTION 3. Notice of Meetings................................... 1
SECTION 4. Quorum and Adjournments.............................. 2
SECTION 5. Organization......................................... 2
SECTION 6. Proxies and Voting of Shares......................... 3
SECTION 7. Voting List of Stockholders.......................... 3
SECTION 8. Notice of Stockholder Business and
Nominations ......................................... 4
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of
Directors............................................ 7
SECTION 2. Number, Tenure and Qualifications.................... 7
SECTION 3. Vacancies............................................ 7
SECTION 4. Removal.............................................. 8
SECTION 5. Regular Meetings; Notice............................. 8
SECTION 6. Special Meetings..................................... 8
SECTION 7. Notice of Special Meetings........................... 8
SECTION 8. Quorum............................................... 9
SECTION 9. Organization......................................... 9
SECTION 10. Compensation of Directors............................ 9
SECTION 11. Committees........................................... 10
SECTION 12. Written Consents..................................... 12
SECTION 13. Conference Telephone Meetings........................ 12
ARTICLE IV
OFFICERS
SECTION 1. Number and Election.................................. 12
SECTION 2. Term of Office and Qualification..................... 12
-i-
<PAGE>
Page
SECTION 3. Other Officers....................................... 13
SECTION 4. The Co-Chairmen of the Board......................... 13
SECTION 5. The Vice Chairman.................................... 13
SECTION 6. The Deputy Chairman.................................. 13
SECTION 7. The President........................................ 14
SECTION 8. Vice Presidents...................................... 14
SECTION 9. The Comptroller...................................... 14
SECTION 10. Assistant Comptrollers............................... 14
SECTION 11. The Secretary........................................ 14
SECTION 12. Assistant Secretaries................................ 15
SECTION 13. The Treasurer........................................ 15
SECTION 14. Assistant Treasurers................................. 16
SECTION 15. Compensation......................................... 16
SECTION 16. Bonds................................................ 16
SECTION 17. Removal.............................................. 16
SECTION 18. Vacancies............................................ 16
ARTICLE V
NOTICES
SECTION 1. Manner of Giving..................................... 16
SECTION 2. Waiver of Notice..................................... 17
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance.................................... 17
SECTION 2. Transfers of Stock................................... 18
SECTION 3. Lost, Stolen and Destroyed
Certificates......................................... 18
SECTION 4. Fixing of Record Date................................ 18
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc............................ 19
SECTION 2. Execution of Contracts, Deeds, Etc................... 19
SECTION 3. Loans................................................ 19
ARTICLE VIII
CORPORATE SEAL 19
-ii-
<PAGE>
Page
ARTICLE IX
FISCAL YEAR 20
ARTICLE X
VOTING OF STOCK HELD 20
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
SECTION 1. Indemnification...................................... 20
SECTION 2. Insurance............................................ 23
ARTICLE XII
AMENDMENTS 23
-iii-
<PAGE>
BY-LAWS OF
ALLIANCE ENTERTAINMENT CORP.
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office. The regis-
tered office of the Corporation in the State of Delaware shall
be located at 32 Loockerman Square, Suite L-100, Dover, Dela-
ware 19904.
SECTION 2. Other Offices. The Corporation may have
an office or offices at such other places in the United States
or elsewhere as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of
stockholders of the Corporation for the election of directors
and for the transaction of such other business as may properly
come before said meeting shall be held on such date and at such
hour and place, within or without the State of Delaware, as
shall be fixed by the Board of Directors with respect to each
such meeting and as shall be stated in the notice thereof.
SECTION 2. Special Meetings. Special meetings of
stockholders, for any purpose or purposes may, except as other-
wise prescribed by law or in the Certificate of Incorporation,
be called at any time by either Co-Chairman or by the Board of
Directors to be held on such date and at such hour and such
place, within or without the State of Delaware, as shall be
stated in the notice thereof.
SECTION 3. Notice of Meetings. Except as otherwise
provided or permitted by law or in the Certificate of Incorpo-
ration or in these By-laws, written notice of all meetings of
stockholders stating the place, date and hour of the meeting,
and in the case of a special meeting, the purpose or purposes
thereof, shall be given by a Co-Chairman of the Board, the Vice
Chairman of the Board, the President, a Vice President, the
Secretary or an Assistant Secretary to each stockholder of
record having voting power in respect of the business to be
transacted thereat, either by serving such notice upon him per-
sonally or by mailing or telegraphing or telecopying the same
to him at his address as it appears on the records of the
<PAGE>
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Corporation, at least ten days but not more than sixty days
before the date of the meeting, and the Secretary or an Assis-
tant Secretary or the transfer agent or agents of the Corpora-
tion shall make affidavit as to the giving of such notice.
SECTION 4. Quorum and Adjournments. The holders of
a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or by proxy, shall be required
to and shall constitute a quorum at all meetings of the stock-
holders for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation or by
these By-laws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stock-
holders entitled to vote thereat, present in person or by
proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting of
the time and place of the adjourned meeting, until a quorum
shall be present or represented. At such adjourned meeting any
business may be transacted which might have been transacted at
the original meeting. If a quorum be present at any meeting of
stockholders and the meeting is adjourned to reconvene either
at a later time on the same date or at a later date, no notice
need be given other than announcement at the meeting, provided
that if any adjournment, whether a quorum is present or not, is
for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at
any meeting, the vote of the holders of a majority of the stock
having voting power present in person or by proxy shall decide
any question brought before such meeting unless the question is
one upon which by express provision of law or of the Certifi-
cate of Incorporation or of these By-laws a larger or different
vote is required, in which case such express provision shall
govern and control the decision of such question. The stock-
holders present or represented at any duly called and held
meeting at which a quorum is present or represented may con-
tinue to do business until adjournment, notwithstanding the
withdrawal of such number as to leave less than a quorum.
SECTION 5. Organization. Each meeting of stockhold-
ers shall be presided over by a Co-Chairman (and, as between
the two Co-Chairmen, the Co-Chairman who shall also be the
Chief Executive Officer of the Company, if both Co-Chairmen
shall be present) or, in the absence of both Co-Chairmen, by
the Vice Chairman, or in the absence of a Co-Chairman and the
Vice Chairman so designated, by any other person selected to
<PAGE>
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preside by a majority of the Board of Directors. The Secre-
tary, or in his absence an Assistant Secretary, or in the
absence of both the Secretary and an Assistant Secretary any
person designated by the person presiding at the meeting, shall
act as secretary of the meeting.
SECTION 6. Proxies and Voting of Shares. At any
meeting of stockholders, each stockholder entitled to vote any
shares on any matter to be voted upon at such meeting may exer-
cise such voting right either in person or by proxy appointed
by an instrument in writing, which shall be filed with the sec-
retary of the meeting before being voted. Such proxies shall
entitle the holders thereof to vote at any adjournment of such
meeting (unless a new record date is set by the Board of Direc-
tors), but shall not be valid after the final adjournment
thereof. All questions regarding the qualification of voters,
the validity of proxies, and the acceptance or rejection of
votes shall be decided by two inspectors of election who shall
be appointed by the Board of Directors or if not so appointed,
then by the presiding officer of the meeting. No proxy shall
be voted on after three years from its date unless said proxy
provides for a longer period. Except as otherwise expressly
required by statute, the vote on any question need not be by
written ballot.
SECTION 7. Voting List of Stockholders. The officer
who shall have charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled
to vote at said meeting, arranged in alphabetical order and
showing the address and the number of shares registered in the
name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within
the city where said meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so speci-
fied, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by
any stockholder who is present. The stock ledger shall be the
only evidence as to who are the stockholders entitled to exam-
ine the stock ledger, the list of stockholders referred to
above or the books of the corporation, or to vote in person or
by proxy at any meeting of stockholders.
<PAGE>
-4-
SECTION 8. Notice of Stockholder Business and
Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the Corpora-
tion and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 3 of these By-laws, (b) by or at the direc-
tion of the Board of Directors or (c) by any stockholder of the
Corporation who is entitled to vote at the meeting, who com-
plied with the notice procedures set forth in clauses (2) and
(3) of this paragraph (A) and this By-law and who was a stock-
holder of record at the time such notice was delivered to the
Secretary of the Corporation.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (A)(1) of this By-law, the stockholder
must have given timely notice thereof in writing to the Secre-
tary of the Corporation. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive
offices of the Corporation not less than seventy days nor more
than ninety days prior to the first anniversary of the preced-
ing year's annual meeting commencing with the 1995 annual meet-
ing, provided however, that in the event that the date of an
annual meeting is advanced by more than thirty days, or delayed
by more than seventy days, from the first anniversary date of
the previous year's annual meeting, notice by the stockholder
to be timely must be so delivered not earlier than the nine-
tieth day prior to such annual meeting and not later than the
close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such per-
son that is required to be disclosed in solicitations of prox-
ies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), includ-
ing such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected;
(b) as to any other business that the stockholder proposes to
bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for con-
ducting such business at the meeting and any material interest
<PAGE>
-5-
in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the Corpora-
tion's books, and of such beneficial owner and (ii) the class
and number of shares of the Corporation which are owned benefi-
cially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-law to the contrary, in the event
that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no pub-
lic announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by
the Corporation at least eighty days prior to the first anni-
versary of the preceding year's annual meeting (or, in the
event of the Corporation's first annual meeting in 1995, not
later than the close of business on the tenth day following the
day on which public announcement is made of the meeting and of
the nominees proposed to be nominated), a stockholder's notice
required by this By-law shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than
the close of business on the tenth day following the day on
which such public announcement is first made by the
Corporation.
(B) Special Meetings of Stockholders. Only such business
shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Cor-
poration's notice of meeting pursuant to Section 3 of these
By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at
which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is
entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of
record at the time such notice is delivered to the Secretary of
the Corporation. Nominations by stockholders of persons for
election to the Board of Directors may be made at such a spe-
cial meeting of stockholders if the stockholder's notice as
required by paragraph (A)(2) of this By-law shall be delivered
to the Secretary at the principal executive offices of the
<PAGE>
-6-
Corporation not earlier than the ninetieth day prior to such
special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or
the tenth day following the day on which public announcement is
first made of the date of the special meeting and of the nomi-
nees proposed by the Board of Directors to be elected at such
meeting.
(C) General. (1) Only persons who are nominated in
accordance with the procedures set forth in this By-law shall
be eligible to serve as director and only such business shall
be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures
set forth in this By-law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-laws, the
Co-Chairman of the Board presiding over the meeting, or any
other person properly presiding over the meeting, shall have
the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this By-law and, if
any proposed nomination or business is not in compliance with
this By-law, to declare that such defective proposal or nomina-
tion shall be disregarded.
(2) For purposes of this By-law, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national
news service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
By-law, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of Direc-
tors. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
<PAGE>
-7-
The Board may adopt such rules and regulations for that purpose
and for the conduct of its meetings as it may deem proper. The
Board shall exercise and shall be vested with the powers of the
Corporation insofar as not inconsistent with law, the Certifi-
cate of Incorporation or these By-laws.
SECTION 2. Number, Tenure and Qualifications. Sub-
ject to the rights of the holders of any series of Preferred
Stock to elect directors under specified circumstances, the
number of directors shall be fixed from time to time exclu-
sively pursuant to a resolution adopted by a majority of the
whole Board but shall consist of not more than thirteen nor
less than three directors. The directors, other than those who
may be elected by the holders of any series of Preferred Stock,
shall be divided, with respect to the time for which they sev-
erally hold office, into three classes, as nearly equal in num-
ber as possible, with the term of office of the first class to
expire at the 1996 annual meeting of stockholders, the term of
office of the second class to expire at the 1997 annual meeting
of stockholders and the term of office of the third class to
expire at the 1998 annual meeting of stockholders. Each direc-
tor shall hold office until his or her successor shall have
been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1996 annual meeting,
(i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her
successor shall have been duly elected and qualified, and
(ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been
created.
SECTION 3. Vacancies. Subject to the rights of the
holders of any series of Preferred Stock to elect additional
directors under specified circumstances, and unless the Board
of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships result-
ing from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the
remaining directors, even though less than a quorum of the
Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been
elected expires and until such director's successor shall have
<PAGE>
-8-
been duly elected and qualified. No decrease in the number of
authorized directors constituting the whole Board shall shorten
the term of any incumbent director.
SECTION 4. Removal. Subject to the rights of the
holders of any series of Preferred Stock to elect additional
directors under specified circumstances, any director, or the
entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power then
outstanding, voting together as a single class.
SECTION 5. Regular Meetings; Notice. Regular meet-
ings of the Board of Directors shall be held at such time and
place either within or outside of the State of Delaware, as may
be determined by resolution of the Board. No notice of a regu-
lar meeting need by given (any practice or custom to the con-
trary notwithstanding) and any business may be transacted at a
regular meeting, held as aforesaid, subject only to the
requirements of Section 2 of this Article III.
SECTION 6. Special Meetings. Special meetings of
the Board of Directors may, unless otherwise expressly provided
by law, be called from time to time by either Co-Chairman, the
President or by a written call signed by a majority of the
whole Board of Directors and filed with the Secretary. Each
special meeting of the Board shall be held at such time and
place, either within or outside of the State of Delaware, as
shall be designated in the notice of such meeting.
SECTION 7. Notice of Special Meetings. Notice of a
special meeting of the Board of Directors, stating the place,
date and hour thereof, shall, except as otherwise expressly
provided by law or as provided in Section 2 of Article VII
hereof, be given by mailing or telegraphing or telecopying the
same to each director at his residence or business address at
any time on or before the second day before the day of the
meeting or by delivering the same to him personally or tele-
phoning the same to him personally at his residence or business
address not later than the day before the day of the meeting,
unless, in case of exigency, the Co-Chairman who shall be the
Chief Executive Officer of the Company, or in such Co-Chair-
man's absence a Vice Chairman or the Secretary, shall prescribe
a shorter notice to each director at his residence or business
address. Except as otherwise required by statute or these
By-laws, no notice or waiver of notice of a special meeting of
the Board need state the purpose or purposes of such meeting,
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and any business may be transacted thereat, any practice or
custom to the contrary notwithstanding.
SECTION 8. Quorum. A majority of the total number
of directors at the time in office but in no event less than
one-third of that total number or less than two directors shall
constitute a quorum for the transaction of business at any
meeting of the Board of Directors, except that when a Board of
one director is authorized pursuant to the Certificate of
Incorporation or these By-laws, then one director shall consti-
tute a quorum. If less than quorum be present at the meeting,
the directors present may adjourn the meeting and the meeting
may be held as adjourned without further notice. If a quorum
be present at a meeting and the meeting is adjourned to recon-
vene either at a later time on the same date or at a later
date, no notice need be given other than announcement at the
meeting. Except as otherwise provided by law, by the Certifi-
cate of Incorporation or by these By-laws, when a quorum is
present at any meeting of the Board of Directors, a majority of
the directors present at such meeting shall decide any question
brought before such meeting and the action of such majority
shall be deemed to be the action of the Board.
SECTION 9. Organization. Each meeting of the Board
of Directors shall be presided over by a Co-Chairman (and, as
between the two Co-Chairmen, by the Co-Chairman who shall also
be the Chief Executive Officer of the Company, if both
Co-Chairmen shall be present), or in the absence of both
Co-Chairmen, by the Vice Chairman, or in the absence of both,
by any director selected to preside by vote of a majority of
the directors present. The Secretary, or in his absence, an
Assistant Secretary, or in the absence of both the Secretary
and an Assistant Secretary, any person designated by the person
presiding over the meeting, shall act as secretary of the
meeting.
SECTION 10. Compensation of Directors. The Board
may, from time to time in its discretion, by resolution or res-
olutions passed by a majority of the whole Board, fix the
amounts which shall be payable to the members thereof for their
services in such capacity and provide for the reimbursement of
the reasonable expenses of such members, all of which shall be
in addition to any fees, salaries or other compensation which
may be paid or payable to such members in any other capacity.
Members of special or standing committees may be allowed like
reimbursement and compensation for attending committee
meetings.
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SECTION 11. Committees. (A) The Board of Directors
may, by resolution or resolutions adopted by a majority of the
whole Board, designate an Executive Committee and one or more
other committees. Except as otherwise provided by these
By-laws each committee shall consist of one or more of the
directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to
the extent provided in said resolution or resolutions, shall
have and may exercise the powers and authority of the Board in
the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Such other committee or com-
mittees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. No committee
shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger
or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corpora-
tion's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolu-
tion, or amending the By-laws of the Corporation. Unless
expressly authorized by resolution or resolutions adopted by a
majority of the whole Board, no such committee shall have the
power or authority to declare a dividend or to authorize the
issuance of stock. All committees shall keep regular minutes
of their proceedings and report the same to the Board when
required.
(B) Finance Committee. Notwithstanding the immedi-
ately preceding paragraph, the Board of Directors of the Corpo-
ration shall appoint a Finance Committee. The Finance Commit-
tee shall consist of the two Co-Chairmen of the Corporation and
two other directors, one of whom shall be the nominee to the
Board of Directors of BT Capital Partners, Inc. and the other
nominee shall be a nominee of Wasserstein & Co., Inc. ("WCI")
(provided, that if the Co-Chairman who is not the Chief Execu-
tive Officer shall no longer be a Co-Chairman, at all times
thereafter the Finance Committee shall only consist of the
Co-Chairman of the Board who is the Chief Executive Officer and
the two other directors). The Finance Committee shall review
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all proposals to issue securities of the Corporation and to
make acquisitions or to refinance the Corporation's bank debt
in whole, or to increase bank debt by more than 25%, and the
Finance Committee shall make recommendations to the Board of
Directors on such proposals. Any proposal to issue equity
securities of the Corporation for cash or debt in an amount
which, together with all other equity securities of the Corpo-
ration issued for cash or debt during the previous 12-month
period, would exceed $10 million shall require the unanimous
recommendation of the Finance Committee prior to consideration
by the Board of Directors. Any proposal regarding a merger or
acquisition (a) in which the consideration being paid by the
Corporation shall exceed $50 million or (b) involving the issu-
ance of equity securities as consideration the amount of which,
together with all other equity securities of the Corporation
issued in connection with mergers or acquisitions during the
previous 12-month period, exceeds $1,000,000 x P/.12, where P
is equal to the greater of $6.00 or the price of the equity
security being issued (computed as the average of the closing
price for the five trading days preceding such determination),
shall require the unanimous recommendation of the Finance Com-
mittee prior to consideration by the Board of Directors.
In the event that either (i) WCI and US Equity Part-
ners, L.P., a Delaware limited partnership ("WCI Entities")
hold in the aggregate fewer than 3,900,000 shares (subject to
adjustment for stock splits, combinations and recapitalization)
of the Corporation's Common Stock, or (ii) the WCI Entities
hold fewer than 5,800,000 shares (subject to adjustment for
stock splits, combinations and recapitalization) of the Corpo-
ration's Common Stock and such amount is less than 4.1% of the
fully diluted shares of Common Stock of the Company (treating
all outstanding options, warrants or convertible securities as
being exercised or converted, but not taking into account the
Contingent Shares) on any subsequent date, then the Finance
Committee shall be dissolved and this paragraph (B) of Section
11 shall be of no further force and effect.
SECTION 12. Written Consents. Any action required
or permitted to be taken at any meeting of the Board of Direc-
tors or by any committee thereof may be taken without a meet-
ing, if all members of the Board or of such committee, as the
case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board
or committee.
<PAGE>
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SECTION 13. Conference Telephone Meetings. Members
of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee
by means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting in
this manner shall constitute presence in person at such
meeting.
ARTICLE IV
OFFICERS
SECTION 1. Number and Election. The officers of the
Corporation shall be elected by the Board of Directors and
shall be two Co-Chairmen of the Board, one or more Vice Chair-
men of the Board, President and a Secretary. The Board of
Directors may also elect one or more Vice Presidents, a Trea-
surer, a Comptroller and one or more Assistance Comptrollers,
Assistant Secretaries and Assistant Treasurers. The
Co-Chairmen of the Board and the Vice Chairmen of the Board
shall be chosen from the directors. All officers chosen by the
Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the
specific provisions of this Article IV.
SECTION 2. Term of Office and Qualification. The
officers shall be elected annually by the Board of Directors at
the first meeting thereof after each annual meeting of stock-
holders. A meeting of the directors may be held without notice
for this purpose, as well as for the transaction of any other
business, immediately after the annual meeting of stockholders
of the Corporation and at the same place. In the event of the
failure so to elect any such officer, such officer may be
elected at any subsequent meeting (regular or special) of the
Board. Each officer, except such officers as may be appointed
in accordance with the provisions of Section 3 of this
Article IV, shall holder office until the next annual election
of officers and until his successor shall have been duly
elected and qualified, subject, however, to the provisions of
Article IV hereof. None of the officers of the Corporation
except the Co-Chairmen of the Board and the Vice Chairman of
the Board need be directors.
SECTION 3. Other Officers. The Board of Directors
may also appoint such other officers and agents as it may deem
necessary for the transaction of the business of the
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Corporation. Such officers and agents shall hold office for
such period, have such authority and perform such duties as
shall be determined from time to time by the Board.
SECTION 4. The Co-Chairmen of the Board. The
Co-Chairmen of the Board, (and as between the two Co-Chairmen,
the Co-Chairman who shall also be the Chief Executive Officer
of the Company, if both Co-Chairmen shall be present) shall
preside at all meetings of the stockholders and of the Board of
Directors. The Co-Chairmen shall make reports to the Board of
Directors and the Stockholders, and shall perform all such
other duties as are properly required of them by the Board of
Directors.
SECTION 5. The Vice Chairmen. Each Vice Chairman
shall, in the absence of both Co-Chairmen, act as chairman of
meetings of the Board of Directors. Each Vice Chairman shall
have such other powers and duties as may be conferred upon him
by the Co-Chairmen of the Board or the Board of Directors.
SECTION 6. The Deputy Chairman. The Deputy Chairman
shall not be an Officer of the Corporation. The Deputy Chair-
man's sole duty shall be to act, in the absence of the
Co-Chairmen and the Vice Chairmen, as chairman of meetings of
the Board of Directors.
SECTION 7. The President. The President shall be
the chief executive officer of the Corporation and shall have
general and active management of the business and affairs of
the Corporation, subject to the Board of Directors. The Presi-
dent shall, in the absence of or because of the inability to
act of the Co-Chairmen of the Board or any Vice Chairman, per-
form all duties of the Co-Chairmen of the Board or the Vice
Chairman and preside at all meetings of stockholders and of the
Board of Directors. The President may sign, alone or with the
Secretary, or an Assistant Secretary, or any other proper offi-
cer of the Corporation authorized by the Board of Directors,
certificates, contracts, and other instruments of the Corpora-
tion as authorized by the Board of Directors.
SECTION 8. Vice Presidents. In the absence or
inability to act of the Co-Chairmen, the Vice Chairman or the
President, any Vice President designated by the Board of Direc-
tors shall perform all the duties and may exercise all the pow-
ers of the President. Each Vice President shall perform such
other duties as from time to time may be assigned to him by the
<PAGE>
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Board of Directors or the President or as may be prescribed by
these By-laws.
SECTION 9. The Comptroller. The Comptroller shall
have responsibility for the accounting procedures and practices
of the Corporation and shall keep or cause to be kept at the
principal office of the corporation, and shall be responsible
for the keeping of, correct financial records of the business
and transactions of the Corporation and at all reasonable times
shall exhibit such record to any of the directors of the Corpo-
ration upon application at the office of the Corporation where
such records are kept. He shall also perform all the duties
incident to the office of Comptroller and such other duties as
from time to time may be assigned to him by the Board of Direc-
tors, the President or the Vice President.
SECTION 10. Assistant Comptrollers. In the absence
of the Comptroller, or in case of his inability to act, an
Assistant Comptroller designated by the President or by the
Board of Directors shall perform all the duties of the Comp-
troller and, when so acting, shall have all the powers of the
Comptroller. The Assistant Comptrollers shall perform such
other duties as from time to time shall be assigned to them by
the Board of Directors, the President or the Comptroller.
SECTION 11. The Secretary. The Secretary shall have
the duty to record or cause to be recorded in books kept for
that purpose the proceedings of the meetings of the Corporation
including those of the stockholders, the Board of Directors and
all committees designated by the Board of Directors; shall see
that all notices are duly given in accordance with the provi-
sions of these By-laws and as required by law; shall be custo-
dian of the records (other than those financial records kept by
the Comptroller) and of the seal of the Corporation and see
that the seal is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these By-laws
and when so affixed may attest the same; shall see that the
books, reports, statements, certificates and all other docu-
ments and records required by law are properly kept and filed;
and in general, the Secretary shall perform all duties incident
to the office of the Secretary and such other duties as may,
from time to time, be assigned to him by the Board of Directors
or the President.
SECTION 12. Assistant Secretaries. In the absence
of the Secretary, or in case of his inability to act, an
<PAGE>
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Assistant Secretary designated by the President or the Board of
Directors shall perform all the duties of the Secretary and,
when so acting, shall have all the powers of the Secretary.
The Assistant Secretaries shall perform such other duties as
from time to time shall be assigned to them by the Board of
Directors, the President or the Secretary.
SECTION 13. The Treasurer. The Treasurer shall give
such bond with such surety or sureties for the faithful perfor-
mance of his duties as the Board of Directors may require. He
shall have charge and custody of and be responsible for all
funds and securities of the Corporation, deposit all such funds
in the name of the Corporation in such banks, trust companies
or other depositaries as shall be selected in accordance with
the provisions of these By-laws and have supervision over all
receipts and disbursements of the Corporation and, in the
absence of a Comptroller, have general responsibility for its
accounting procedures and practices; at all reasonable times
exhibit his books of account and records to any of the direc-
tors of the Corporation upon application during business hours
at the place where such books and records are kept; receive,
and give receipts for, monies due and payable to the Corpora-
tion from any source whatsoever; and in general, perform all
the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Board
of Directors or the President.
SECTION 14. Assistant Treasurers. Each of the
Assistant Treasurers shall give such bond for the faithful per-
formance of his duties as the Board of Directors may require.
In the absence of the Treasurer, or in case of his inability to
act, an Assistant Treasurer designated by the President or the
Board of Directors shall perform all the duties of the Trea-
surer and, when so acting, shall have all the powers of the
Treasurer. The Assistant Treasurers shall perform such other
duties as from time to time may be assigned to them by the
Board of Directors, the President or the Treasurer.
SECTION 15. Compensation. The compensation of all
officers, agents and employees of the Corporation shall be
fixed from time to time by the Board of Directors, or pursuant
to authority of general or special resolutions of the Board.
No officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corpora-
tion or a member of any committee.
<PAGE>
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SECTION 16. Bonds. The Board of Directors shall
have the power to require any officer or agent of the Corpora-
tion to give a bond for the faithful discharge of his duties in
such form and in such amount and with such surety or sureties
as the Board may deem advisable.
SECTION 17. Removal. Any officer elected by the
Board of Directors may be removed by a majority of the members
of the whole Board whenever, in their judgment, the best inter-
ests of the Corporation would be served thereby. No elected
officer shall have any contractual rights against the Corpora-
tion for compensation by virtue of such election beyond the
date of the election of his successor, his death, his resigna-
tion or his removal, whichever event shall first occur, except
as otherwise provided in an employment contract or an employee
plan.
SECTION 18. Vacancies. A newly created office and a
vacancy in any office because of death, resignation, or removal
may be filled by the Board of Directors for the unexpired por-
tion of the term at any meeting of the Board of Directors.
ARTICLE V
NOTICES
SECTION 1. Manner of Giving. Whenever under the
provisions of the laws of the State of Delaware, the Certifi-
cate of Incorporation or these By-laws, notice is required to
be given to any director or stockholder, it shall not be con-
strued to mean personal notice, but such notice may be given by
mailing or telegraphing (including telex or cable or other
similar means) the same to each such director or stockholder at
such address as appears on the books or in the records of the
Corporation, and such notice shall be deemed to be given at the
time when the same is thus mailed or telegraphed.
SECTION 2. Waiver of Notice. Whenever under the
provisions of these By-laws, or of the Certificate of Incorpo-
ration, or of any of the laws of the State of Delaware, the
stockholders, directors or members of a committee of directors
are authorized to hold any meeting or take any action after
notice or after the lapse of any prescribed period of time, a
waiver thereof, in writing, signed by the person or persons
entitled to such notice or lapse of time, whether before or
after the time of meeting or action stated therein, shall be
deemed equivalent thereto. Neither the business to be
<PAGE>
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transacted at, nor the purpose of, any regular or special meet-
ing of the stockholders, directors, or members of any committee
of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these
By-laws. The presence at any meeting of a person or persons
entitled to notice thereof shall be deemed a waiver of such
notice as to such person or persons, except when such person
attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transactions of any business
because the meeting is not lawfully called or convened.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance. Certificates of stock
shall be issued in such form as may be approved by the Board of
Directors and shall be signed, countersigned and registered by,
or in the name of the Corporation in such manner as the Board
of Directors may by resolution prescribe. Any of or all the
signatures on such a certificate may be a facsimile. In case
any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or regis-
trar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue unless deter-
mined otherwise by the Board generally or in particular
instances.
SECTION 2. Transfers of Stock. Upon surrender to
the Corporation or the transfer agent of the Corporation of a
certificate of stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it
shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and
record the transaction upon its books. The Board of Directors
shall have power and authority to make such other rules and
regulations or amendments thereto as they may deem expedient
concerning the issue, registration and transfer of certificates
of stock and may appoint transfer agents and registrars
thereof.
SECTION 3. Lost, Stolen and Destroyed Certificates.
The Board of Directors may direct a new certificate or certifi-
cates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been
<PAGE>
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lost, stolen or destroyed, upon satisfactory proof of that fact
by the person claiming the certificate or certificates for
shares to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Direc-
tors may, at its discretion, and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representa-
tive, to publicize the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as the Board
of Directors may direct as indemnity against any claim that may
be made against the Corporation with respect to the certificate
or certificates alleged to have been lost, stolen or destroyed,
or the issuance of the new certificate or certificates.
SECTION 4. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior
to any other action. Only such stockholders as shall be stock-
holders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjourn-
ment thereof, or to receive payment of such dividend or other
distribution, or to receive such allotment of rights, or to
exercise such rights in respect of any such change, conversion
or exchange of stock, or to participate in such other action,
as the case may be, notwithstanding any transfer of any stock
on the books of the Corporation after any such record date
fixed as aforesaid. If no record date is fixed by the Board of
Directors, the record date shall be determined as provided by
the laws of the State of Delaware. A determination of stock-
holders of record entitled to notice of or to vote at a meeting
of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc. All checks,
drafts, bills of exchange, notes or other instruments or orders
<PAGE>
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for the payment of money or evidences of indebtedness shall be
signed for or in the name of the Corporation by such officer or
officers, person or persons, as the Board of Directors may from
time to time designate by resolution.
SECTION 2. Execution of Contracts, Deeds, Etc. The
Board of Directors may authorize any officer or officers, agent
or agents, in the name of and on behalf of the Corporation, to
enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific
instances.
SECTION 3. Loans. No loan shall be contracted on
behalf of the Corporation and no evidences of indebtedness
shall be issued in its name unless authorized or ratified by a
resolution of the Board or Directors. Such authorization or
ratification may be general or confined to specific instances.
ARTICLE VIII
CORPORATE SEAL
The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organiza-
tion and the word "Delaware". Said seal may be used by causing
it or a facsimile thereof to be impressed or affixed or repro-
duced in any manner whatsoever.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be deter-
mined by the Board of Directors.
ARTICLE X
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board
of Directors, the Co-Chairmen of the Board, the Vice Chairman
of the Board, the President or any Vice President may from time
to time appoint an attorney or attorneys or agent or agents of
the Corporation, in the name and on behalf of the Corporation,
to cast the votes which the Corporation may be entitled to cast
as a stockholder or otherwise in any other corporation or
<PAGE>
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association, any of whose stock or securities may be held by
the Corporation, at meetings of the holders of the stock or
other securities of such other corporations or associations, or
to consent in writing to any action by any such other corpora-
tion or association, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed on behalf of
the Corporation and under its corporate seal, or otherwise,
such written proxies, consents, waivers or other instruments as
he may deemed necessary or proper in the premises; or any such
officer may himself attend any meeting of the holders of stock
or other securities of any such other corporation or associa-
tion and thereat vote or exercise any or all other powers of
the Corporation as the holder of such stock or other securities
of such other corporation or association, or may consent in
writing to any action by any such other corporation or
association.
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
SECTION 1. Indemnification. (a) Any person made a
party or threatened to be made a party to a threatened, pending
or completed action, suit or proceeding, whether civil, crimi-
nal, administrative or investigative (other than an action or
suit by or in the right of the Corporation to procure a judg-
ment in its favor) by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, including service
with respect to an employee benefit plan, shall be indemnified
by the Corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action,
suit or proceeding to the fullest extent authorized by the Gen-
eral Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such
amendment). The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in
<PAGE>
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a manner which he reasonably believed to be in or not opposed
to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, that the person had reason-
able cause to believe that his conduct was unlawful.
(b) Any person made a party or threatened to be made
a party to any threatened, pending or completed action or suit
by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, offi-
cer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise shall be indemnified
by the Corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit to the fullest
extent authorized by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation
to provide prior to such amendment), except that no indemnifi-
cation shall be made hereunder in respect of any claim, issue
or matter as to which the person shall be adjudged liable to
the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and rea-
sonably entitled to indemnity for such expenses which said
Court of Chancery or such other court shall deem proper.
(c) To the extent that any person referred to above
has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraphs
(a) and (b) above, or in defense of any claim, issue or matter
therein, he shall be indemnified by the Corporation against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) No indemnification shall be granted under para-
graph (a) or (b) above unless ordered by a court or unless it
shall be specifically determined that indemnification of the
person is proper in the circumstances because he has met the
applicable standard of conduct set forth in the applicable
paragraph, which determination shall be made (i) by a majority
vote of the directors who are not parties to such action, suit
<PAGE>
-22-
or proceeding, even though less than a quorum, or (ii) if there
are no such directors, or if such directors so direct, by inde-
pendent legal counsel in a written opinion, or (iii) by the
stockholders.
(e) Expenses incurred in defending any civil, crimi-
nal, administrative or investigative action, suit or proceeding
by a person who may be entitled to indemnity under the above
provisions shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding if autho-
rized under paragraph (d) above within twenty days following
receipt by the Corporation of a written request for such
advance, accompanied by a written undertaking by or on behalf
of the person to whom payment is to be made that he will repay
the amounts advanced if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation in
accordance with the above provisions.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the above provisions shall
not be deemed exclusive of any other rights to which those
indemnified or advancement expenses may be entitled under any
provision of the Certificate of Incorporation, By-law, agree-
ment, vote of stockholders or disinterested directors, insur-
ance agreement, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding
such office.
(g) The indemnification and advancement of expenses,
provided by, or granted pursuant to, this Section shall, unless
otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(h) Any amendment or repeal of this Article XI shall
not adversely affect any right or protection existing hereunder
in respect of any act or omission occurring prior to such
amendment or repeal.
SECTION 2. Insurance. The Board of Directors of the
Corporation may, in its discretion, authorize the Corporation
to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corpo-
ration, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corpora-
tion, partnership, joint venture, trust or other enterprise
<PAGE>
-23-
against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indem-
nify him against such liability under the provisions of
Section 1 of this Article XI.
ARTICLE XII
AMENDMENTS
All By-laws of the Corporation shall be subject to
amendment or repeal, and new By-laws may be adopted, either
(a) by the affirmative vote of the holders of record of at
least eighty percent (80%) of the outstanding stock of the Cor-
poration entitled to vote for the election of directors, voting
together as a single class, given at an annual meeting or at
any special meeting of such stockholders, or (b) by the affir-
mative vote of a majority of the whole Board of Directors of
the Corporation; provided, however, that Section 11(B) of
Article III hereof may be amended only by stockholder vote or
by the affirmative vote of 12 of 13 members of the Board of
Directors and provided, further, that (i) the provisions of
these By-laws concerning the powers and authority of the
Co-Chairman who shall be the Chief Executive Officer shall not
be changed, and (ii) the number of directors set forth in Sec-
tion 2 of Article III shall not be increased, without a stock-
holder vote or by the affirmative vote of 12 of 13 members of
the Board of Directors.
<PAGE>
EXHIBIT H
(Reserved)<PAGE>
EXHIBIT I<PAGE>
Exhibit I
Registration Rights
1. Definitions. As used in this Exhibit I, the following terms shall
have the following meanings:
"Common Stock" means Common Stock, par value $0.0001 per share, of the
Company, including without limitation the Conversion Shares.
"Pro Rata" means, with respect to the shares of Common Stock that a
Registering Stockholder has requested be included in an underwritten public
offering, but which are to be excluded from such offering as provided in this
Exhibit I, the same proportion of the aggregate number of shares of Common Stock
to be excluded from such offering as the aggregate number of shares of Common
Stock held by such Registering Stockholder bears to the aggregate number of
shares of Common Stock held by all Registering Stockholders whose shares are to
be excluded.
"Registrable Securities" means, collectively, (i) Common Stock of the
Company issued to Stockholders and (ii) Common Stock issued or issuable by way
of stock dividend or stock split or upon the exercise of stock options or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise with respect to Registrable Securities.
Registrable Securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) such securities
shall have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act or (iii) such securities shall have been otherwise transferred,
new certificates therefor not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of such
securities shall not require the registration or qualification of such
securities under the Securities Act or any similar state law then in effect.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Exhibit I and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all printing expenses, the fees and disbursements of the Company's
independent public accountants, including the expenses of any special audits,
reviews, compilations or other reports or
<PAGE>
information required by or incident to such performance and compliance, and any
fees or expenses of counsel for the Company and of one special counsel to
represent the holders on whose behalf Registrable Securities are being
registered, but excluding any underwriting discounts and commissions with
respect to such Registrable Securities, which shall be borne by the holder on
whose behalf such Registrable Securities are being registered.
"Stockholder" means AT, WCI or any other holder of Common Stock.
Unless otherwise defined herein, capitalized terms used in this Exhibit I have
the meanings assigned to them in the Stock Acquisition and Merger Agreement.
2. Registration on Request. (a) Upon the written request of either WCI
or AT, (each a "Requesting Stockholder"), requesting that the Company effect the
registration under the Securities Act of all or part of the Common Stock held by
such Requesting Stockholder and specifying the intended method or methods of
disposition of such Common Stock, the Company will promptly give written notice
of such requested registration by registered or certified mail, return receipt
requested, to all Stockholders holding Registrable Securities and thereupon will
use its best efforts to effect, at the earliest possible date, the registration,
under the Securities Act, subject to Section 2(d), of
(i) the Registrable Securities which the Company has been so requested
to register by such Requesting Stockholder, for disposition as stated in
such request, and
(ii) all other Registrable Securities which the Company has been
requested to register by Stockholders holding Registrable Securities (which
Stockholders, together with the Requesting Stockholders, are referred to
herein as "Registering Stockholders") by written request delivered to the
Company within thirty (30) days after the giving of such written notice by
the Company (which request shall specify the intended method of disposition
of such Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities to be so
registered, provided that (A) if the Company shall have previously effected a
registration of which notice has been given to all Stockholders holding
Registrable Securities pursuant to Section 3, in which either Requesting
Stockholder wishing to do so was permitted to sell all Registrable Securities
they desired to sell pursuant to a firmly committed underwritten offering, the
Company shall not be
2
<PAGE>
required by either Requesting Stockholder to effect a registration pursuant to
this Section 2 until a period of 90 days shall have elapsed from the effective
date of the most recent such previous registration, and (B) the Company shall
not be obligated to effect more than one such registration requested by AT or
one such registration requested by WCI. Each registration requested pursuant to
this Section 2 shall be effected by the filing of a registration statement on
Form S-1, Form S-2 or Form S-3 (or any other form which the Company is qualified
to use).
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by the Company pursuant to
this Section 2.
(c) The Company will not register securities for sale for the account
of any Person other than (i) the Company, and (ii) holders of Registrable
Securities. The Company will not grant to any Person the right to request a
registration of securities except pursuant to Section 2(a) and pursuant to the
Stock Acquisition and Merger Agreement. The Company may grant incidental rights
to participate in registrations comparable to those granted in Section 3.
(d) If the registration so requested by the Requesting Stockholder
involves an underwritten offering of the securities so being registered, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and the managing underwriter of such underwritten offering shall
advise the Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Registering
Stockholders have requested to register under Section 2(a)(i) or (ii) will cause
the total number of securities to be distributed to exceed the number which can
be sold in an orderly manner within a price range acceptable to the holders of a
majority of the Registrable Securities initially requesting the registration,
then the Company will promptly furnish each Registering Stockholder a copy of
the opinion of the managing underwriter, will register the shares of Common
Stock which the Registering Stockholders have requested pursuant to Section
2(a)(i) or (ii) in an amount not to exceed the maximum number of shares that the
managing underwriter deems advisable and, to the extent necessary so that the
aggregate number of shares to be registered does not exceed the maximum amount
the managing underwriter deems advisable, will first reduce the number of shares
that each Registering Stockholder, other than AT or WCI, has requested to
register pursuant to Section 2(a)(ii), Pro Rata, and then, to the extent
necessary, reduce the number of shares that either AT or WCI has requested to
register pursuant to Section 2(a)(i) or (ii), Pro Rata.
3
<PAGE>
(e) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a holder or holders of Registrable
Securities pursuant to a registration requested under this Section 2, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution provisions to the effect and to
the extent provided in Section 6.
(f) If, at any time after requesting registration pursuant to Section
2(a) and prior to the effective date of the registration statement filed in
connection with such registration request, any Requesting Stockholder shall
determine for any reason not to register such Registrable Securities, such
Requesting Stockholder may, at its election, give written notice of such
determination to the Company. The Company shall then be relieved of its
obligations to register any Registrable Securities in connection with such
Requesting Stockholder's registration request (but not its obligation to pay the
Registration Expenses in connection therewith as provided in Section 2(b)),
without prejudice, however, to the rights pursuant to Section 2(a) of any other
Registering Stockholders to request that such registration be effected.
(g) In connection with the first request for registration pursuant to
Section 2(a), the Company may, within fifteen (15) days after its receipt of
such request, give the Requesting Stockholder notice that it is the good faith
intention of the Company to register securities under the Securities Act for
sale for its own account. Thereafter, the provisions of Section 3 shall govern,
and the Requesting Stockholders' registration request under Section 2(a) shall
be deemed rescinded. The Requesting Stockholders shall again be entitled to
request such registration under Section 2(a), but not sooner than the earliest
of (i) ninety (90) days after the effective date of the Company's registration,
(ii) the Company's determination (of which the Company shall promptly notify the
holders of Registrable Securities) not to proceed with its registration of
securities, and (iii) the Company's failure to use best efforts to effect the
registration of its securities.
(h) In connection with any request for registration pursuant to
Section 2(a), the Company may, on one occasion only, upon a good-faith
determination by the Company's Board of Directors that such a registration would
interfere with the completion of a proposed corporate transaction, notify the
Requesting Stockholder that it intends to defer such registration for up to one
hundred twenty (120) days. In such event the Requesting Stockholder may rescind
their registration
4
<PAGE>
request, and shall again be entitled to request such registration under Section
2(a), but not sooner than the end of the period of deferral determined by the
Company.
3. Incidental Registrations. (a) If, at any time, the Company proposes
to register any of its securities under the Securities Act, whether or not for
sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time give prompt written notice to all holders
of Registrable Securities of its intention to do so, describing such securities
and specifying the form and manner and the other relevant facts involved in such
proposed registration, and upon the written request of any such holder delivered
to the Company within thirty (30) days after the giving of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
(i) if, at any time after giving such written notice of its intention
to register any of its securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each holder of Registrable Securities and thereupon shall be relieved of
its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the Registration
Expenses in connection therewith as provided in Section 3(b)), without
prejudice however to the rights of any Requesting Stockholder to request
that such registration be effected as a registration under Section 2(a);
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not
for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction, and
the managing underwriter of such underwritten offering shall advise the
Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the
5
<PAGE>
Registering Stockholders have requested the Company to register in
accordance with this Section 3(a) concurrently with the securities being
distributed by such underwriters will cause the total number of securities
to be distributed to exceed the number which can be sold in an orderly
manner within a price range acceptable to the Company or the holders of the
other securities to be distributed, as the case may be, then the Company
will promptly furnish each such holder of Registrable Securities with a
copy of such opinion and may deny, by written notice to each such holder
accompanying such opinion, the registration of all or a specified portion
of such Registrable Securities (in case of a denial as to a portion of such
Registrable Securities, such portion to be allocated Pro Rata among such
holders); and
(iii) the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3 incidental to the registration
of any of its securities in connection with dividend reinvestment plans or
stock option or other employee benefit plans.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
3.
4. Registration Procedures. (a) If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3, the Company
will as expeditiously as possible:
(i) prepare and promptly file with the Commission a registration
statement with respect to such Registrable Securities (in any event, use
its best efforts to file such registration statement within sixty (60) days
after the end of the period within which requests for registration may be
delivered to the Company) and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of such
time as all of such Registrable Securities and other securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration
6
<PAGE>
statement or the expiration of nine (9) months after such registration
statement becomes effective;
(iii) furnish to each seller of such Registrable Securities, without
charge, such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities
Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents, as such seller may
reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as each seller
(or in an underwritten offering, the managing underwriter) shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;
(v) furnish to each seller of Registrable Securities by means of such
registration a signed counterpart, addressed to such seller, of (A) an
opinion of counsel for the Company, dated the effective date of such
registration statement (or, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement speaking both as of the effective date of the registration
statement and the date of the closing under the underwriting agreement)and
(B) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration statement includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have certified
the Company's financial statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants'
7
<PAGE>
letters delivered to underwriters in underwritten public offerings of
securities and, in the case of the accountants' letter, such other
financial matters, as such seller may reasonably request;
(vi) immediately notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or other securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(vii) otherwise comply with all applicable rules and regulations of
the Commission, and make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve (12) months beginning with the first day of the first month of
the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder; and
(viii) use its best efforts to list such securities on the New York
Stock Exchange and each securities exchange on which the Common Stock of
the Company is then listed, if such securities are not already so listed
and if such listing is then permitted under the rules of such exchange,
and, if necessary, provide a transfer agent and registrar for such
Registrable Securities not later than the effective date of such
registration statement.
The Company may require each such holder of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
or by the Commission in connection therewith.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act (other than
8
<PAGE>
pursuant to a request made under Section 2), and such securities are to be
distributed by or through one or more underwriters, the Company will make
reasonable efforts, if requested by any holder of Registrable Securities who
requests incidental registration of Registrable Securities in connection
therewith pursuant to Section 3, to arrange for such underwriters to include
such Registrable Securities among those securities to be distributed by or
through such underwriters, provided that, for purposes of this sentence,
reasonable efforts shall not require the Company to reduce the amount or sale
price of such securities proposed to be so distributed. In all registrations
under Section 2 or Section 3 hereof, the holders of Registrable Securities on
whose behalf Registrable Securities are to be distributed by underwriters shall
be parties to any underwriting agreement and the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters, shall also be made to and for the benefit of such holders
of Registrable Securities.
(c) Whenever a registration requested pursuant to Section 2 is for an
underwritten offering, the holders of a majority of the Registrable Securities
included in such registration shall have the right to select the managing
underwriter to administer the offering subject to the approval of the Company,
such approval not to be unreasonably withheld. If the Company at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the managing underwriter shall be selected by the Company and
approved by the holders of Registrable Securities requesting registration
thereof, such approval not to be unreasonably withheld.
(d) If any registration pursuant to Section 2 or 3 shall be made in
connection with an underwritten public offering, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so required
by the managing underwriters, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public offering)
within the period of time between seven days prior to the effective date of such
registration statement and one hundred twenty (120) days after the effective
date of such registration statement.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered and their underwriters, if any, and their respective counsel and
accountants, the opportunity to review and comment upon such registration
statement, each prospectus
9
<PAGE>
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the reasonable opinion of such holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
6. Indemnification; Contribution. (a) In the event of any registration
of any securities of the Company under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless in the case of any registration
statement filed pursuant to Section 2 or 3, the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each officer and director of each underwriter, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such holder or any such underwriter
within the meaning of the Securities Act against any losses, claims, damages,
liabilities and expenses, joint or several, to which such holder or any such
director or officer or participating or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings or investigations in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus (unless, with respect to the indemnification of the
officers and directors of each underwriter and each other person participating
as an underwriter, any such statement is corrected in a subsequent prospectus
and the underwriters are given the opportunity to circulate the corrected
prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any violation by the Company of any securities laws, and the Company will
reimburse such holder and each such director, officer, participating person and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
be liable to any seller, director, officer, participating person or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or
10
<PAGE>
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company in an instrument executed by
or under the direction of such seller, director, officer, participating person
or controlling person for use in the preparation thereof, which information was
specifically stated to be for use in the registration statement, prospectus,
offering circular or other document. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, participating person or controlling person and
shall survive the transfer of such securities by such seller. The Company shall
agree to provide for contribution relating to such indemnity as shall be
reasonably requested by any seller of Registrable Securities or the
underwriters.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2(a), that the Company shall have received an undertaking satisfactory to it
from the prospective sellers of such securities and their underwriters, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 6) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, but only if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such sellers or their underwriters specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such sellers. Anything
contained herein to the contrary notwithstanding, the maximum liability of each
prospective seller in the case of each prospective seller shall be limited to an
amount equal to the net proceeds actually received by such prospective seller
from the sale of such Registrable Securities.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 6, such indemnified party will, if a
claim in respect
11
<PAGE>
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the failure
of any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 6 except to the extent that the indemnifying party's rights are
prejudiced, or liabilities and obligations under this Section 6 are increased,
as a result of such failure to give notice. In case any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof unless (i) the indemnifying party
shall have failed to retain counsel for the indemnified party as aforesaid, (ii)
the indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (iii) representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other person represented by such counsel in such proceeding or the indemnified
party shall have reasonably concluded that there may be legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. The indemnifying party shall
not be liable for any settlement of any proceeding effected without the written
consent of such indemnifying party (which consent shall not be unreasonably
withheld), but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify each indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(d) Indemnification and contribution similar to that specified in this
Section 6 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of such Registrable Securities under any federal or state
law or regulation or governmental authority other than the Securities Act.
12
<PAGE>
(e) The rights and obligations of the parties under this Section 6
shall survive any termination of the Purchase Agreement.
7. Assignment. In the event any Stockholder shall sell, assign,
transfer, pledge or otherwise dispose of its interest in any Registrable
Securities to any other person, such Stockholder may, without the prior consent
of the Company, assign any or all of its rights hereunder to such person.
13
<PAGE>
EXHIBIT J
<PAGE>
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019
Telephone 212-969-2690
Fax 212-969-7879
August 15, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
Attention: Joseph J. Bianco
Anil K. Narang
Gentlemen:
This letter confirms our understanding that
Wasserstein Perella & Co., Inc. ("WP&Co.") has been engaged as
a financial and strategic advisor to Alliance Entertainment
Corp. (the "Company") to provide certain financial advisory and
investment banking services to the Company. References herein
to the "Company" include affiliates of the Company and any
entity that the Company or any of its affiliates may form to
pursue any of the transactions contemplated hereby. If appro-
priate in connection with performing its services hereunder,
WP&Co. may utilize the services of one or more of its affili-
ates, including Wasserstein Perella Securities, Inc., in which
case references herein to WP&Co. shall include such affiliates.
1. WP&Co., in its capacity as financial advisor to
the Company, will perform such of the following financial and
strategic advisory and investment banking services as the Com-
pany may reasonably request:
(a) WP&Co. will meet with the Company's management
and familiarize itself to the extent it reason-
ably deems necessary, appropriate and feasible
with the business, operations, properties,
financial condition and prospects of the Company
in order to better determine ways in which
WP&Co. can facilitate the Company's financial
and strategic objectives. The Company agrees to
cause the chief executive officer and each
co-chairman to meet with WP&Co. at least once
every quarter on an agreed date to discuss among
other things the financial condition and busi-
ness plan of the Company and any significant
recent developments;
<PAGE>
(b) WP&Co. will advise and assist the Company at the
Company's request in identifying and/or evaluating
various financial alternatives that may be available to
the Company to enhance shareholder values, including,
without limitation, a public or private sale of equity or
debt securities of the Company or such other form of
financial transaction that WP&Co., after completing the
familiarization process provided for in subparagraph 1(a)
hereof, believes may be of possible interest to the
Company (each a "Financial Transaction"), it being
understood and agreed that nothing contained herein shall
constitute a commitment by WP&Co. to underwrite, place or
purchase any securities;
(c) WP&Co. will advise and assist the Company at the
Company's request in identifying and/or evaluating
various non-financial strategic alternatives that may be
available to the Company to enhance shareholder value,
including, without limitation, an acquisition of all or a
significant portion of the assets or equity securities of
another corporation or other business entity, a merger or
consolidation or other business combination involving the
Company and one or more third parties, a sale (whether or
not the proposal therefor is solicited or unsolicited) of
the Company or a significant portion of its equity
securities, assets or businesses to one or more third
parties, a recapitalization or restructuring of the
Company (including through spin-offs, split-offs,
repurchases by the Company of its equity or other
securities, an extraordinary dividend or any similar
transaction), a liquidation of the Company, a material
joint venture, a strategic alliance or such other form of
transaction that WP&Co., after completing the
familiarization process provided for in subparagraph 1(a)
hereof, believes may be of possible interest to the
Company (each a "Strategic Transaction");
(d) If the Company determines in the ordinary course of
business that it will utilize a financial advisor to
consider or undertake one or more Financial and/or
Strategic Transactions, WP&Co. will, subject to the
provisions of this agreement, advise and assist the
Company with respect thereto;
<PAGE>
(e) The Company agrees that, in the event it retains a
financial advisor in connection with any such matter,
WP&Co. shall serve as the Company's exclusive financial
advisor with respect to matters relating to takeover
defense; and
(f) WP&Co. will render such other financial advisory and
investment banking services as may from time to time be
agreed upon by WP&Co. and the Company.
If the Company requests services hereunder, the Company shall
make available to WP&Co. all information concerning the business, assets,
the operations, financial condition and prospects of the Company that
WP&Co. reasonably requests in connection with the services to be performed
for the Company hereunder, and shall provide WP&Co. with reasonable access
to the Company's officers, directors, employees, independent accountants
and other advisors and agents as WP&Co. shall deem appropriate.
2. WP&Co.'s compensation for services rendered under this
engagement will include the following cash fees:
(a) An annual retainer fee of $150,000, the first two annual
payments of which are due and shall be paid by the
Company upon the execution of this agreement, and
subsequent payments of which shall be due and paid by the
Company in advance on each subsequent annual anniversary
(beginning on the second anniversary) on the date of this
agreement during the term of this agreement. The initial
retainer fee of $300,000 payable to WP&Co. pursuant to
this subparagraph 2(a) shall be non-refundable. Half of
the annual retainer fee either paid as of the date of
this agreement or payable in any future year shall be
credited against any fees paid by the Company to WP&Co.
pursuant to paragraphs 2(b), 2(c), and 2(d) below during
the year in respect of which such retainer fee is paid.
(b) In connection with any Financial Transaction, financing
fees, customary under the circumstances, the precise
amounts of which shall be agreed upon by the Company and
WP&Co. It is understood and agreed that in the event
that the Company determines to engage in any Financial
Transaction for which it will engage a financial advisor,
WP&Co. shall be offered the right, but
<PAGE>
shall not be obligated, to act as: (i) co-manager with
respect to a public offering of the Company's equity
securities, unless the chief executive officer of the
Company shall reasonably determine in good faith that the
appointment of WP&Co. as a co-manager would have a
material adverse effect on the ability of the Company to
obtain or retain analyst coverage from one or more
nationally recognized investment banks, (ii) sole, or at
WP&Co.'s option, lead agent of any private placement of
the Company's equity securities, and (iii) co-manager of
any public offering or private placement of the Company's
debt securities.
(c) In connection with any Strategic Transaction involving
substantially all of the capital stock or assets of the
Company, a transaction fee based on Aggregate
Consideration (as hereafter defined) calculated as
follows: (i) 1.5% of the first $250 million of Aggregate
Consideration, plus (ii) 1.0% of the Aggregate
Consideration, if any, between $250 million and $500
million, plus (iii) 0.75% of the Aggregate Consideration,
if any, between $500 million and $1 billion, plus
(iv) 0.5% of the Aggregate Consideration, if any, in
excess of $1 billion provided, however, that the minimum
transaction fee payable pursuant to this subparagraph
2(c) shall be $3.0 million. It is understood and agreed
that in the event that the Company determines to engage
in any Strategic Transaction for which it will engage a
financial advisor, WP&Co. shall be offered the right, but
shall not be obligated, to act as the Company's exclusive
financial advisor in connection with such Strategic
Transaction. In the event the board of directors of the
Company determines that a fairness opinion is required
from a non-affiliated, third party nationally recognized
investment bank, WP&Co. will pay for the fee for such
opinion, provided that the Company pays for the first
$50,000 of such opinion and provided that WP&Co. and the
Company mutually participate in the retention of such
third party investment bank.
For purposes of this subparagraph 2(c), the term
Aggregate Consideration shall mean the total amount of
cash and the fair market value (on the date of payment)
of all other property paid or
<PAGE>
payable, directly or indirectly, by the acquiring party
(the "Acquiror") to the acquired party or the seller of
the acquired business (in either case, the "Acquired"),
or for securities of the Acquired, or by the Acquired to
the Acquired's equity security holders, in connection
with a Strategic Transaction or a transaction related
thereto (including, without limitation, amounts paid by
the Acquiror (A) pursuant to covenants not to compete,
employment contracts, employee benefit plans or other
similar arrangements of the Acquired and (B) to holders
of any warrants, stock purchase rights, convertible
securities or similar rights of the Acquired and to
holders of any options or stock appreciation rights
issued by the Acquired, whether or not vested).
Aggregate Consideration shall also include the value of
any long-term liabilities (including the short-term
portion thereof) of the Acquired (including the principal
amount of any indebtedness for borrowed money) indirectly
or directly assumed or acquired by the Acquiror, or
otherwise repaid or retired, in connection with or in
anticipation of a Strategic Transaction. In the event of
a Strategic Transaction that takes the form of a
recapitalization or restructuring of the Company
(including, without limitation, through negotiated
repurchases of its securities, an issuer tender offer, an
extraordinary dividend, a spin-off, split-off or similar
transaction), Aggregate Consideration shall also include
the fair market value of (i) the equity securities of the
Company retained by the Company's security holders
following such transaction and (ii) any cash securities
(including securities of subsidiaries) or other
consideration received by the Company's security holders
in exchange for or in respect of securities by the
Company in connection with such transaction (all such
cash, securities or other consideration received by such
security holders being deemed to have been paid to such
security holders in such transaction). If a Strategic
Transaction takes the form of a purchase of assets,
Aggregate Consideration shall also include (i) the value
of any current assets not purchased, minus (ii) the value
of any current liabilities not assumed by the Acquiror.
In the event that any part of the consideration in
connection with any Strategic
<PAGE>
Transaction will be payable (whether in one payment or a
series of two or more payments) at any time following the
consummation thereof, the term Aggregate Consideration
shall include the present value of such future payment or
payments, agreed upon in good faith between the Company
and WP&Co.
(d) In connection with any Strategic Transaction that does
not involve substantially all of the assets or capital
stock of the Company and in which the Company would
retain a financial advisor, the Company and WP&Co. shall
in good faith negotiate a fee that would be customary for
such a transaction.
(e) Financing and/or transaction fees payable to WP&Co.
pursuant to subparagraphs 2(b), 2(c) and 2(d) above shall
be contingent upon the consummation of the relevant
transaction and payable on the closing date thereof.
3. In addition to any fees payable by the Company to WP&Co.
hereunder, the Company shall, whether or not any Financial Transaction or
Strategic Transaction shall be proposed or consummated, reimburse WP&Co. on
a monthly basis for its travel and other reasonable out-of-pocket expenses
(including all reasonable fees, disbursements and other charges of counsel
to be retained by WP&Co., and of other consultants and advisors retained by
WP&Co. with the Company's consent) incurred in connection with, or arising
out of WP&Co.'s activities under or contemplated by this engagement;
provided that the Company shall not be required to pay any such expenses in
excess of an amount set forth in a budget agreed to by WP&Co. and the
Company in connection with any specific assignment for which WP&Co. is
engaged. The Company shall also reimburse WP&Co., at such times as WP&Co.
shall request, for any sales, use or similar taxes (including additions to
such taxes, if any) arising in connection with any matter referred to or
contemplated by, this engagement. Such reimbursements shall be made
promptly upon submission by WP&Co. of statements for such expenses.
4. The Company recognizes and confirms that, in advising the
Company and in completing its engagement hereunder, WP&Co. will be using
and relying on publicly available information and on data, material, and
other information furnished to WP&Co. by the Company and other parties. It
is understood that in performing under this engagement WP&Co. may assume
and rely upon the accuracy and completeness of, and is
<PAGE>
not assuming any responsibility for independent verification of, such
publicly available information and the other information so furnished.
5. The Company and WP&Co. have entered into a separate
letter agreement, dated the date hereof and attached hereto, providing for
the indemnification by the Company and WP&Co. and certain related persons.
Such indemnification agreement is an integral part of this agreement and
the terms thereof are incorporated by reference herein. As stated therein,
such indemnification agreement shall survive any termination or completion
of WP&Co.'s engagement hereunder.
6. This agreement and WP&Co.'s engagement hereunder may be
terminated by either the Company or WP&Co. at any time effective after
August 15, 1999 upon thirty days' prior written notice thereof to the other
party; provided, however, that (a) termination of WP&Co.'s engagement
hereunder shall not affect the Company's continuing obligation to indemnify
WP&Co. and certain related persons as provided in the separate letter
agreement referred to above and its continuing obligation under paragraph 7
hereof, (b) notwithstanding any such termination, WP&Co. shall be entitled
to (i) the full annual retainer fees in the amounts and at the times
provided for in paragraph 2(a) hereof, and (ii) the full financing and/or
transaction fees agreed upon pursuant to or provided for in paragraphs 2(b)
and 2(c) hereof in the event that at any time prior to the expiration of
six months following such termination, any Financial Transaction and/or any
Strategic Transaction, as the case may be, is consummated; and (c)
termination of WP&Co.'s engagement hereunder shall not affect the Company's
obligation to reimburse the expenses accruing prior to such termination to
the extent provided for herein.
7. WP&Co. has been retained under this agreement as an
independent contractor with duties owed solely to the Company. The advice
(oral or written) rendered by WP&Co. pursuant to this agreement is intended
solely for the benefit and use of the Board of Directors of the Company in
considering the matters to which this agreement relates, and the Company
agrees that such advice may not be relied upon by any other person, used
for any other purpose or reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor shall any public references
to WP&Co. be made by the Company without the prior written consent of
WP&Co.
8. The Company agrees that WP&Co. shall have the right to
place advertisements in financial and other newspapers and journals at its
own expense describing its services to the Company hereunder, provided that
WP&Co. will submit a copy of
<PAGE>
any such advertisement to the Company for its approval, which approval
shall not be unreasonably withheld or delayed.
9. This agreement shall be deemed made in New York. This
agreement and all controversies arising from or relating to performance
under this agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to such state's
rules concerning conflicts of laws. The Company hereby irrevocably
consents to personal jurisdiction in any court of the State of New York or
any Federal court sitting in the Southern District of New York for the
purposes of any suit, action or other proceeding arising out of this
agreement or any of the agreements or transactions contemplated hereby,
which is brought by or against the Company, hereby waives any objection to
venue with respect thereto, and hereby agrees that all claims in respect of
any such suit, action or proceeding may be heard and determined in any such
court. The Company hereby irrevocably consents to the service of process
of any of the aforementioned courts in any such suit, action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to the Company at its address set forth above, such service to
become effective ten (10) days after such mailing. ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT OR
CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY WAIVED.
10. This agreement may be executed in counterparts, each of
which together shall be considered a single document. This agreement shall
be binding upon WP&Co. and the Company and their respective successors and
assigns. This agreement is not intended to confer any rights upon any
shareholder, owner or partner of the Company, or any other person not a
party hereto other than the indemnified persons referenced in the
indemnification agreement referred to above.
11. It is understood and agreed that WP&Co. and its
affiliates may from time to time make a market in, have a long or short
position in, buy and sell or otherwise effect transactions for customer
accounts and for their own accounts in the securities of, or perform
investment banking or other services for, the Company and other entities
which are or may be the subject of the engagement contemplated by this
agreement. It is further understood that neither WP&Co. or any of its
affiliates will use any information obtained in connection with its
services provided pursuant to this agreement (unless such information is
publicly available or generally known) in conducting any of the activities
described in this paragraph.
<PAGE>
12. Any payments to be made to WP&Co. hereunder and under the
related indemnification agreement referred to above shall be in U.S.
dollars and shall be free of all withholding, stamp and other taxes and of
all other governmental charges of any nature whatsoever.
We are pleased to accept this engagement and look forward to
acting as financial and strategic advisor to the Company. Please confirm
that the foregoing is in accordance with your understanding by signing and
returning to us the enclosed duplicate of this letter, which shall
thereupon constitute a binding agreement between WP&Co. and the Company.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
By:
Name: W. Townsend Ziebold, Jr.
Title: Managing Director
ACCEPTED AND AGREED TO:
ALLIANCE ENTERTAINMENT CORP.
By___________________________
Name:
Title:
<PAGE>
August 15, 1996
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, NY 10019
Gentlemen:
In connection with your engagement as our financial advisor
pursuant to a separate agreement between you and us, we hereby agree to
indemnify and hold harmless Wasserstein Perella & Co., Inc. ("WP&Co.") and
its affiliates, their respective directors, officers, agents, employees and
controlling persons, and each of their respective successors and assigns
(collectively, the "indemnified persons"), to the full extent lawful, from
and against all losses, claims, damages, liabilities and expenses incurred
by them which (A) are related to or arise out of (i) actions or alleged
actions taken or omitted to be taken (including any untrue statements made
or any statements omitted to be made) by us or (ii) actions or alleged
actions taken or omitted to be taken by an indemnified person with our
consent or in conformity with our actions or omissions or (B) are otherwise
related to or arise out of WP&Co.'s activities under WP&Co.'s engagement.
We will not be responsible, however, for any losses, claims, damages,
liabilities or expenses pursuant to clause (B) of the preceding sentence
which are finally judicially determined to have resulted primarily from the
gross negligence or willful misconduct of the person seeking indemni-
fication hereunder. We also agree that no indemnified person shall have
any liability to us for or in connection with such engagement or any
transactions or conduct in connection therewith except for losses, claims,
damages, liabilities or expenses incurred by us which are finally
judicially determined to have resulted primarily from the gross negligence
or willful misconduct of such indemnified person; provided, however, that
in no event shall the indemnified persons' aggregate liability to us exceed
the fees WP&Co. actually receives from us pursuant to its engagement
referred to above, unless there is a final judicial determination of
willful misconduct specified in this sentence.
After receipt by an indemnified person of notice of any
complaint or the commencement of any action or proceeding with respect to
which indemnification is being sought hereunder, such person will notify us
in writing of such complaint or of the commencement of such action or
proceeding, but failure so to notify us will relieve us from any liability
which we may have hereunder only if, and to the extent that such failure
results in the forfeiture by us of substantial rights and defenses, and
will not in any event relieve us from any other
<PAGE>
Page 2
obligation or liability that we may have to any indemnified person
otherwise than under this letter agreement. If we so elect or are
requested by such indemnified person, we will assume the defense of such
action or proceeding, including the employment of counsel reasonably
satisfactory to WP&Co. and the payment of the fees and disbursements of
such counsel. In the event, however, such indemnified person reasonably
determines in its judgment that having common counsel would present such
counsel with a conflict of interest or if the defendants in, or targets of,
any such action or proceeding include both an indemnified person and us,
and such indemnified person reasonably concludes that there may be legal
defenses available to it or other indemnified persons that are different
from or in addition to those available to us, or if we fail to assume the
defense of the action or proceeding or to employ counsel reasonably
satisfactory to such indemnified person, in either case in a timely manner,
then such indemnified person may employ separate counsel to represent or
defend it in any such action or proceeding and we will pay the fees and
disbursements of such counsel; provided, however, that we will not be
required to pay the fees and disbursements of more than one separate
counsel (in addition to local counsel) for all indemnified persons in any
jurisdiction in any single action or proceeding. In any action or
proceeding the defense of which we assume, the indemnified person will have
the right to participate in such litigation and to retain its own counsel
at such indemnified person's own expense. We further agree that we will
not, without the prior written consent of WP&Co., settle or compromise or
consent to the entry of any judgement in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not WP&Co. or any other
indemnified person is an actual or potential party to such claim, action,
suit or proceeding) unless such settlement, compromise or consent includes
an unconditional release of WP&Co. and each other indemnified person
hereunder from all liability arising out of such claim, action, suit or
proceeding.
We agree that if any indemnification sought by an indemnified
person pursuant to this letter agreement is held by a court to be
unavailable for any reason other than as specified in the second sentence
of the first paragraph of this letter agreement, then (whether or not
WP&Co. is the indemnified person), we and WP&Co. will contribute to the
losses, claims, damages, liabilities and expenses for which such
indemnification is held unavailable (i) in such proportion as is appropri-
ate to reflect the relative benefits to us, on the one hand,
<PAGE>
Page 3
and WP&Co., on the other hand, in connection with WP&Co.'s engagement
referred to above, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i), but also
the relative fault of us, on the one hand, and WP&Co., on the other hand,
as well as any other relevant equitable considerations; provided, however,
that in any event the aggregate contribution of all indemnified persons,
including WP&Co., to all losses, claims, damages, liabilities and expenses
with respect to which contribution is available hereunder will not exceed
the amount of fees actually received by WP&Co. from us pursuant to WP&Co.'s
engagement referred to above. It is hereby agreed that for purposes of
this paragraph, the relative benefits to us, on the one hand, and WP&Co.,
on the other hand, with respect to WP&Co.'s engagement shall be deemed to
be in the same proportion as (i) the total value paid or proposed to be
paid or received by us or our stockholders, as the case may be, pursuant to
the transaction, whether or not consummated, for which WP&Co. is engaged to
render financial advisory services, bears to (ii) the fee paid or proposed
to be paid to WP&Co. in connection with such engagement. It is agreed that
it would not be just and equitable if contribution pursuant to this
paragraph were determined by pro rata allocation or by any other method
which does not take into account the considerations referred to in this
paragraph.
We further agree that we will promptly reimburse WP&Co. and any
other indemnified person hereunder for all expenses (including fees and
disbursements of counsel) as they are incurred by WP&Co. or such other
indemnified person in connection with investigating, preparing for or
defending, or providing evidence in, any pending or threatened action,
claim, suit or proceeding in respect of which indemnification or con-
tribution may be sought hereunder (whether or not WP&Co. or any other
indemnified person is aparty) and in enforcing this agreement.
Our indemnity, contribution, reimbursement and other
obligations under this letter agreement shall be in addition to any
liability that we may otherwise have, at common law or otherwise, and shall
be binding on our successors and assigns.
Solely for purposes of enforcing this letter agreement, we
hereby consent to personal jurisdiction, service and venue in any court in
which any claim or proceeding which is subject to, or which may give rise
to a claim for
<PAGE>
Page 4
indemnification or contribution under, this letter agreement is brought
against WP&Co. or any other indemnified person.
This letter agreement shall be deemed made in New York. This
letter agreement and all controversies arising from or relating to
performance under this letter agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect
to such state's rules concerning conflicts of laws. ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS LETTER
AGREEMENT OR ANY ENGAGEMENT OF WP&CO. IS HEREBY WAIVED.
The provisions of this letter agreement shall apply to the
above-mentioned engagement, activities relating to the engagement occurring
prior to the date hereof, and any subsequent modification of or amendment
to such engagement, and shall remain in full force and effect following the
completion or termination of WP&Co.'s engagement.
Very truly yours,
ALLIANCE ENTERTAINMENT CORP.
By:
Name:
Title:
Accepted:
WASSERSTEIN PERELLA & CO., INC.
By:___________________________
Name:
Title:
Alliance Entertainment Signs Agreement to Acquire Red Ant;
Al Teller To Become Co-Chairman, President And CEO
Music Industry Leader Sees Opportunity To Build Alliance Into A
Major International Record Company
NEW YORK, Aug. 15/PRNewswire/ -- Alliance Entertain-
ment (NYSE: CDS), said today that it has signed a definitive
agreement to acquire Red Ant Entertainment, a recently-formed
music industry enterprise whose principals include former MCA
Music Entertainment Group chairman and chief executive officer
Al Teller, and the merchant banking firm of Wasserstein
Perella. Under the terms of the agreement, Teller, 51, is to
become co-chairman, president and chief executive officer of
Alliance Entertainment. Red Ant, which has $20 million of
equity capital and a seasoned management team in addition to
Teller, has already signed several acts and is in negotiation
for a number of others.
The Company said these transactions significantly
accelerate Alliance's strategy of building both the proprietary
content and international components of its business.
In consideration for the acquisition of Red Ant,
Alliance will issue 6.7 million shares of newly issued common
stock, plus up to an additional three million shares based upon
certain performance targets being met over the next four years.
Alliance Chairman and Chief Executive Officer Joseph
J. Bianco, who will become co-chairman, said, "Al is one of the
great leaders in the music industry. With his background as
CEO of MCA Music and president of CBS Records (now Sony Music)
- -- two of the "Big Six" music companies -- he is the ideal per-
son to guide Alliance's future. He has the ability and insight
to grow Alliance into a major music powerhouse and to guide it
into new frontiers of technology."
In the last six years Alliance has grown from a small
privately-owned music distributor into an important component
of the U.S. music business with 1995 sales reaching $720 mil-
lion. Alliance is the nation's largest full-service distribu-
tor of music and music-related products and owns more than
75,000 music master copyrights.
"Alliance has in place the components upon which to
build an important international record company," Al Teller
<PAGE>
-2-
commented. "We intend to accelerate the growth of Alliance's
content business through Red Ant, while building an interna-
tional distribution system that complements Alliance's existing
operation, much like we did at both MCA and CBS Records. We
will also speed up the ongoing consolidation and integration of
Alliance's existing distribution operations."
In addition, Wasserstein Perella also purchased an
additional 1.9 million shares of common stock from Alliance
executives, making it the Company's second largest shareholder.
W. Townsend Ziebold, Jr. managing director of
Wasserstein Perella said, "Wasserstein Perella and Al decided
to merge Red Ant into Alliance because we believe the combina-
tion creates an excellent platform to accelerate the growth of
Red Ant and Alliance's content business. It also creates a
superb opportunity to build the companies internationally."
As the Chairman and CEO of the MCA Music Entertain-
ment Group, as well as Executive Vice President of MCA, Inc.,
Teller turned The Music Group into the most profitable company
under the MCA banner. During his tenure, he acquired both
Geffen and GRP Records and established MCA Music Entertainment
Group as a worldwide force in the music business, with 1994
gross revenues of $1.25 billion. Teller also oversaw one of
the largest international expansions ever undertaken by a
record company, opening offices in 25 countries during a
two-year period.
Having served as president of CBS Records, Columbia
Records and United Artist Records, Teller has guided the
careers of many world-class artists, including Bruce
Springsteen, Billy Joel, Elton John, Reba McEntire, Tom Petty,
Bobby Brown, Wynona Judd, Vince Gill and George Michael.
Mr. Teller has played an instrumental role in shaping
the future of the music industry. He has served on the Board
of Directors and Executive Committee of the Recording Industry
Association of America and the Board of the International Fed-
eration of Phonogram and Videogram Producers as well as acted
as a Board Member and Trustee of The Rock and Roll Hall of
Fame. Mr. Teller also served as the music industry's represen-
tative on Vice President Al Gore's National Information Infra-
structure Advisory Council. Mr. Teller holds an M.B.A. from
Harvard Business School and two degrees in engineering from
Columbia University.
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Wasserstein Perella is an international investment
bank whose merchant banking activities include domestic princi-
pal investing.
Teller and representatives of Wasserstein Perella
will initially hold three of the 13 Alliance board seats. The
acquisition is subject only to expiration of the
Hart-Scott-Rodino waiting period.
Red Ant Entertainment will continue to be based in
Los Angeles (9720 Wilshire Blvd.), with offices in New York.
The record label will continue building a roster of alternative
and urban contemporary artists and will add a country presence
in the future.
