SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
- ---------------------------------- TO ------------------------------------.
Commission File Number 1-13054
ALLIANCE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3645913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 935-6662
( Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes / X / No / /
As of November 11, 1996, the number of shares outstanding of the
registrant's common stock was 44,764,853.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
PART I--FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statement of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 22
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
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ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except Share Data)
December 31, September 30,
1995 1996
<S> <C> <C>
---------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,852 $ 17,736
Accounts receivable, less allowance for doubtful
accounts 193,785 153,987
Inventory 192,604 198,071
Advances and other prepaid expenses 24,609 33,535
Refundable income taxes 783 13,441
Deferred income taxes 9,061 13,186
---------------- --------------
Total current assets 433,694 429,956
---------------- --------------
INVESTMENTS, at cost 782 785
PROPERTY AND EQUIPMENT 24,826 31,074
COPYRIGHTS, less accumulated amortization 64,150 69,842
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED,
less accumulated amortization 97,262 102,767
COVENANTS NOT TO COMPETE, less accumulated
amortization 10,586 8,920
DEFERRED INCOME TAXES 1,894 2,442
OTHER ASSETS, less accumulated amortization 12,214 17,802
-------------- ------------
TOTAL ASSETS $ 645,408 $ 663,588
================ ============
CURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 73,700 $ 75,452
Current maturities of long-term debt 8,983 11,585
Current obligations under capital leases 432 439
Accounts payable and accrued expenses 229,088 216,855
Income taxes payable 434
---------------- --------------
Total current liabilities 312,637 304,331
---------------- --------------
LONG-TERM DEBT 234,622 228,490
OBLIGATIONS UNDER CAPITAL LEASES 367 225
DEFERRED INCOME TAXES 8,955 7,819
COMMITMENTS
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, $.01 par value,
886,240 shares authorized, shares issued and
outstanding 1995 0; 1996 422,500 ( $42,962
liquidation preference) - 4
Common stock, $.0001 par value, 100,000,000
shares authorized, shares issued and outstanding
1995 35,638,331; 1996 44,724,845 3 4
Additional paid-in capital 71,276 141,825
Employee notes for stock purchases (67) (67)
Retained earnings (deficit) 17,369 (18,601)
Foreign currency translation adjustment 246 (442)
---------------- --------------
Total stockholders' equity 88,827 122,723
---------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 645,408 $ 663,588
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ----------------------------
1995 1996 1995 1996
------------- ---------------- -------------- -------------
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Net sales $ 182,516 $ 160,636 $ 491,533 $ 499,992
Cost of sales 145,696 132,403 395,116 417,869
------------- ---------------- -------------- -------------
Gross profit 36,820 28,233 96,417 82,123
Selling, general and administrative expenses 24,894 31,975 64,156 99,454
Amortization of intangible assets 3,007 2,891 7,953 8,645
------------- ---------------- -------------- -------------
27,901 34,866 72,109 108,099
------------- ---------------- -------------- -------------
8,919 (6,633) 24,308 (25,976)
------------- ---------------- -------------- -------------
Other income (expense)
Amortization of deferred financing costs (368) (452) (859) (1,388)
Other income (expense) - net (351) 286 (433) (487)
Interest expense (6,096) (8,994) (13,396) (25,835)
------------- ---------------- -------------- -------------
(6,815) (9,160) (14,688) (27,710)
------------- ---------------- -------------- -------------
Income (loss) before income taxes 2,104 (15,793) 9,620 (53,686)
Provision (benefit) for income taxes 1,120 (6,348) 4,352 (17,716)
------------- ---------------- -------------- -------------
Net income (loss) $ 984 $ (9,445) $ 5,268 $ (35,970)
============= ================ ============== =============
Earnings (loss) per common share and
common share equivalents $ .03 $ (.23) .14 $ (.95)
============= ================ ============== =============
Weighted average number of shares of
common stock and equivalents outstanding 38,466,650 40,562,141 36,704,040 37,798,670
============= ================ ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(Amounts in Thousands, Except Share Data)
Capital Stock Issued Employee Foreign
---------------------------- Additional Notes for Retained Currency
Preferred Common Paid-In Stock Earnings Translation
Stock Stock Capital Purchases (Deficit) Adjustment
------------- ---------------- -------------- ------------- --------------------------
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Balance at December 31, 1995 $ - $ 3 $ 71,276 $ (67) $ 17,369 $ 246
Exercise of options and warrants for 2,367,763 shares
of common stock - - 2,901 - - -
Issuance of 6,718,751 shares of common stock
for purchase of company - 1 26,874 - - -
Issuance of 422,500 shares of series A convertible
preferred stock 4 - 40,774 - - -
Net loss - - - (35,970) -
Translation adjustment - - - - - (688)
============= ================ ============== ============= ============== ========
Balance at September 30, 1996 $ 4 $ 4 $ 141,825 $ (67) $ (18,601) $ (442)
============= ================ ============== ============= ============== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Nine Months Ended
September 30,
--------------------------------
1995 1996
---------------- --------------
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Cash Flows From Operating Activities
Net income (loss) $ 5,268 (35,970)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 11,722 14,326
Change in assets and liabilities:
(Increase) decrease in accounts receivable (20,876) 46,580
(Increase) in inventory (63,307) (5,822)
(Increase) in prepaid expenses and other (10,494) (9,017)
(Increase) decrease in deferred income taxes 2,082 (5,808)
Increase (decrease) in accounts payable and
accrued expenses 12,741 (17,758)
(Decrease) in income taxes payable (6,099) (13,092)
---------------- --------------
Net cash used in operating activities (68,963) (26,561)
---------------- --------------
Cash Flows From Investing Activities
Purchase of property and equipment, net (16,099) (10,372)
(Increase) in copyrights (12,728) (8,681)
(Increase) in other assets (2,127) (5,559)
Purchase of businesses including costs,
net of cash acquired (40,267) 12,844
---------------- --------------
Net cash used in investing activities (71,221) (11,768)
---------------- --------------
Cash Flows From Financing Activities
Increase (decrease) in excess of outstanding
checks over bank balance (1,344) 1,922
Proceeds from issuance of stock 11,187 43,679
Proceeds from borrowings 436,750 221,382
Payments on borrowings (307,622) (223,295)
Payments for financing costs (6,491) (475)
---------------- --------------
Net cash provided by financing activities 132,480 43,213
---------------- --------------
Net increase (decrease) in cash and cash equivalents (7,704) 4,884
Cash and cash equivalents
Beginning of period 8,230 12,852
---------------- --------------
End of period $ 526 $ 17,736
================ ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(Amounts in Thousands)
Nine Months Ended
September 30,
-------------------------------
1995 1996
---------------- --------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash payments for interest $ 11,125 $ 27,375
Cash payments (received) for income taxes $ 7,917 $ (482)
Supplemental Disclosure of Noncash Investing
and Financing Activities
Common stock issued to employees for notes $ 15 $ -
Acquisition of subsidiary
Cash purchase price, net of cash acquired $ 37,283 $ (12,618)
Working Capital acquired, net of cash
and cash equivalents $ 6,918 $ 5,083
Fair value of other assets acquired, principally
property and equipment 7,329 1,064
Copyrights
Cost in excess of net assets of business acquired 26,517 8,110
Covenant not to compete 2,500 -
Long-term debt assumed (81) -
Long-term debt incurred (4,600) -
Common Stock issued (1,300) (26,875)
---------------- --------------
$ 37,283 $ (12,618)
================ ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited balance sheet as of September 30, 1996 and the unaudited
statements of operations, cash flows and stockholders' equity for the three
month and nine month periods ended September 30, 1995 and 1996 (interim
financial information), are unaudited and have generally been prepared on the
same basis as the audited financial statements. In the opinion of Alliance
Entertainment Corp. (the "Company" or "Alliance"), the interim financial
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results of operations for the three months and nine months ended September 30,
1996, may not be indicative of the operating results for the full year or any
interim period.
Certain amounts have been reclassified to conform with the presentation in
the current period.
Acquisition of Red Ant L.L.C.
On August 27, 1996, the Company acquired Red Ant L.L.C., a Delaware limited
liability corporation ("Red Ant"), pursuant to the terms of the Stock
Acquisition and Merger Agreement, dated August 15, 1996, among Alliance, Alvin
N. Teller, Wasserstein & Co., Inc. ("WCI"), and other parties thereto. The
Company acquired all of the outstanding units of Red Ant from Mr. Teller and WCI
in exchange for (i) 760,823 shares of the Company's common stock, $.0001 par
value per share (the "Common Stock"), issued to Mr. Teller and 5,957,928 shares
of Common Stock issued to WCI and its affiliates and (ii) the right for Mr.
Teller and WCI and affiliates to receive additional shares of Common Stock
contingent upon the market price of the Common Stock achieving defined target
prices or upon certain events. In conjunction with the acquisition of Red Ant,
Mr. Teller (the former Chairman and Chief Executive Officer of MCA Music) became
Co-Chairman, Chief Executive Officer and President of Alliance. The acquisition
of Red Ant for shares of the Company's Common Stock with an aggregate value of
$26,875,004 resulted in the recognition of costs in excess of net assets
acquired in the amount of $8,100,000. Pro-forma financial information has not
been presented by the Company with respect to the acquisition of Red Ant because
such information would not be materially different from the historical
information presented herein.
The stockholders of the Company ratified the terms of the Company's
acquisition of Red Ant at a Special Meeting of the Company's stockholders on
October 29, 1996.
Restructuring Charges
During the first six months of 1996, the Company recognized certain
non-recurring expenses of $20.4 million (the "Restructuring Charges") relating
to the termination of the proposed merger of the Company and Metromedia
International Group, Inc., the consolidation and relocation of two of the
Company's warehouse facilities, as well as charges relating to the current
industry
<PAGE>
climate. Approximately $11.0 million of these charges resulted in an
increase to cost of goods sold, while the remaining $9.4 million was a charge
against selling, general and administrative expenses. The Restructuring Charges
(which relate primarily to the Company's One Stop Group distribution operations)
include termination costs, severance and other incremental costs relating to
the closure of two facilities and relocation of operations in Miami, Florida to
the Company's Coral Springs, Florida facility, as well as expenses relating to
the further reduction of inventory levels once the relocation is completed. The
relocation to the Coral Springs facility is expected to be completed by the
first quarter of 1997. The Restructuring Charges pertaining to the current
industry environment relate to the further strengthening of the Company's
reserve position with regard to customer returns, return penalties to vendors,
and allowance for doubtful accounts.
BT Capital and BCI Preferred Stock Issuance.
On July 16, 1996, the Company entered into a Preferred Stock Purchase
Agreement (the "Preferred Stock Purchase Agreement"), with BT Capital Partners,
Inc. ("BT"), an affiliate of Bankers Trust, and BCI Growth IV, LP ("BCI"),
pursuant to which the Company issued a total of $42.25 million of new preferred
stock, the proceeds of which were used to fund the purchase of catalog and other
proprietary rights and for general corporate purposes. BT purchased $35 million
and BCI purchased $7.25 million of the preferred stock. The preferred stock has
a cumulative dividend rate of 7 7/8% per annum, payable in additional shares of
preferred stock, and is convertible into shares of the Company's Common Stock at
a conversion rate equal to $7.25 per share of Common Stock subject to
anti-dilution adjustments.
The Company's stockholders approved the issuance of shares of Common Stock
upon conversion of the preferred stock at a Special Meeting of the Company's
stockholders on October 29, 1996.
EMI Catalog Distribution Agreement
On June 21, 1996, the Company and EMI-Capitol Music Group North America
entered into an exclusive Distribution Agreement dated June 21, 1996 under which
Alliance will market and sell selected EMI-Capitol catalog titles in the United
States. The five year agreement (which contains annual purchase commitments by
Alliance of approximately $16 million) encompasses approximately 450 deep
catalog titles by such diverse artists as Judy Garland, The Band, Willie Nelson
and Ashford and Simpson.
Consolidation Plan
On November 14, 1996, the Company announced a significant Consolidation
Plan (the "Consolidation Plan") involving its North American Distribution
operations. The Consolidation Plan calls for the closure of five of the
Company's eight domestic American distribution facilities and the centralization
of all administrative functions for the Company's One Stop Group and Independent
Distribution Group. Additionally, under the Consolidation Plan, the
administrative functions of the Company's three domestic proprietary labels (Red
Ant, Castle (US) and Concord Jazz) will be consolidated under Red Ant. The
Company expects that the Consolidation Plan will require a fourth quarter charge
of approximately $28 to $32 million encompassing lease termination costs,
severance costs and other expenses relating to the Consolidation Plan of which
approximately $18 to $21 million will be cash expenditures. The largest portion
of these expenditures will occur during 1997. It is currently anticipated that
the
<PAGE>
Consolidation Plan will be completed by March 1998.
Concurrent with the Consolidation Plan, the Company is also evaluating the
divestiture of its Brazilian distribution operations and its Premier Artists
Services subsidiary. Depending on the results of this evaluation, which is
anticipated to be completed in the fourth quarter of 1996, such divestitures
could result in impairment charges with respect to certain of the Company's
long-lived assets and intangibles under The Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets to be Disposed Of." At September 30, 1996, the aggregate total
investment in and advances to the operations subject to evaluation was $32.2
million.
Fourth Amendment to Third Amended and Restated Credit Agreement
On September 30, 1996, the Company entered into a Fourth Amendment to the
Third Amended and Restated Credit Agreement (the "Restated Credit Agreement") to
amend certain definitions and financial covenants for the period ended September
30, 1996, as set forth in the Restated Credit Agreement. The Fourth Amendment to
the Restated Credit Agreement did not amend any financial covenants with respect
to future periods and there can be no assurances that the Company will be able
to comply with the financial covenants set forth in the Restated Credit
Agreement with respect to such future periods.
The Company is in discussions with third parties and certain affiliates
with respect to obtaining additional financing necessary to satisfy the
Company's debt service obligations, anticipated growth, expected capital
expenditure needs and cash expenditures relating to the implementation of the
Consolidation Plan. While there can be no assurances that such financing will be
consummated, the Company has no reason to believe it will be unable to obtain
such financing and satisfy its capital requirements for the foreseeable future.
Accounting Pronouncement on Stock-Based Compensation
The Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock- Based Compensation" must be implemented by the Company in
1996. This pronouncement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments to employees based on new fair value
accounting rules. Companies that choose not to adopt the new fair value
accounting rules will be required to disclose pro forma net income and earnings
per share under the new method. The Company anticipates adopting the disclosure
provisions of SFAS No. 123, although the impact of such disclosure has not yet
been determined.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Alliance Entertainment Corp. ("Alliance" or the "Company") is the largest
full service distributor of pre-recorded music and music related products in the
United States and is also actively engaged in the acquisition and exploitation
of proprietary content rights with respect to recorded music, video and video
CDs. In August 1996 as part of its strategy to expand its proprietary content
business, Alliance acquired Red Ant L.L.C. ("Red Ant"), a new music label formed
by Alvin N. Teller, to build a roster of alternative rock, urban contemporary
and country artists. In conjunction with the acquisition of Red Ant, Mr. Teller
(the former Chairman and Chief Executive Officer of MCA Music) became
Co-Chairman, Chief Executive Officer and President of Alliance.
<PAGE>
Prior to the acquisition of Red Ant, Alliance's proprietary content
business conducted through the Proprietary Product Group consisted primarily of
the operations of Castle Communications plc ("Castle") and Concord Jazz, Inc.
("Concord"). Castle's catalog includes proprietary rights with respect to The
Kinks, The Searchers, Status Quo and Donovan, and rock music from the 1970's by
bands such as Motorhead and Uriah Heep. Since 1994, Castle has also actively
acquired domestic and/or worldwide rights to a broader range of proprietary
rights, including catalogs of artists such Black Sabbath and Iron Maiden as well
as world-wide rights to projects of newly recorded music by established artists
formerly with the six major record companies: Sony Music, Time Warner, Polygram,
MCA, EMI and BMG (the "Major Labels") such as Cheap Trick, REO Speedwagon and
Ugly Kid Joe. Concord, a label established in 1974 and acquired by the Company
in late 1994, has a catalog of over 600 jazz recordings by artists such as
Rosemary Clooney, Mel Torme, Tito Puente, and Art Blakey as well as exclusive
recording agreements for new recordings with a number of other established jazz
artists such as Chick Corea and Maynard Ferguson. The acquisition of Red Ant
will add additional artist development capabilities to Alliance's proprietary
content business.
The Company's distribution segment is conducted through the One Stop Group
and Independent Distribution Group. The One Stop Group specializes in the
wholesale distribution of all available pre-recorded music product (i.e.,
pre-recorded music manufactured by the Major Labels as well as music
manufactured by independent labels). The Independent Distribution Group
specializes in the domestic wholesale distribution of pre-recorded music
manufactured by third party independent labels on an exclusive and regional
basis. The Independent Distribution Group has historically generated higher
gross margins than has the One Stop Group but carries a higher degree of risk
related to industry conditions due to a greater dependence on new release
product and a higher degree of exposure to product returns.
The International Distribution Group specializes in wholesale distribution
of pre-recorded music product outside the United States, primarily in Brazil and
Canada. The International Distribution Group consists of (i) the Company's
Brazilian operations conducted through DisqueMusic Comercial Importadora Ltda.,
Brasison Distribuidora de Discos Ltda. and Distribuidora de Discos E Fitas Canta
Brasil Ltda. (Canta Brasil was acquired by the Company in October 1995) and (ii)
the Company's Canadian operation conducted through The St. Clair Entertainment
Group Inc. ("St. Clair"). The Company is currently evaluating a plan to divest
itself of its Brazilian operations and such evaluation is expected to be
completed in the fourth quarter of 1996. See, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events -
Consolidation Plan."
Recent Events
Acquisition of Red Ant L.L.C.
On August 27, 1996, the Company acquired Red Ant L.L.C., a Delaware limited
liability corporation ("Red Ant"), pursuant to the terms of the Stock
Acquisition and Merger Agreement, dated August 15, 1996, among Alliance, Alvin
N. Teller, Wasserstein & Co., Inc. ("WCI"), and other parties thereto. The
Company acquired all of the outstanding units of Red Ant from Mr. Teller and WCI
in exchange for (i) 760,823 shares of the Company's common stock, $.0001 par
value per share (the "Common Stock"), issued to Mr. Teller and 5,957,928 shares
of Common Stock issued to WCI and its affiliates and (ii) the right for Mr.
Teller and WCI and affiliates to receive additional shares of Common Stock
contingent upon the market price of the Common Stock achieving defined target
prices or upon certain events. In conjunction with the acquisition of Red Ant,
Mr. Teller (the former Chairman and Chief Executive Officer of MCA Music) became
Co-Chairman, Chief Executive Officer and
<PAGE>
President of Alliance. The acquisition of Red Ant for shares of the
Company's Common Stock with an aggregate value of $26,875,004 resulted in the
recognition of costs in excess of net assets acquired in the amount of
$8,100,000. Pro-forma financial information has not been presented with respect
to the acquisition of Red Ant because such information would not be materially
different from the historical information presented herein.
The stockholders of the Company ratified the terms of the Company's
acquisition of Red Ant at a Special Meeting of the Company's stockholders on
October 29, 1996.
Restructuring Charges
During the first six months of 1996, the Company recognized certain
non-recurring expenses of $20.4 million (the "Restructuring Charges") relating
to the termination of the proposed merger of the Company and Metromedia
International Group, Inc., the consolidation and relocation of two of the
Company's warehouse facilities, as well as charges relating to the current
industry climate. Approximately $11.0 million of these charges resulted in an
increase to cost of goods sold, while the remaining $9.4 million was a charge
against selling, general and administrative expenses. The Restructuring Charges
(which relate primarily to the Company's One Stop Group distribution operations)
include termination costs, severance and other incremental costs relating to the
closure of two facilities and relocation of operations in Miami, Florida to the
Company's Coral Springs, Florida facility, as well as expenses relating to the
further reduction of inventory levels once the relocation is completed. The
relocation to the Coral Springs facility is expected to be completed by the
first quarter of 1997. The Restructuring Charges pertaining to the current
industry environment relate to the further strengthening the Company's reserve
position with regard to customer returns, return penalties to vendors, and
allowance for doubtful accounts.
BT Capital and BCI Preferred Stock Issuance.
On July 16, 1996, the Company entered into a Preferred Stock Purchase
Agreement (the "Preferred Stock Purchase Agreement"), with BT Capital Partners,
Inc. ("BT"), an affiliate of Bankers Trust, and BCI Growth IV, LP ("BCI"),
pursuant to which the Company issued a total of $42.25 million of new preferred
stock, the proceeds of which were used to fund the purchase of catalog and other
proprietary rights and for general corporate purposes. BT purchased $35 million
and BCI purchased $7.25 million of the preferred stock. The preferred stock has
a cumulative dividend rate of 7 7/8% per annum, payable in additional shares of
preferred stock, and is convertible into shares of the Company's Common Stock at
a conversion rate equal to $7.25 per share of Common Stock subject to
anti-dilution adjustments.
The Company's stockholders approved the issuance of shares of Common Stock
upon conversion of the preferred stock at a Special Meeting of the Company's
stockholders on October 29, 1996.
Matrix Software Acquisition
On October 11, 1996, the Company acquired Matrix Software, Inc. ("Matrix"),
a leading provider of music product databases to cyber-retailers selling
prerecorded music over the internet. Matrix is the creator of the All-Music and
All-Movie Guides, print and software encyclopedic databases widely used by music
retailers and the key element of search engines for most on-line/web sites that
sell prerecorded music and video. Matrix also maintains two proprietary web
sites ("www.allmusic.com" and "www.allmovie.com") on the world wide web
<PAGE>
promoting the All-Music Guide and the All-Movie Guide. The acquisition of
Matrix is part of the Company's strategy to create a full service music
distribution company serving existing as well as future internet-based retailers
by combining its music distribution expertise with an extensive music software
database.
Consolidation Plan
On November 14, 1996, the Company announced a significant Consolidation
Plan (the "Consolidation Plan") involving its North American Distribution
operations. The Consolidation Plan calls for the closure of five of the
Company's eight domestic distribution facilities and the centralization of all
administrative functions for the Company's One Stop Group and Independent
Distribution Group. Additionally, under the Consolidation Plan, the
administrative functions of the Company's three domestic proprietary labels (Red
Ant, Castle (US) and Concord) will be consolidated under Red Ant. The Company
expects that the Consolidation Plan will require a fourth quarter charge of
approximately $28 to $32 million encompassing lease termination costs, severance
costs and other expenses relating to the Consolidation Plan of which
approximately $18 to $21 million will be cash expenditures. The largest portion
of these expenditures will occur during 1997. It is the Company's expectation
that once fully implemented, the Consolidation Plan will result in annualized
cost savings in excess of $20 million. It is currently anticipated that the
Consolidation Plan will be completed by March 1998. See, "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources."
Concurrent with the Consolidation Plan, the Company is also evaluating the
divestiture of its Brazilian distribution operations and its Premier Artists
Services subsidiary. Depending on the results of this evaluation, which is
anticipated to be completed in the fourth quarter of 1996, such divestitures
could result in an impairment charge with respect to certain of the Company's
long-lived assets and intangibles under The Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long Lived Assets to be Disposed Of." At September 30, 1996, the aggregate total
investment in and advances to the operations subject to evaluation was $32.2
million.
Industry Conditions
During the nine months ended September 30, 1996, the Company's distribution
segment experienced lower than anticipated net sales to its customers as a
result of the continued weak music retail environment. This weakness has
particularly impacted the Independent Distribution Group, as continued retail
closings have resulted in higher than expected product returns from its
customers. During the third quarter, the Company's net sales were negatively
impacted by: (i) higher than anticipated customer returns; (ii) limited customer
budgets allocated to the purchase of new release and catalog product and (iii)
the reduction in successful new product released by the industry during 1996.
Results of Operations
The following discussion and analysis should be read in conjunction with
the unaudited financial statements of the Company and the notes thereto included
elsewhere in this report.
<PAGE>
The following table sets forth, for the three months and nine months ended
September 30, 1995 and 1996, certain operating data as a percentage of net
sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30(1)
------------ ---------------
1996 Pre-
Restructuring
1995 1996 1995 1996 Charges
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross Profit 20.2 17.5 19.6 16.4 18.6
Selling, General & Administrative Expenses 13.6 19.9 13.0 19.9 18.0
Amortization of Intangible Assets 1.7 1.8 1.6 1.7 1.7
Other income (expense) primarily interest (3.7) (5.7) (3.0) (5.5) (5.5)
expense
Provision (benefit) for income tax .6 (4.0) .9 (3.5) (2.2)
Net Income (loss) .5 (5.9) 1.1 (7.2) (4.4)
<FN>
(1) Cost of sales and selling, general & administrative expenses for the
nine months ended September 30, 1996 include restructuring charges of $11.0
million and $9.4 million ($2.5 million of which reflects non-recurring expenses
related to the termination of the proposed merger of the Company and Metromedia
International Group, Inc.), respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events
Restructuring Charges" and "Results of Operations-Nine Months Ended September
30, 1996 vs. Nine Months Ended September 30, 1995."
</FN>
</TABLE>
<PAGE>
The following table sets forth, for the three months and nine months ended
September 30, 1996, certain operating data by business segment, excluding
corporate related expenses and assets.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
Distribution Proprietary Proprietary
Products Distribution Products
<S> <C> <C> <C> <C>
Net Sales $144,007 $16,562 $448,213 $51,443
Depreciation & Amortization 953 1,967 3,137 5,783
Operating Income (Loss) - Pre-Restructuring (661) (594) 7,762 619
Charges (1)
Operating Income (loss) - Post-Restructuring (661) (594) (9,575) 453
Charges (1)
Capital Expenditures 1,874 624 3,261 1,677
Identifiable Assets 351,949 156,247
<FN>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Events - Restructuring Charges."
</FN>
</TABLE>
Three Months Ended September 30, 1996 vs. Three Months Ended September 30, 1995
Net sales decreased 12%, from $182.5 million for the three months ended
September 30, 1995 to $160.6 million for the three months ended September 30,
1996. Net sales attributable to the Company's distribution segment for the three
months ended September 30, 1996 were approximately $144.0 million compared to
$166.6 million for the three months ended September 30, 1995 despite the
inclusion of net sales for three months of Independent National Distributors,
Inc. ("INDI") and One Way Records Inc. ("One Way") in the period ended September
30, 1996 as compared to two months net sales for INDI and one month net sales
for One Way for the three months ended September 30, 1995. During the three
months ended September 30, 1996, the Company's distribution segment, in
particular the Independent Distribution Group, continued to experience lower
than anticipated net sales to its customers in part due to: (i) higher than
expected product returns from customers as a result of weak retail sales and
store closings, especially with respect to traditional retailers; (ii) limited
budgets allocated to the purchase of new product by certain of the Company's
customers; and (iii) the reduction in successful new product released by the
industry during the second and third quarters of 1996. Net sales attributable to
the Company's proprietary product segment for the three months ended September
30, 1996 were approximately $16.6 million, compared to $15.9
<PAGE>
million for the three months ended September 30, 1995. Net sales for the
period in the proprietary products segment were positively impacted by the
continued exploitation of acquired catalogs and the expansion of the Company's
domestic proprietary labels, which were partially offset by a reduced demand by
the Company's customers for deep catalog product as opposed to front-line or new
release product. The Company's business is seasonal with the smallest percentage
of sales typically occurring in the first quarter and the largest percentage of
annual sales typically occurring in the fourth quarter.
The Company's gross margin decreased to 17.5% for the three months ended
September 30, 1996 from 20.2% for the three months ended September 30, 1995. For
the three months ended September 30, 1996, the gross margin of the distribution
segment was 14.3%, compared to 18.4% for the three months ended September 30,
1995, with the reduction primarily related to (i) return disincentive penalties
associated with higher than expected product return during the period; (ii)
increased proportion of sales of the One Stop Group attributable to new release
product as opposed to higher margin, deep catalog product and (iii) a reduction
in discount buying and advertising programs offered by the Major Labels. For the
three months ended September 30, 1996, the gross margin of the proprietary
products segment was 45.7% compared to 38.6% for the three months ended
September 30, 1995, with the increase due primarily to a higher proportion of
income in the period derived from royalty payments under license agreements as
opposed to the sale of finished goods. The proportion of revenues derived from
licenses as opposed to finished goods fluctuates from quarter to quarter.
Selling, general and administrative expenses increased from $24.9 million,
or 13.6% of net sales, for the three months ended September 30, 1995 to $32.0
million, or 19.9% of net sales, for the three months ended September 30, 1996.
The Company's selling, general and administrative expenses as a percentage of
net sales increased on an overall basis in the period for several reasons
including: (i) the incremental costs of processing higher than anticipated
customer returns during the period; (ii) costs associated with the duplication
of certain overhead related to the consolidation of operations within the One
Stop Group which is anticipated to be completed in the first quarter of 1997;
(iii) the inclusion of three months results in 1996 for INDI and One Way as
compared to two months of results for INDI and one month of results for One Way
for the three months ended September 30, 1995; and (iv) the inclusion of one
month's selling, general and administrative expenses for the Company's recently
acquired Red Ant operation.
Net income for the three months ended September 30, 1995 was $1.0 million
compared to a net loss in the three months ended September 30, 1996 of $9.4
million primarily due to the results of operations combined with increased
interest expense of $2.9 million resulting from: (i) increased working capital
needs of companies acquired in 1995; (ii) higher interest rates associated with
working capital borrowings by the Company's Brazilian operations; (iii) an
on-going timing difference between the financing of copyright acquisitions by
the Proprietary Products Group and the generation of sales associated with
products produced pursuant to such acquired rights; and (iv) higher interest
rates associated with the Company's borrowings under the 11 1/4% Senior
Subordinated Notes, the proceeds of which were utilized to finance strategic
acquisitions.
<PAGE>
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995
Net sales increased from $491.5 million for the nine months ended September
30, 1995 to $500.0 million for the nine months ended September 30, 1996, or
1.7%, as a result of inclusion of nine months of net sales of INDI and One Way
partially offset by higher levels of returns and weak demand by the Company's
customers. Net sales attributable to the Company's distribution segment for the
nine months ended September 30, 1996 were approximately $448.2 million compared
to $445.3 million for the nine months ended September 30, 1995. Net sales
attributable to the Company's proprietary product segment for the nine months
ended September 30, 1996, were approximately $51.4 million, compared to $46.3
million for the nine months ended September 30, 1995. Net sales for the period
in the proprietary products segment were positively impacted by the continued
exploitation of acquired catalogs and the expansion of the domestic label
groups, which were partially offset by a reduced demand by the Company's
customers for deep catalog (as opposed to front-line or new release) product.
During the nine months ended September 30, 1996, the Company's distribution
segment, in particular the Independent Distribution Group, continued to
experience lower than anticipated net sales to its customers in part due to: (i)
higher than expected product returns from customers as a result of weak retail
sales and store closings, especially with respect to traditional retailers; (ii)
limited budgets allocated to the purchase of new product by certain of the
Company's customers; and (iii) the reduction in successful new product released
by the industry during the first three quarters of 1996. The Company's business
is seasonal with the smallest percentage of sales typically occurring in the
first quarter and the largest percentage of annual sales typically occurring in
the fourth quarter.
The Company's gross margin decreased to 16.4% for the nine months ended
September 30, 1996 from 19.6% for the nine months ended September 30, 1995.
Excluding the impact of the Restructuring Charges in cost of sales, the
Company's gross margin would have been 18.6% for the nine months ended September
30, 1996. For the nine months ended September 30, 1996, the gross margin of the
distribution segment was 13.3%, compared to 17.3% for the nine months ended
September 30, 1995. Prior to the impact of the Restructuring Charges, gross
margins for this segment would have been 15.7% for the nine months ended
September 30, 1996, with the remaining reduction primarily related to (i) return
disincentive penalties associated with higher than expected product return
during the period; (ii) increased proportion of sales of the One Stop Group
attributable to new release product as opposed to higher margin, deep catalog
product and (iii) a reduction in discount buying and advertising programs
offered by the six Major Labels. For the nine months ended September 30, 1996,
the gross margin of the proprietary products segment was 43.5% compared to 40.7%
for the nine months ended September 30, 1995.
Selling, general and administrative expenses increased from $64.2 million,
or 13.0% of net sales, for the nine months ended September 30, 1995 to $99.5
million, or 19.9% of net sales, for the nine months ended September 30, 1996.
The Company's selling, general and administrative expenses as a percentage of
net sales increased on an overall basis in the period for several reasons
including: (i) non-recurring charges of approximately $9.4 million associated
with the Restructuring Charges ($2.5 million of which reflects non-recurring
expenses related to the termination of the proposed merger of the Company and
Metromedia International Group, Inc.); (ii) the incremental costs of processing
higher than anticipated customer returns during the period; (iii) costs
associated with the duplication of certain
<PAGE>
overhead related to the consolidation of operations within the One Stop
Group which is anticipated to be completed in the first quarter of 1997; and
(iv) the inclusion of nine months results for INDI and One Way in 1996 as
compared to two months of results for INDI and one month of results for One Way
for the nine months ended September 30, 1995.
Net income for the nine months ended September 30, 1995 was $5.3 million
compared to a net loss in the nine months ended September 30, 1996 of $36.0
million primarily due to the results of operations, the Restructuring Charges
discussed above, and increased interest expense of $13.0 million resulting from:
(i) higher interest rates associated with the Company's borrowings under the 11
1/4% Senior Subordinated Notes, the proceeds of which were utilized to finance
strategic acquisitions; (ii) increased working capital requirements related to
the [increase in sales], as well as the working capital needs of companies
acquired in 1995; (iii) higher interest rates associated with working capital
borrowings by the Company's Brazilian operations; and (iv) an on-going timing
difference between the financing of copyright acquisitions by the Proprietary
Products Group and the generation of sales associated with products produced
pursuant to such acquired rights.
Liquidity and Capital Resources
Cash Used in Investing Activities
The Company's capital expenditures for the nine months ended September 30,
1996, were $11.9 million compared to $16.1 million for the nine months ended
September 30, 1995. The Company anticipates that capital expenditures for the
twelve months ended December 31, 1996 will be approximately $14 million
primarily related to the Company's consolidation and modernization program.
The Company spent $8.7 million for the acquisition of proprietary music
rights in the nine months ended September 30, 1996, compared to $12.7 million
for the nine months ended September 30, 1995. The Company anticipates continued
expenditures related to the acquisition of proprietary music rights as
opportunities are presented that are consistent with the Company's long term
objectives. As of September 30, 1996, the Company's Red Ant subsidiary had $12.4
million in cash available plus a call for an additional $5 million from WCI
which will be utilized to fund its operations and to acquire and develop
proprietary rights.
Cash Provided from Financing Activities
On July 16, 1996, the Company entered into the Preferred Stock Purchase
Agreement with BT, pursuant to which the Company issued a total of $42.25
million of new preferred stock, the proceeds of which were used to fund the
purchase of catalog and other proprietary rights and for general corporate
purposes. BT purchased $35 million and BCI purchased $7.25 million of the
preferred stock. The preferred stock has a cumulative dividend rate of 7 7/8%
per annum, payable in additional shares of preferred stock, and is convertible
into shares of the Company's Common Stock at a conversion rate equal to $7.25
per share of Common Stock subject to anti- dilution adjustments.
<PAGE>
The Company's stockholders approved the issuance of shares of Common Stock
upon conversion of the preferred stock at a Special Meeting of the Company's
stockholders on October 29, 1996.
On September 30, 1996, the Company entered into a Fourth Amendment to the
Third Amended and Restated Credit Agreement (the "Restated Credit Agreement") to
amend certain definitions and financial covenants for the period ended September
30, 1996, as set forth in the Restated Credit Agreement. The Fourth Amendment to
the Restated Credit Agreement did not amend any financial covenants with respect
to future periods and there can be no assurance that the Company will be able to
comply with the existing financial covenants set forth in the Restated Credit
Agreement with respect to such future periods.
The Company is in discussions with third parties and certain affiliates
with respect to obtaining additional financing necessary to satisfy the
Company's debt service obligations, anticipated growth, expected capital
expenditure needs and cash expenditures relating to the implementation of the
Consolidation Plan. While there can be no assurances that such financing will be
consummated the Company has no reason to believe it will be unable to obtain
such financing and satisfy its capital requirements for the foreseeable future.
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the factors that could cause actual
results to differ materially are the following: availability of new release
product, pricing strategies of competitors, product returns from customers and
overall economic conditions.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A. Annual Meeting of Stockholders
The Annual Meeting of Stockholders of the Company was held on July 30, 1996
(the "Meeting"). Of the 36,456,094 shares of Common Stock of the Company
entitled to be voted at the Meeting, 28,250,090 shares of Common Stock were
voted in person or by proxy, constituting a quorum.
The following matters were considered and voted at the Meeting:
(i) The stockholders voted to elect the Company's five Class I director
nominees. Of the votes cast, Messrs. Goldin, Kaufmann and Gay received
27,758,461 votes for election, and 491,629 votes were withheld, Mr. Rothschild
received 27,758,156 votes for election, and 491,934 votes were withheld and Mr.
Marakovits received 27,758,300 votes for election and 491,790 votes
<PAGE>
were withheld. Accordingly, the following persons were elected directors of
the Company for a three year period expiring in 1999:
Barry L. Goldin
Peter Kaufmann
Robert C. Gay
Peter Rothschild
Robert Marakovits
(ii) The stockholders also approved an amendment to the Company's 1994 Long
Term Incentive and Share Award Plan (the "1994 Plan") to increase the number of
shares of the Company's Common Stock which may be issued under the 1994 Plan by
3,300,000.
Votes cast for 15,472,799
Votes cast against 1,377,563
Abstentions 159,116
Broker non-votes 11,240,612
(iii) Performance measures under the 1994 Plan established and adopted by
the Compensation Committee of the Company's Board of Directors was approved by
the Company's stockholders.
Votes cast for 17,843,25
Votes cast against 264,119
Abstentions 116,678
Broker non-votes 10,026,038
(iv) The stockholders voted to ratify the appointment of Coopers & Lybrand
L.L.P. as the Company's independent public accountants for 1996.
Votes cast for 28,192,813
Votes cast against 42,476
Abstentions 14,801
Broker non-votes 0
B. Special Meeting of Stockholders
A Special Meeting of Stockholders of the Company was held on October 29,
1996 (the "Special Meeting"). Of the 44,724,845 shares of Common Stock of the
Company entitled to be voted at the Special Meeting, 30,110,467 shares of Common
Stock were voted in person or by proxy, constituting a quorum.
The following matters were considered and voted at the Special Meeting:
(i) The stockholders approved the issuance of Common Stock upon conversion
of the Company's Series A Preferred Stock.
<PAGE>
Votes cast for 29,733,778
Votes cast against 320,709
Abstentions 62,774
Unvoted 14,614,378
(ii) The stockholders ratified the acquisition of Red Ant pursuant to the
Stock Acquisition and Merger Agreement (the "Merger Agreement") so as to approve
the issuance of the Contingent Stock. After adjustments required by rules
promulgated by the New York Stock Exchange to vote the shares of Common Stock
acquired by Mr. Teller and WCI and affiliates pursuant to the Merger Agreement
in the same proportion as shares voted for approval of this proposal by
unaffiliated stockholders the vote was:
Votes cast for 26,454,577
Votes cast against 412,459
Abstentions 62,774
Unvoted 17,795,035
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement dated December 20, 1995, by and among Metromedia
International Group, Inc., Alliance Merger Corp. and the Registrant.
(Incorporated by reference from Exhibit 1 filed in the Registrant's Form 8-K
dated December 21, 1995 (File No. 1-13054).)
2.2 Termination and Release Agreement dated April 29, 1996. (Incorporated
by reference from Exhibit 1 filed in the Registrant's Form 8-K dated April 29,
1996 (File No 1-13054).)
3.1 Certificate of Incorporation, as amended. (Incorporated by reference
from Exhibit 3.1 filed in the Registrant's Amendment No. 1 to Registration
Statement on Form S-4 filed September 22, 1995 (Registration No. 33-95386).)
3.2 Revised and Restated By-Laws.*
3.3 Certificate of Designations.*
4.1 Restated Stockholders' Agreement dated as of November 30, 1993.
(Incorporated by reference from Exhibit 4.1 filed in the Registrant's
Registration Statement on Form S-3 dated September 22, 1995 (Registration No.
33-97280).)
4.2 Amendment to Restated Stockholders' Agreement dated as of May 18, 1995.
(Incorporated by reference from Exhibit 4.2 filed in the Registrant's
Registration Statement on Form S-3 dated September 22, 1995 (Registration No.
33-97280).)
*Filed Herewith
<PAGE>
4.3 Indenture dated July 25, 1995, among the Company, the Subsidiary
Guarantors and Bankers Trust Company, as trustee. (Incorporated by reference
from Exhibit 4.1 filed in the Registrant's Registration Statement on Form S-4
filed August 3, 1995 (Registration No. 33- 95386).)
4.4 First Supplemental Indenture dated July 26, 1995, among the Company,
the Subsidiary Guarantors and Bankers Trust Company, as trustee. (Incorporated
by reference from Exhibit 4.2 filed in the Registrant's Amendment No. 1 to
Registration Statement on Form S-4 filed September 22, 1995 (Registration No.
33-95386).)
4.5 Registration Rights Agreement dated July 25, 1995, among the Company,
the Subsidiary Guarantors and the Initial Purchasers. (Incorporated by reference
from exhibit 4.3 filed in the Registrant's Registration Statement on Form S-4
filed August 3, 1995 (Registration No. 33- 95386).)
4.6 Purchase Agreement dated July 18, 1995, among the Company, the
Guarantors and the Initial Purchasers. (Incorporated by reference from Exhibit
4.4 filed in the Registrant's Registration Statement on Form S-4 filed August 3,
1995 (Registration No. 33-95386).)
4.7 Second Supplemental Indenture dated September 6, 1995, among the
Company, the Subsidiary Guarantors and Bankers Trust Company, as trustee.
(Incorporated by reference from Exhibit 4.5 filed in the Registrant's Amendment
No. 1 to Registration Statement on Form S-4 filed September 22, 1995
(Registration No. 33-95386).)
4.8 Purchase Agreement made as of May 18, 1995, between AEC Americas Inc.
and Bain Capital Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP Associates and
BCIP Trust Associates, L.P. (Incorporated by reference from Exhibit 4.5 filed in
the Registrant's Form 10-Q for the period ended June 30, 1995 (File No.
1-13054).)
4.9 Parent Covenant Agreement dated as of May 18, 1995, by and between
Alliance Entertainment Corp., AEC Americas, Inc. and Bain Capital Fund IV L.P.,
Bain Capital Fund IV-B L.P., BCIP Associates and BCIP Trust Associates, L.P.
(Incorporated by reference from Exhibit 4.6 filed in the Registrant's Form 10-Q
for the period ended June 30, 1995 (File No 1- 13054).)
4.10 Third Supplemental Indenture dated February 26, 1996, among the
Company, the Subsidiary Guarantors and Bankers Trust Company as Trustee.
(Incorporated by reference from Exhibit 4.10 filed in the Registrant's Form 10-Q
for the period ended March 31, 1996 (File No 1-13054).)
4.11 Preferred Stock Purchase Agreement dated July 16, 1996, between the
Company, BT Capital Partners, Inc. and BCI Growth IV, L.P. (Incorporated by
reference from Exhibit 4.11 filed in the Registrant's Form 8-K dated July 16,
1996. (File No. 1-13054).)
*Filed Herewith
<PAGE>
4.12 Voting Agreement dated as of August 15, 1996, among Joe Bianco, John
Friedman, Peter Kaufmann, Elliot Newman, Robert Marx, Alvin Teller, Bain Capital
Inc., BT Capital Partners Inc., U.S. Equity Partners, L.P., U.S. Equity Partners
(Offshore) L.P. and Wasserstein & Co., Inc.*
10.1 Incentive Stock Option Plan for Executives of Jerry Bassin, Inc.
(Incorporated by reference from Exhibit 10.1 filed as a part of the Proxy and
Prospectus in connection with the Special Meeting held on November 30, 1993
(File No. 33-68816).)
10.2 1992 Non-Qualified Stock Option Plan. (Incorporated by reference from
Exhibit 10.2 filed as part of the Proxy and Prospectus in connection with the
Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.3 1993 Stock Option Plan. (Incorporated by reference from Exhibit 10.3
filed as part of the Proxy and Prospectus in connection with the Special Meeting
held on November 30, 1993 (File No. 33-68816).)
10.4 1993 Stock Option Incentive Plan. (Incorporated by reference from
Exhibit 10.4 filed as part of the Proxy and Prospectus in connection with the
Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.5 Amended and Restated Employment Agreement dated as of August 15, 1996,
between the Company and Joseph J. Bianco.*
10.6 Amended and Restated Employment Agreement dated as of August 15,1996,
between the Company and Anil K. Narang.*
10.8 Amended and Restated Employment Agreement dated as of August 15, 1996,
between the Company and Elliot B. Newman.*
10.10 Lease dated March 25, 1993, between Howard L. Bellowe and E. James
Judd (as Landlord) and Encore Distributors, Inc., relating to the premises
located at 2345 Delgany Street, Denver, Colorado. (Incorporated by reference
from Exhibit 10.11 filed as part of the Proxy and Prospectus in connection with
the Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.11 Lease dated November 30, 1992, between Harriet Shapiro and Jerry
Bassin, Inc., relating to the premises located at 15959 N.W. 15th Avenue, Miami,
Florida, as amended. (Incorporated by reference from Exhibit 10.13 filed as part
of the Proxy and Prospectus in connection with the Special Meeting held on
November 30, 1993 (File No. 33-68816).)
10.12 Stock Sale Agreement dated December 11, 1992, between R. Tobias
Knobel and the Registrant. (Incorporated by reference from Exhibit 10.20 filed
as part of the Proxy and Prospectus in connection with the Special Meeting held
on November 30, 1993 (File No. 33- 68816).)
*Filed Herewith
<PAGE>
10.13 Merger Agreement dated August 11, 1993, among the Registrant, CD
Acquisition Corp., Titus Oaks Records, Inc., Alan Meltzer and Diana Meltzer.
(Incorporated by reference from Exhibit 10.21 filed as part of the Proxy and
Prospectus in connection with the Special Meeting held on November 30, 1993
(File No. 33-68816).)
10.14 Engagement Letter dated October 29, 1992, between the Registrant and
Tucker Anthony Incorporated. (Incorporated by reference from Exhibit 10.22 filed
in the Registrant's Form 10-K for the year ended December 31, 1993 (File No.
1-13054).)
10.15 Amendment of Stock Sale Agreement and Employment Agreement dated as
of September 30, 1993, between R. Tobias Knobel and the Registrant.
(Incorporated by reference from Exhibit 10.23 filed in the Registrant's Form
10-K for the year ended December 31, 1993 (File No. 1-13054).)
10.16 Form of Employment Agreement dated as of March 14, 1994, between the
Registrant and Eric S. Weisman. (Incorporated by reference from Exhibit 10.28
filed in the Registrant's Form 10-K for the year ended December 31, 1993 (File
No. 1-13054).)
10.17 Form of 1994 Long-Term Incentive and Share Award Plan. (Incorporated
by reference from Exhibit 10.29 filed in the Registrant's Form 10-K for the year
ended December 31, 1993 (File No. 1-13054).)
10.18 Form of Amendment to the 1994 Long-Term Incentive and Share Award
Plan. (Incorporated by reference from Exhibit 10.18 filed in the Registrant's
Form 10-K for the year ended December 31, 1995 (File No. 1-13054).)
10.19 Engagement Letter dated June 9, 1993, between the Registrant and
Paine Webber Incorporated. (Incorporated by reference from Exhibit 10.30 filed
in the Registrant's Form 10- K for the year ended December 31, 1993 (File No.
1-13054).)
10.20 Engagement Letter dated May 27, 1993, between the Registrant and
Bear, Stearns & Co., Inc. (Incorporated by reference from Exhibit 10.31 filed in
the Registrant's Form 10-K for the year ended December 31, 1993 (File No.
1-13054).)
10.21 Asset Purchase Agreement dated December 16, 1993, between the
Registrant and Nova Distributing Corp. (Incorporated by reference from Exhibit
10.32 filed in the Registrant's Form 10-K for the year ended December 31, 1993
(File No. 1-13054).)
10.22 Merger Agreement dated as of February 4, 1994, between the Registrant
and Airlie, Inc. (Incorporated by reference from Exhibit 10.35 filed in the
Registrant's Form 8-K dated February 4, 1994 (File No. 1-13054).)
10.24 Stock Purchase Agreement dated as of April 17, 1994, by and among
Alliance, Premier Artists Services and the shareholders thereof. (Incorporated
by reference from Exhibit 10.39 filed in the Registrant's Form 8-K dated May 26,
1994 (File No. 1-13054).)
<PAGE>
10.25 Offer Document dated July 28, 1994, from AEC Holdings (UK) Limited to
the Shareholders of Castle and press release issued in the United Kingdom in
connection therewith. (Incorporated by reference from Exhibit 10.41 filed in the
Registrant's Form 10-Q for the quarterly period ended June 30, 1994 (File No.
1-13054).)
10.26 Lease between the Registrant and The Northwestern Mutual Life
Insurance Company dated January 12, 1995, relating to the premises located at
15050 Shoemaker Avenue, Santa Fe Springs, California. (Incorporated by reference
from Exhibit 10.45 filed in the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-13054).)
10.27 Third Amended and Restated Credit Agreement and Guaranty dated as of
July 25, 1995, among the Company, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from Exhibit 10.50
filed in the Registrant's Registration Statement on Form S-4 filed August 3,
1995 (Registration No. 33-95386).)
10.28 Merger Agreement dated as of September 1, 1995, relating to One Way
Records, Inc. (Incorporated by reference from Exhibit 10.51 filed in the
Registrant's Amendment No. 1 to Registration Statement on Form S-4 filed
September 22, 1995 (Registration No. 33-95386).)
10.29 Merger Agreement dated as of September 1, 1995, relating to Deja Vu
Music, Inc. (Incorporated by reference from Exhibit 10.52 filed in the
Registrant's Amendment No. 1 to Registration Statement on Form S-4 filed
September 22, 1995 (Registration No. 33-95386).)
10.30 Management Consulting Agreement dated as of May 10, 1995, among
Alliance Entertainment Corp. and Bain Capital, Inc. (Incorporated by reference
from Exhibit 10.51 filed in the Registrant's Form 10-Q for the period ended June
30, 1995 (File No. 1-13054).)
10.31 Merger Agreement by and between the Company, INDI Acquisition Corp.
and INDI Holdings, Inc., dated July 17, 1995. (Incorporated by reference from
Exhibit 2.3 filed in the Registrant's Form 10-Q for the period ended June 30,
1995. (File No. 1-13054).)
10.32 Employment Agreement dated as of July 1, 1995, between the Company
and Christopher J. Joyce. (Incorporated by reference from Exhibit 10.32 filed in
the Registrant's Form 10-Q for the Quarter ended March 31, 1996. (File No.
1-13054).)
10.33 Quota Purchase Agreement dated October 11, 1995, relating to the
acquisition of Distribuidora de Discos E Fitas Canta Brasil Ltda. (Incorporated
by reference from Exhibit filed in the Registrant's Form 10-Q for the Quarter
ended March 31, 1996. (File No. 1- 13054).)
10.34 Distribution Agreement dated June 21, 1996, between the Company and
EMI-Capitol Music Group. (Incorporated by reference from Exhibit 2 filed with
the Registrant's Form 8-K dated June 21, 1996. (File No. 1-13054).)
10.35 Letter of Intent dated July 1, 1996 between the Company and Matrix
Software, Inc. (Incorporated by reference from Exhibit 10.35 filed with the
Registrant's Form 10-Q for the period ended June 30, 1996 (File No. 1-13054).)
<PAGE>
10.36 First Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of September 30, 1995, among the Company, AEC Holdings (UK)
Limited, the Guarantors, the Banks and The Chase Manhattan Bank, N.A., as Agent.
(Incorporated by reference from Exhibit 10.36 filed with the Registrant's Form
10-Q for the period ended June 30, 1996 (File No. 1-13054).)
10.37 Second Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of December 31, 1995, among the Company, AEC Holdings (UK)
Limited, Castle Communications Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from Exhibit 10.37
filed with the Registrant's Form 10-Q for the period ended June 30, 1996 (File
No. 1-13054).)
10.38 Third Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of June 30, 1996, among the Company, AEC Holdings (UK)
Limited, Castle Communication Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent. (Incorporated by reference from Exhibit 10.38
filed with the Registrant's Form 10-Q for the period ended June 30, 1996 (File
No. 1-13054).)
10.39 Stock Acquisition and Merger Agreement dated as of August 15, 1996,
by and among the Company, Alvin N. Teller, Wasserstein & Co. Inc., U.S. Equity
Partners L.P. and others. (Incorporated by reference from Exhibit 1 filed with
the Registrant's Form 8-K dated August 15, 1996. (File No. 1-13054).)
10.40 The 1994 Long Term Incentive and Share Award Plan. (Incorporated by
reference from the Registrant's Registration Statement on Form S-8 filed on June
10, 1994 - File No. 33- 80134).
10.41 Amendment No. 1 to the 1994 Long Term Incentive and Share Award Plan.
(Incorporated by reference from the Registrant's Registration Statement on Form
S-8 filed on September 5, 1995 - File No. 33-96592.)
10.42 Employment Agreement dated as of August 15, 1996, between Alliance
Entertainment Corp. and Alvin N. Teller. *
10.43 Stock Option Agreement between Alliance Entertainment Corp. and Alvin
N. Teller dated August 15, 1996. *
10.44 Engagement Letter Agreement among the Company and Wasserstein Perella
& Co., Inc. dated as of August 15, 1996.*
10.45 Right of First Refusal Agreement dated as of August 15, 1996, by and
among Alvin Teller and Joe Bianco and Anil Narang.*
*Filed Herewith
<PAGE>
10.46 Fourth Amendment to Third Amended and Restated Credit Agreement and
Guaranty among the Company, AEC Holdings (UK) Limited, Castle Communications
Limited, The Guarantors, the Banks and The Chase Manhattan Bank, N.A., as
Agent.*
11.1 Statement Re: Computation of Earnings (Loss) per Share. (Incorporated
by reference from Exhibit 11.1 filed with the Registrant's Form 10-K for the
year ended December 31, 1995. (File No. 1-13054).)
27.1 Financial Data Schedule.*
(b) Reports on Form 8-K
The Company reported under Item 5 on Form 8-K, dated August 15, 1996, that
it had entered into a Stock Acquisition and Merger Agreement to acquire Red Ant
L.L.C. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Events - Acquisition of Red Ant L.L.C."
The Company reported under Item 5 on Form 8-K, dated August 27, 1996, that
it had consummated its acquisition of Red Ant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events
Acquisition of Red Ant L.L.C."
* Filed Herewith
<PAGE>
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/ Timothy Dahltorp
------------------------------------
Timothy Dahltorp
Executive Vice President,
Chief Financial Officer and Treasurer
Date: November 14, 1996
<PAGE>
Exhibit Index
Exhibit No. Exhibit Description Page No.
2.1 Merger Agreement dated *
December 20, 1995, by and
among Metromedia International
Group, Inc., Alliance Merger
Corp. and the Registrant.
2.2 Termination and Release *
Agreement dated April 29, 1996.
3.1 Certificate of Incorporation, as amended. *
3.2 Amended and Restated By-Laws. 36
3.3 Certificate of Designations. 60
4.1 Restated Stockholders' Agreement *
dated as of November 30, 1993.
4.2 Amendment to Restated Stockholders' *
Agreement dated as of May 18, 1995.
4.3 Indenture dated July 25, 1995, *
among the Company, the Subsidiary
Guarantors and Bankers Trust Company,
as trustee.
4.4 First Supplemental Indenture dated *
July 26, 1995, among the Company,
the Subsidiary Guarantors and Bankers
Trust Company, as trustee.
4.5 Registration Rights Agreement *
dated July 25, 1995, among the Company,
the Subsidiary Guarantors and the
Initial Purchasers.
4.6 Purchase Agreement dated *
July 18, 1995, among the Company,
the Guarantors and the Initial Purchasers.
<PAGE>
4.7 Supplemental Indenture dated *
September 6, 1995, among the Company,
the Subsidiary Guarantors and Bankers
Trust Company, as trustee.
4.8 Purchase Agreement made as of *
May 18, 1995, between AEC Americas
Inc. and Bain Capital Fund IV L.P.,
Bain Capital Fund IV-B L.P., BCIP
Associates and BCIP Trust Associates, L.P.
4.9 Parent Covenant Agreement dated as *
of May 18, 1995, by and between
Alliance Entertainment Corp.,
AEC Americas, Inc. and Bain
Capital Fund IV L.P., Bain Capital
Fund IV-B L.P., BCIP Associates and
BCIP Trust Associates, L.P.
4.10 Third Supplemental Indenture *
dated February 26, 1996, among
the Company, the Subsidiary Guarantors
and Bankers Trust Company as Trustee.
4.11 Preferred Stock Purchase Agreement dated *
July 16, 1996, between the Company,
BT Capital Partners, Inc. and BCI Growth
IV, L.P.
4.12 Voting Agreement dated as of August 15, 1996, 77
among Joe Bianco, John Friedman, Peter
Kaufmann, Elliot Newman, Robert Marx, Alvin
Teller, Bain Capital Inc., BT Capital Partners Inc.,
U.S. Equity Partners, L.P., U.S. Equity Partners
(Offshore) L.P. and Wasserstein & Co., Inc.
10.1 Incentive Stock Option Plan for *
Executives of Jerry Bassin, Inc.
10.2 1992 Non-Qualified Stock Option Plan. *
10.3 1993 Stock Option Plan. *
10.4 1993 Stock Option Incentive Plan. *
<PAGE>
10.5 Amended and Restated Employment 82
Agreement dated as of August 15, 1995,
between the Company and Joseph J. Bianco.
10.6 Amended and Restated Employment 104
Agreement dated as of August 15, 1995,
between the Company and Anil K. Narang.
10.8 Amended and Restated Employment 126
Agreement dated as of August 15, 1995,
between the Company and Elliot B. Newman.
10.10 Lease dated March 25, 1993, between *
Howard L. Bellowe and E. James Judd
(as Landlord) and Encore Distributors, Inc.,
relating to the premises located at 2345
Delgany Street, Denver, Colorado.
10.11 Lease dated November 30, 1992, *
between Harriet Shapiro and Jerry Bassin,
Inc., relating to the premises located at
15959 N.W. 15th Avenue, Miami,
Florida, as amended.
10.12 Stock Sale Agreement dated *
December 11, 1992, between
R. Tobias Knobel and the Registrant.
10.13 Merger Agreement dated August 11, 1993, *
among the Registrant, CD Acquisition Corp.,
Titus Oaks Records, Inc., Alan Meltzer
and Diana Meltzer.
10.14 Engagement Letter dated October 29, 1992, *
between the Registrant and Tucker Anthony
Incorporated.
10.1 Amendment of Stock Sale Agreement *
and Employment Agreement dated as of
September 30, 1993, between R. Tobias Knobel
and the Registrant.
10.16 Form of Employment Agreement dated as of *
March 14, 1994, between the Registrant and
Eric S. Weisman.
<PAGE>
10.17 Form of 1994 Long-Term Incentive and *
Share Award Plan.
10.18 Form of Amendment to the 1994 *
Long-Term Incentive and Share Award Plan.
10.19 Engagement Letter dated September 9, 1993, *
between the Registrant and PaineWebber
Incorporated.
10.20 Engagement Letter dated May 27, 1993, *
between the Registrant and Bear, Stearns & Co., Inc.
10.21 Asset Purchase Agreement dated *
December 16, 1993, between the Registrant
and Nova Distributing Corp.
10.22 Merger Agreement dated as of *
February 4, 1994, between the Registrant
and Airlie, Inc.
10.24 Stock Purchase Agreement dated as of *
April 17, 1994, by and among Alliance,
Premier Artists Services and the shareholders
thereof.
10.25 Offer Document dated July 28, 1994, *
from AEC Holdings (UK) Limited to the
Shareholders of Castle and press release
issued in the United Kingdom in connection
therewith.
10.26 Lease between the Registrant and *
The Northwestern Mutual Life Insurance
Company dated January 12, 1995, relating
to the premises located at 15050 Shoemaker Avenue,
Santa Fe Springs, California.
10.27 Third Amended and Restated Credit Agreement *
And Guaranty dated as of July 25, 1995, among
the Company, the Guarantors, the Banks and
The Chase Manhattan Bank, N.A., as Agent
10.29 Merger Agreement dated as of September 1, 1995, *
relating to Deja Vu Music, Inc.
<PAGE>
10.30 Management Consulting Agreement dated *
as of May 10, 1995, among Alliance Entertainment
Corp. and Bain Capital, Inc.
10.31 Merger Agreement by and between the Company, *
INDI Acquisition Corp. and INDI Holdings, Inc.,
dated July 17, 1995.
10.32 Employment Agreement dated as of July 1, 1995, *
between the Company and Christopher J. Joyce.
10.33 Quota Purchase Agreement dated October 11, 1995, *
relating to the acquisition of Distribuidora de
Discos E Fitas Canta Brasil Ltda.
10.34 Distribution Agreement dated June 21, 1996, *
between the Company and EMI-Capitol Music Group.
10.35 Letter of Intent dated July 1, 1996 between the *
Company and Matrix Software, Inc.
10.36 First Amendment to Third Amended and *
Restated Credit Agreement and Guaranty dated as of
September 30, 1995, among the Company,
AEC Holdings (UK) Limited, the Guarantors,
the Banks and The Chase Manhattan Bank, N.A.,
as Agent.
10.37 Second Amendment to Third Amended and *
Restated Credit Agreement and Guaranty dated
as of December 31, 1995, among the Company,
AEC Holdings (UK) Limited, Castle Communications
Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent.
10.38 Third Amended to Third Amended and *
Restated Credit Agreement and Guaranty dated
as of June 30, 1996, among the Company,
AEC Holdings (UK) Limited, Castle Communication
Limited, the Guarantors, the Banks and
The Chase Manhattan Bank, N.A., as Agent.
10.39 Stock Acquisition and Merger Agreement *
dated as of August 15,1996, by and
among the Company,
Alvin N. Teller, Wasserstein & Co. Inc., U.S.
<PAGE>
Equity Partner, L.P. and others (Incorporated
by reference from Exhibit 1 filed with the
Registrants Form 8-K dated August 15,1996.
File 1-13054.)
10.40 The 1994 Long Term Incentive and Share Award Plan. *
(Incorporated by reference from the Registrant's
Registration Statement on Form S-8 filed on
June 10, 1994 - File No. 33-80134.)
10.41 Amendment No. 1 to the 1994 Long Term Incentive *
and Share Award Plan. (Incorporated by
reference from the Registrants Registration
Statement on Form S-8 filed on September 5, 1995
- File No. 33-96592.)
10.42 Employment Agreement dated as of August 15,1996, 145
between Alliance Entertainment Corp.
and Alvin N. Teller
10.43 Stock Option Agreement between Alliance 173
Entertainment Corp. and Alvin N. Teller
dated August 15, 1996.
10.44 Engagement Letter Agreement among the 177
Company and Wasserstein Perella & Co., Inc. dated as of
August 15, 1996.
10.45 Right of First Refusal Agreement dated as of 187
August 15, 1996 by and among Alvin Teller and Joe Bianco
and Anil Narang.
10.46 Fourth Amendment to Third Amended and 192
Restated Credit Agreement and Guaranty among the
Company, AEC Holdings (UK) Limited, Castle
Communications Limited, the Guarantors, the Banks and
The Chase Manhattan Bank, N.A. as agent.
11.1 Statement Re: Computation of Earnings (Loss) *
per Share.
27.1 Financial Data Schedule. 206
- ------------------------
*Incorporated by Reference
REVISED & RESTATED
BY-LAWS
OF
ALLIANCE ENTERTAINMENT CORP.
Effective August 27, 1996
<PAGE>
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......................................... 6
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.................................... 11
SECTION 13. Conference Telephone Meetings....................... 12
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. Number and Election................................. 12
SECTION 2. Term of Office and Qualification.................... 12
SECTION 3. Other Officers...................................... 12
SECTION 4. The Co-Chairmen of the Board........................
SECION 5. The Vice Chairman................................... 13
SECTION 6. The Deputy Chairman................................. 13
SECTION 7. The President....................................... 13
SECTION 8. Vice Presidents..................................... 13
SECTION 9. The Comptroller..................................... 14
SECTION 10. Assistant Comptrollers.............................. 14
SECTION 11. The Secretary....................................... 14
SECTION 12. Assistant Secretaries............................... 14
SECTION 13. The Treasurer....................................... 15
SECTION 14. Assistant Treasurers................................ 15
SECTION 15. Compensation........................................ 15
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.................................... 16
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance................................... 17
SECTION 2. Transfers of Stock.................................. 17
SECTION 3. Lost, Stolen and Destroyed
Certificates........................................ 17
SECTION 4. Fixing of Record Date............................... 18
<PAGE>
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc............................. 18
SECTION 2. Execution of Contracts, Deeds, Etc.................... 19
SECTION 3. Loans................................................. 19
ARTICLE VIII
CORPORATE SEAL 19
ARTICLE IX
FISCAL YEAR 19
ARTICLE X
VOTING OF STOCK HELD 19
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
SECTION 1. Indemnification...................................... 20
SECTION 2. Insurance............................................ 22
ARTICLE XII
AMENDMENTS 23
<PAGE>
BY-LAWS OF
ALLIANCE ENTERTAINMENT CORP.
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at 32 Loockerman Square,
Suite L-100, Dover, Delaware 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 otherwise 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 Incorporation 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
<PAGE>
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 personally or by mailing or telegraphing or
telecopying the same to him at his address as it appears on the records of the
Corporation, at least ten days but not more than sixty days before the date of
the meeting, and the Secretary or an Assistant Secretary or the transfer agent
or agents of the Corporation 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 stockholders 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 stockholders 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 Certificate 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 stockholders present or
represented at any duly called and held meeting at which a quorum is present or
represented may continue to do business until adjournment, notwithstanding the
withdrawal of such number as to leave less
<PAGE>
than a quorum.
SECTION 5. Organization. Each meeting of stockholders 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 preside by a majority of the Board of Directors. 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 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 exercise such voting right either in person or by proxy
appointed by an instrument in writing, which shall be filed with the secretary
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 Directors), 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 specified, 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 examine 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.
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 Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of
<PAGE>
stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 3 of these By-laws, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who is entitled to
vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) and this By-law and who was a
stockholder 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 Secretary 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 preceding year's annual meeting commencing with the 1995
annual meeting, 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
ninetieth 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 person that is required to be
disclosed in solicitations of proxies 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"), including 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 conducting such business at the
meeting and any material interest 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 Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially 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
<PAGE>
public 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 anniversary 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 Corporation'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 special 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 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 nominees 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
<PAGE>
this By-law, to declare that such defective proposal or nomination 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 Directors. The business
and affairs of the Corporation shall be managed by or under the direction of the
Board of Directors. 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 Certificate of Incorporation or these By-laws.
SECTION 2. Number, Tenure and Qualifications. Subject 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 exclusively 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
severally hold office, into three classes, as nearly equal in number 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 director 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
<PAGE>
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 resulting 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 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 meetings 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 regular meeting need by given (any practice or custom to the
contrary 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
<PAGE>
any time on or before the second day before the day of the meeting or by
delivering the same to him personally or telephoning 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-Chairman'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, 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 constitute 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 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. Except as otherwise provided by law, by the
Certificate 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 resolutions 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
<PAGE>
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.
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 committees 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
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, 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 immediately preceding
paragraph, the Board of Directors of the Corporation shall appoint a Finance
Committee. The Finance Committee 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 Executive 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 all proposals to issue securities of the
Corporation and to make acquisitions or to refinance the
<PAGE>
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 Corporation 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 issuance 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 Committee prior to consideration by the Board of Directors.
In the event that either (i) 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 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 Corporation'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 Directors or by any committee thereof may
be taken without a meeting, 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.
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
<PAGE>
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 Chairmen of the Board, President and a Secretary. The
Board of Directors may also elect one or more Vice Presidents, a Treasurer, 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 stockholders. 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 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.
<PAGE>
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 Chairman'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
President shall, in the absence of or because of the inability to act of the
Co-Chairmen of the Board or any Vice Chairman, perform 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 officer of
the Corporation authorized by the Board of Directors, certificates, contracts,
and other instruments of the Corporation 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 Directors shall perform all the duties and may
exercise all the powers of the President. Each Vice President shall perform such
other duties as from time to time may be assigned to him by the 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 Corporation 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 Directors,
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
Comptroller and, when so acting, shall have all the powers of the Comptroller.
The Assistant Comptrollers shall perform such
<PAGE>
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 provisions of these
By-laws and as required by law; shall be custodian 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 documents 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 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 performance 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 directors 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 Corporation 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
<PAGE>
performance 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 Treasurer 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 Corporation or a member of any committee.
SECTION 16. Bonds. The Board of Directors shall have the power to
require any officer or agent of the Corporation 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 interests of the Corporation would be served thereby.
No elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation 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 portion 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 Certificate of Incorporation or these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed 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.
<PAGE>
SECTION 2. Waiver of Notice. Whenever under the provisions of these
By-laws, or of the Certificate of Incorporation, 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 transacted at, nor the
purpose of, any regular or special meeting 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 registrar 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 determined 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 certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been 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,
<PAGE>
the Board of Directors 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 representative, 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 stockholders of record on the
date so fixed shall be entitled to such notice of, and to vote at, such meeting
and any adjournment 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 stockholders 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 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
<PAGE>
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 organization and the word "Delaware". Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced in any manner whatsoever.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined 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 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 corporation 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 association 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.
<PAGE>
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, criminal, administrative or investigative (other
than an 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, 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
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). 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 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 reasonable 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, officer, 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 indemnification shall be made hereunder in respect of
any claim, issue or matter as to which the person shall be adjudged
<PAGE>
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 reasonably 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 paragraph (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 or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
(e) Expenses incurred in defending any civil, criminal,
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 authorized 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, agreement, vote
of stockholders or disinterested directors, insurance 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
<PAGE>
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 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 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 indemnify 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 Corporation 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 affirmative 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 Section 2 of Article III shall not be
increased, without a stockholder vote or by the affirmative vote of 12 of 13
members of the Board of Directors.
CERTIFICATE OF DESIGNATIONS
OF
ALLIANCE ENTERTAINMENT CORP.
----------------------------
Pursuant to Section 151 of the Delaware General Corporation Law (the
"GCL"), ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"Corporation"), certifies as follows:
FIRST: Under the authority contained in Article FOURTH of the Restated
Certificate of Incorporation of the Corporation, the Board of Directors of the
Corporation has classified an aggregate of eight hundred eighty-six thousand two
hundred and forty (886,240) shares of the authorized but unissued shares of
Preferred Stock of the Corporation into a series which shall be designated
Series A Convertible Preferred Stock.
SECOND: The following resolution was adopted by the Board of Directors on
July 1, 1996 and such resolution has not been modified and is in full force and
effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the authorized
but unissued shares of Preferred Stock of the Corporation, a series of
convertible preferred stock designated as Series A Convertible Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), and hereby fixes the powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series, as follows:
Section 1. Preferred Stock Dividends.
1.1 General Dividend Obligation. When, as and if declared by the Board of
Directors of the Corporation, the Corporation shall pay to the holders of record
of the Preferred Stock, out of the assets of the Corporation available for the
payment of dividends under the General Corporation Law of the State of Delaware,
preferential dividends at the times and in the amounts provided for in this
Section 1.
1.2 Payments of Dividends; Payments in Additional Shares. When declared by
the Board of Directors of the Corporation, dividends on the Preferred Stock
shall be payable on whole shares of Preferred Stock on each Dividend Payment
Date (capitalized terms not otherwise defined herein being used in this
Certificate of Designations with the definitions set forth in Section 11).
b) Dividends shall be paid only in additional whole shares of Preferred
Stock, having a Liquidation Value (exclusive of any accrued unpaid dividends)
equal in amount to the dividends payable, by mailing certificates for such
shares to each holder of record of Preferred Stock at such holder's address as
it appears on the Corporation's stock register at least five days prior to the
due date of each dividend or otherwise delivering such shares so as to be
received by such holder on the due date of such dividend. If any portion of a
dividend would result in the issuance of a fraction of a share of Preferred
Stock, such fraction shall be carried forward and accumulated with other
fractions and shall be paid on a subsequent Dividend Payment Date when such
accumulated fractions equal at least one whole share of Preferred Stock.
c) If at any time dividends on the outstanding Preferred Stock at the rate
set forth herein shall not have been fully paid or declared and set aside for
payment, no dividends or other distributions shall be declared or paid upon or
set apart for payment on the shares of any other class of Junior Securities.
<PAGE>
1.3 Calculation of Dividends. Dividends on each share of Preferred Stock
shall be calculated cumulatively at the rate and in the manner prescribed herein
from and including the date of issuance of such share of Preferred Stock,
whether or not such dividends shall have been declared and whether or not there
shall be (at the time such dividends are calculated or become payable or at any
other time) profits, surplus or other funds or assets of the Corporation legally
available for the payment of dividends. For purposes of this Section 1.3, the
date on which the Corporation shall initially issue any share of Preferred Stock
shall be deemed to be its "date of issuance" regardless of the number of times
transfer of such share of Preferred Stock shall be made on the stock register
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock
(whether by reason of transfer of such share or for any other reason).
1.4 Dividend Rates. Dividends shall be cumulative, and shall accrue on a
daily basis on each Outstanding share of Preferred Stock at the rate per annum
(computed on the basis of a 360-day year having twelve thirty-day months) of
seven and seven-eighths percent (7-7/8%) of the Liquidation Value of each share
of Preferred Stock. To the extent not paid, on a Dividend Payment Date all
unpaid dividends accrued on each share of Preferred Stock Outstanding during
such quarter (or from and including the original date of issuance of such share
in the case of the initial quarter- end after the date of issuance) shall be
added to the Liquidation Value of such share and shall remain a part thereof
until such dividends are paid.
Section 2. Liquidation Preferences.
Subject to the holders' conversion rights provided below herein, upon any
liquidation (complete or partial), dissolution or winding up of the Corporation,
or any similar distribution of its assets to its stockholders which results in a
return of capital, whether voluntary or involuntary, the holders of the
Preferred Stock shall be entitled, before any distribution or payment is made
upon any Junior Securities of the Corporation, to be paid out of the assets of
the Corporation available for distribution to its stockholders (whether from
capital, surplus or earnings) an amount in cash equal to the sum of (i) the
aggregate Liquidation Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other distribution of assets, stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested, not less than
60 days prior to the payment date stated therein, to each record holder of any
share of Preferred Stock entitled thereto at the address for such record holder
shown on the Corporation's records. Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation, dissolution, winding up or similar distribution of the
Corporation within the meaning of any of the provisions of this Section 2.
Section 3. Redemptions of Preferred Stock.
3.1 Redemption Price. For each share of Preferred Stock which is to be
redeemed by the Corporation at any time and for any reason in a redemption
pursuant to this Section 3, the Corporation shall be obligated on the Redemption
Date, regardless of whether the Corporation shall be able or legally permitted
to make such payment on the Redemption Date, to pay to the holder thereof (upon
surrender by such holder at the Corporation's principal office of the
certificate representing such share of Preferred Stock duly endorsed in blank or
accompanied by an appropriate form of assignment) the Redemption Price for such
share of Preferred Stock, payable in cash.
3.2 Redeemed or Otherwise Acquired Shares Not to be Reissued. Any shares of
Preferred Stock redeemed pursuant to this Section 3 or otherwise acquired by the
Corporation shall not be reissued, sold or transferred by the Corporation and
shall be retired.
3.3 Determination of Number of Each Holder's Shares to be Redeemed. The
number of shares of Preferred Stock to be redeemed from each holder thereof in
each redemption under this Section 3 shall be determined by multiplying the
total number of shares of Preferred Stock to be redeemed times a fraction, the
numerator of which shall be the total number of shares of Preferred Stock then
held by such holder and the denominator of which shall be the total number of
shares of Preferred Stock then Outstanding, rounded if the result is fractional
to the nearest whole number
<PAGE>
of shares.
3.4 Optional Redemption by Corporation Based on Market Price. The Preferred
Stock may be redeemed in whole (but not in part), at the Redemption Price, at
the Corporation's option at any time after the fourth (4th) anniversary of the
date of original issuance of the Preferred Stock, on at least 30 days' notice;
provided, however, that the Corporation may not exercise such right of
redemption unless (i) the Market Price of the Common Stock as reported in the
Wall Street Journal for 20 out of any consecutive 30 trading days prior to the
notice of redemption delivered pursuant to Section 3.8 shall exceed eleven
($11.00) per share (subject to adjustment for stock dividends, stock splits and
reverse stock splits), and (ii) the shares issuable upon conversion of the
Preferred Stock are registered for resale by an effective registration statement
under the Securities Act or otherwise may be sold under Rule 144(k) under the
Securities Act and the Corporation's transfer agent has accepted an instruction
from the Corporation to that effect.
b) If at the Redemption Date the registration conditions specified in
clause (ii) of Section 3.4(a) shall not be satisfied, then no shares shall be
redeemed and the notice of redemption shall be deemed to be withdrawn. In such
event, any notice of conversion given by a holder of Preferred Stock after the
redemption notice was given shall be deemed to be withdrawn, and any
certificates for Preferred Stock which have been surrendered for conversion or
redemption shall be returned to the persons surrendering the same; provided,
however, that if a holder shall have received shares of Common Stock upon
conversion of Preferred Stock after the redemption notice was given but before
the Redemption Date, such holder may elect either to retain such Common Stock or
rescind such conversion by tendering such shares of Common Stock to the
Corporation.
c) The Corporation's redemption rights under this Section 3.4 shall
terminate as to any shares of Preferred Stock upon the holder's delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.
3.5 Optional Redemption by Corporation Based on Other Valuation. The
Preferred Stock may be redeemed in whole (but not in part), at the Redemption
Price (as determined pursuant to this Section 3.5), at the Corporation's option
at any time after the fourth (4th) anniversary of the date of original issuance
of the Preferred Stock, upon written notice to the holders thereof, if as of the
end of the most recent complete fiscal quarter ended prior to such notice of
redemption (the "Valuation Date"), the amount equal to
(i) the sum of (A) the Corporation's EBITDA for the four fiscal quarters
ended on the Valuation Date, multiplied by ten (10), plus (B) without
duplication, the cash, if any, that would be deemed received by the Corporation
in connection with Options and Convertible Securities deemed exercised or
converted pursuant to (ii) following, minus (C) the sum of the Corporation's
Long-Term Debt on the Valuation Date,
divided by
(ii) the number of shares of its Common Stock outstanding on the Valuation
Date, determined on a fully-diluted basis in accordance with generally-accepted
accounting principles for financial reporting purposes (the so-called "treasury
method" of accounting for shares), including without limitation Common Stock
issuable upon conversion of Preferred Stock if and to the extent that Preferred
Stock is not treated as Long-Term Debt, as defined below,
is greater than eleven dollars ($11.00). Notice of any such redemption shall be
given concurrently with the delivery of the Corporation's financial statements
for the fiscal quarter ending on the Valuation Date, and shall specify a
redemption date not less than 10 nor more than 30 days after the date of such
notice. The Redemption Price for each holder's shares of Preferred Stock
redeemed pursuant to this Section 3.5 shall be the amount which, on receipt by
the holder, will cause the holder to realize an Internal Rate of Return of
thirty-five percent (35%) with respect to its investment in such shares.
(b) As used in this Certificate of Designations:
"Consolidated Interest Expense" means (without duplication), for any period, the
sum of:
<PAGE>
(i) the interest expense of the Corporation and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP;
(ii) all fees, commissions, discounts and other charges of the Corporation
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP, with respect to letters of credit and bankers' acceptances
and the costs (net of benefits) associated with interest hedging obligations;
(iii) amortization or write-off of debt discount and deferred financing
costs (other than deferred financing costs incurred on or prior to the date
hereof) in connection with any Long Term Debt of the Corporation and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and
(iv) interest capitalized by the Corporation and its Subsidiaries during
such period determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the aggregate
net income for such period, on a consolidated basis, determined in accordance
with GAAP ("Net Income"), of the Corporation and its Subsidiaries; provided,
however, that (i) the Net Income (if positive) of any person that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid in cash to the Corporation or a
Subsidiary by such person during such period, (ii) the Net Income (if positive)
of any person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded, (iii) extraordinary
gains, losses and non-cash restructuring charges shall be excluded, (iv) the Net
Income (if positive) of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
of such Net Income is not at the time of determination permitted by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary, (v) net
after tax gains (but not net after tax losses) from sales of assets other than
current assets or from the disposition of any property or assets other than in
the ordinary course of business shall be excluded, (vi) any after tax gains (but
not losses) from currency exchange transactions not in the ordinary course of
business consistent with past practice shall be excluded, and (vii) the
cumulative effect of any change in accounting principles shall be excluded.
"EBITDA" shall mean, with respect to any period, Consolidated Net Income of
the Corporation for such period plus, in each case to the extent deducted in
computing such Consolidated Net Income, the sum of (without duplication) (i)
Consolidated Interest Expense for such period, (ii) the provision for taxes
based on net income of the Corporation and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, and (iii) the
depreciation and amortization expense of such the Corporation and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"Internal Rate of Return" means the annual rate (assuming quarterly
compounding) which if used to discount to present value the payments in cash or
cash equivalents made or received by the holder of Preferred Stock, during the
period from the date of calculation back to the initial issuance of such shares,
would cause the net present value (on such date) of such investment to equal
zero (0). In calculating an Internal Rate of Return:
(A) each payment received in cash or cash equivalents by a holder (or its
predecessors in interest) of shares attributable to such shares or any sale
thereof for cash shall be treated as a cash inflow with a positive value, and
each cash disbursement made by the holder (or its predecessors in interest)
directly attributable to such shares shall be treated as a cash outflow with a
negative value;
(B) each such payment or disbursement shall be discounted from the date
actually made to the date of the holder's initial investment in shares; and
(C) indemnity payments, financing fees and payments in reimbursement of
out-of-pocket expenses received by the holders of shares shall not be treated as
cash inflows and therefore shall be disregarded.
<PAGE>
"Long-Term Debt" shall mean (without duplication) (A) all indebtedness for
borrowed money or evidenced by notes, bonds, debentures or similar evidences of
indebtedness, all obligations for the deferred and unpaid purchase price of any
property, service or business (other than trade accounts payable and accrued
liabilities incurred in the ordinary course of business and constituting current
liabilities), (B) all capitalized lease obligations, (C) letters of credit and
all obligations of relating thereto, (D) all obligations in respect of interest
rate swap agreements, currency swap agreements and other similar agreements
designed to hedge against fluctuations in interest rates or foreign exchange
rates, and (E) all Preferred Stock (and convertible preferred stock of any other
class) if and so long as the Market Price of Common Stock is less than the
Conversion Price (or conversion price of any such other class of convertible
preferred stock) from time to time in effect; in each case determined on a
consolidated basis in accordance with GAAP.
(c) The Corporation's redemption rights under this Section 3.5 shall
terminate as to any shares of Preferred Stock upon the holder's delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.
3.6 Redemptions or Purchase by Corporation's Designee(s). In lieu of any
redemption of Preferred Stock by the Corporation permitted hereunder, the
Corporation may designate one or more purchasers who shall be entitled to
purchase the Preferred Stock from the holders thereof at the applicable
Redemption Price. Any such designee(s) shall have the rights and obligations of
the Corporation specified herein with respect to the redemption of such shares.
3.7 Notice of Redemption. Except as otherwise expressly provided herein,
notice of any redemption of Preferred Stock, specifying the time and place of
redemption, the Redemption Price (in the case of a redemption under Section 3.5,
showing the computation thereof in reasonable detail) and the Section and
paragraph pursuant to which such redemption is being made, shall be mailed by
certified or registered mail, return receipt requested, to each holder of record
of shares of Preferred Stock to be redeemed, at the address for such holder
shown on the Corporation's records, not more than sixty (60) nor less than
thirty (30) days prior to the date on which such redemption is to be made. The
notice shall also specify the number of shares of Preferred Stock and the
certificate numbers thereof which are to be redeemed. With respect to
redemptions made pursuant to Section 3.4 or 3.5, upon mailing any such notice of
redemption the Corporation shall become obligated to redeem at the time of
redemption specified therein all shares of Preferred Stock therein specified. In
case less than all the shares of Preferred Stock represented by any certificate
are redeemed, a new certificate representing the unredeemed shares of Preferred
Stock shall be issued to the holder thereof without cost to such holder.
3.8 Rights After Redemption Date. Provided that the Redemption Price is
paid in full on the applicable Redemption Date, no share of Preferred Stock
shall be entitled to any dividends accrued after its Redemption Date, and on
such Redemption Date, except as otherwise provided herein or by law, all rights
of the holder of such share of Preferred Stock as a stockholder of the
Corporation, by reason of the ownership of such share, shall cease, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.
3.9 Other Redemptions. The Corporation shall neither redeem nor otherwise
acquire any shares of Preferred Stock except (i) as expressly authorized in this
Certificate of Designations, or (ii) pursuant to any offer of redemption made to
the holders of Preferred Stock pro rata according to the shares held by them.
3.10 Deposit of Redemption Price. If on or before the date of redemption
specified in any notice of redemption of any share of Preferred Stock, the
Corporation shall irrevocably deposit the amount of the Redemption Price thereof
with a bank or trust company having an office in the City of New York,
designated in such notice of redemption, in trust for the benefit of the holder
of such share of Preferred Stock, such share of Preferred Stock shall be deemed
to have been redeemed on the date so specified, whether or not the certificate
for such share shall be surrendered for redemption and canceled.
Section 4. Conversion of Preferred Stock.
<PAGE>
4.1 Conversion Procedures.
(a) A holder of shares of Preferred Stock may, at any time convert pursuant
to this Section 4 all or any part (in whole numbers of shares only) of the
shares of Preferred Stock held by such holder into such number of fully paid and
non-assessable whole shares of Common Stock as is obtained by multiplying the
number of shares of Preferred Stock so to be converted by the Liquidation Value
thereof and dividing the result by the Conversion Price then in effect. Such
right as to any particular share shall terminate at the close of business on the
day immediately prior to the date fixed for payment on the Preferred Stock upon
any liquidation, dissolution, winding up or similar distribution of the
Corporation.
(b) Each conversion of Preferred Stock shall be effected by the surrender
of the certificate or certificates representing the shares to be converted at
the principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holder
or holders of the Preferred Stock) at any time during its usual business hours,
together with written notice by the holder of such Preferred Stock (a
"Conversion Notice") stating that such holder desires to convert the shares, or
a stated number of the shares, represented by such certificate or certificates
which notice shall also specify the name or names (with addresses) and
denominations in which the certificate or certificates for Common Stock shall be
issued and shall include instructions for delivery thereof. Such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such certificate or
certificates shall have been surrendered and such notice shall have been
received, and as of such date (the "Conversion Date") the rights of the holder
of such Preferred Stock (or specified portion thereof) as such holder shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(c) As soon as possible after the Conversion Date (and in no event more
than 30 days after the Conversion Date), subject to Section 4.2(c), with respect
to the certificate(s) specified in (i) and (ii) below, the Corporation shall
deliver to the converting holder or, with respect to the certificate(s)
specified in (i) below, as specified by such converting holder:
(i) a certificate or certificates representing the number of shares of
Common Stock issuable by reason of such conversion registered in such name or
names and such denomination or denominations as the converting holder shall have
specified; and
(ii) a certificate representing any shares of Preferred Stock which shall
have been represented by the certificate or certificates which shall have been
delivered to the Corporation in connection with such conversion but which shall
not have been converted; and
(iii) a payment of cash in an amount equal to the value of any fractional
share of Common Stock that otherwise would be issuable in connection with the
Preferred Stock converted.
4.2 Authorization and Issuance of Common Stock. The Corporation covenants
and agrees that:
(a) The Corporation will at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuing upon the conversion of the Preferred Stock as provided in this Section
4, such number of shares of Common Stock as shall then be issuable upon the
conversion of all Outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issuable shall, when
issued, be duly and validly issued, fully paid and non-assessable and free from
all taxes, liens, and charges. The Corporation will take all such action as may
be necessary to assure that all shares of Common Stock may be so issued without
violation of any applicable law or regulation or any requirements of any
domestic stock exchange upon which any shares of Common Stock may be listed.
(b) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock acquirable upon conversion of
a share of Preferred Stock if after such action the total number of shares of
<PAGE>
Common Stock issuable upon conversion of the Preferred Stock then Outstanding,
together with the total number of shares of Common Stock then Outstanding and
the total number of shares of Common Stock reserved for any purpose other than
issuance upon conversion of Common Stock, would exceed the total number of
shares of Common Stock then authorized by the Corporation's Restated Certificate
of Incorporation.
(c) If any shares of Common Stock required to be reserved for purposes of
conversions of shares of Preferred Stock under this Certificate of Designations
require registration with, or approval of, any governmental authority under any
federal or state law (other than any registration under the Securities Act of
1933, as then in effect, or any similar federal statute then in force, or any
state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Corporation will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered or approved for listing or listed on such domestic securities
exchange, as the case may be.
(d) The issuance of certificates for shares of Common Stock upon conversion
of shares of the Preferred Stock shall be made without charge to the holders of
such shares for any issuance tax in respect thereof, or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
shares of Common Stock, provided that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the holder
of the Preferred Stock converted.
(e) The Corporation will not close its books against the transfer of any
share of Preferred Stock or of any share of Common Stock issued or issuable upon
the conversion of such shares in any manner which interferes with the timely
conversion of such shares.
4.3 Conversion Price. The initial Conversion Price shall be seven dollars
and twenty-five cents ($7.25). In order to prevent dilution of the conversion
rights granted hereunder, the Conversion Price shall be subject to adjustment
from time to time pursuant to this Section 4.
(b) If and whenever the Corporation shall issue or sell, or shall in
accordance with Section 4.4 be deemed to have issued or sold, any shares of
Common Stock for a consideration per share that is less than (a) the Adjustment
Determination Price in effect immediately prior to the time of such issue or
sale, or (b) 95% of the Market Price on the date of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price shall, subject to
Section 4.4, be reduced to the lower of the prices (calculated to the nearest
$0.001) determined as follows:
(x) by dividing (i) an amount equal to the sum of (a) the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price, and (b) the consideration, if
any, received by the Corporation upon such issue or sale by (ii) the total
number of shares of Common Stock Deemed Outstanding immediately after such issue
or sale; and
(y) by multiplying the Conversion Price in effect immediately prior to the time
of such issue or sale by a fraction, the numerator of which shall be the sum of
(i) the number of shares of Common Stock Deemed Outstanding immediately prior to
such issue or sale multiplied by the Market Price immediately prior to such
issue or sale plus (ii) the consideration received by the Corporation upon such
issue or sale, and the denominator of which shall be the product of (iii) the
total number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale, multiplied by (iv) the Market Price immediately prior to such
issue or sale.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
made in an amount less than $0.00l per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.00l per share or more.
(c) As used in this Certificate of Designations, the "Adjustment
Determination Price" means (i) $6.00, in the case of an issuance of Common Stock
governed by Section 4.3(b) or Options governed by Section 4.4(a), and (ii) the
Conversion Price, in the case of an issuance of Convertible Securities governed
by Section 4.4(b), or any other
<PAGE>
deemed issuance or sale of Common Stock under Section 4.4. The Adjustment
Determination Price shall be deemed increased or reduced proportionately in
connection with any increase or reduction of the Conversion Price pursuant to
this Section 4.
(d) Notwithstanding the provisions of this Section 4.3 and Section 4.4, no
adjustment of the Conversion Price shall be required as a result of the sale or
issuance of Common Stock, at prices less than the Adjustment Determination Price
then in effect or 95% of the Market Price then in effect, (i) upon conversion of
any of the Preferred Stock, or (ii) in connection with Excluded Securities.
4.4 Effect of Certain Events on Conversion Price. For purposes of
determining the adjusted Conversion Price under Section 4.3, the following shall
be applicable:
(a) Issuance of Rights or Options. In case at any time the Corporation
shall in any manner sell or grant (whether directly or by assumption in a merger
or otherwise) any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such Options or the rights to
convert or exchange such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the Adjustment
Determination Price in effect immediately prior to the time of the granting of
such Options (or less than 95% of the Market Price, determined as of the date of
granting such Options, as the case may be), then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall (as of the date of
grant of such Options) be deemed to be outstanding and to have been issued for
such price per share. No adjustment of the Conversion Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, except as otherwise
provided in Section 4.4(c).
(b) Issuance of Convertible Securities. In case the Corporation shall in
any manner issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Adjustment Determination
Price in effect immediately prior to the time of such issue or sale (or less
than 95% of the Market Price, determined as of the date of such issue or sale of
such Convertible Securities, as the case may be), then the total maximum number
of shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued for
such price per share. Except as otherwise provided in Section 4.4(c), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustments of the Conversion Price have been made or are
to be made pursuant to other provisions of this Section 4.4, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
<PAGE>
(c) Change in Option or Conversion Price. If the purchase price provided
for in any Option referred to in Section 4.4(a), the additional consideration,
if any, payable upon conversion or exchange of any Convertible Securities
referred to in Section 4.4(a) or (b), or the rate at which any Convertible
Securities referred to in Section 4.4(a) or (b) are convertible into or
exchangeable for Common Stock, shall change at any time (other than under or by
reason of provisions designed to protect against dilution of the type set forth
in this Section 4.4 or in Sections 4.3 and 4.5), then the Conversion Price in
effect at the time of such change shall forthwith be adjusted to the Conversion
Price which would have been in effect at such time had such Option or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price provided for in
any Option referred to in Section 4.4(a), the additional consideration, if any,
payable upon conversion or exchange of any Convertible Securities referred to in
Section 4.4(a) or (b), or the rate at which any Convertible Securities referred
to in Section 4.4(a) or (b), are convertible into or exchangeable for Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution of the type set forth in
this Section 4.4 or Sections 4.3 and 4.5, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder would be reduced.
(d) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities (without any exercise of such Option or
right), the Conversion Price then in effect hereunder shall forthwith be
adjusted to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer be deemed
to be outstanding.
(e) Calculation of Consideration Received. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor shall be
deemed to be the aggregate proceeds payable to the Corporation therefor, prior
to deduction of any expenses incurred and any underwriting commission or
concessions paid or allowed by the Corporation in connection therewith.
(ii) In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of
consideration other than cash received by the Corporation shall be deemed to be
the fair value, determined in good faith by the Board of Directors.
(iii) In case any Options shall be issued in connection with the issue or
sale of other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration.
<PAGE>
(iv) In case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Corporation is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value, determined in good faith by the Board of Directors, of such
portion of the net assets and business of the non-surviving corporation as shall
be attributable to such Common Stock, Options or Convertible Securities, as the
case may be.
(v) In the event of any consolidation or merger of the Corporation in which
stock or other securities of any corporation are issued in exchange for Common
Stock of the Corporation or in the event of any sale of all or substantially all
of the assets of the Corporation for stock or other securities of any
corporation, the Corporation shall be deemed to have issued a number of shares
of its Common Stock for stock or securities of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Conversion Price the determination
of the number of shares of Common Stock receivable upon conversion of the
Preferred Stock immediately prior to such merger, consolidation or sale, for
purposes of Section 4.7, shall be made after giving effect to such adjustment of
the Conversion Price.
(vi) In case the Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in Common Stock, Options
or Convertible Securities, any Common Stock, Options or Convertible Securities,
as the case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(f) Record Date. For purposes of Sections 4.3 and 4.4, in case the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of granting of
such right or subscription or purchase, as the case may be.
4.5 Subdivisions and Combinations. Except to the extent Section 4.4(e)(vi)
above applies, in the event that the Corporation shall at any time 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, the
Conversion Price in effect immediately prior to such subdivision forthwith shall
be proportionately reduced. Conversely, in the event the outstanding shares of
one or more classes of the Common Stock shall be combined into a smaller number
of shares (by reverse stock split or otherwise), the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
4.6 Dividends. In the event that the Corporation declares a dividend (other
than a dividend payable in Common Stock, Options or Convertible Securities, or a
cash dividend payable out of earnings or earned surplus) upon Common Stock, then
at the option of the holders of a majority of the outstanding shares of
Preferred Stock,
(1) the Corporation shall pay over to each holder, on the dividend payment
date, the cash, stock or other securities and other property which such holder
would have received if such holder had converted all of his or its shares of
Preferred Stock into Common Stock and had been the record holder of such Common
Stock on the date on which a record is taken for the purpose of such dividend,
or, if a record is not taken, the date as of which the holders of Common Stock
of record entitled to such dividend are to be determined, or
<PAGE>
(2) the Conversion Price in effect immediately prior to the declaration of
such dividend shall be reduced by an amount equal to the amount of such dividend
payable per share of Common Stock, in the case of a cash dividend, or by the
fair value of such dividend per share (as reasonably determined by the Board of
Directors of the Corporation), in the case of any other dividend, such reduction
to be effective on the date as of which a record is taken for purposes of such
dividend, or if a record is not taken, the date as of which holders of record of
Common Stock entitled to such dividend are determined, or
(3) in the case of a dividend consisting of stock or securities (other than
Common Stock, Options or Convertible Securities) or other property distributable
to holders of Common Stock, the holder of Preferred Stock may elect that, in
lieu of (1) or (2) above, lawful and adequate provisions shall be made
(including without limitation any necessary reduction in the Conversion Price)
whereby such holder of Preferred Stock shall thereafter have the right to
purchase and/or receive, on the terms and conditions specified in this
Certificate of Designations and in addition to the shares of Common Stock
receivable immediately prior to the declaration of such dividend upon conversion
of his or its shares of Preferred Stock, such shares of stock, securities or
property as are distributable with respect to outstanding shares of Common Stock
equal to the number of shares of Common Stock receivable immediately prior to
such declaration upon conversion of his or its shares of Preferred Stock, to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of shares receivable upon
such conversion) shall thereafter be applicable, as nearly as may be, in
relation to such shares of stock, securities or property.
For the purposes of this Section 4.6, "dividend" shall mean any
distribution to the holders of Common Stock as such, and a dividend shall be
considered payable out of earnings or earned surplus (other than revaluation or
paid-in surplus) only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as reasonably
determined by the Board of Directors of the Corporation.
4.7 Reorganization, Reclassification, Consolidation, Merger or Sale. If any
capital reorganization or reclassification of the capital stock of the
Corporation, or any consolidation or merger of the Corporation with or into
another corporation, or any sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
(as determined reasonably and in good faith by the Board of Directors of the
Corporation) shall be made whereby each of the holders of the Preferred Stock
shall thereafter have the right to acquire and receive upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore acquirable and receivable upon
the conversion of such holder's shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore acquirable and receivable upon conversion of such
shares had such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provision shall be made with
respect to such holder's rights and interests to the end that the provisions of
this Section 4 (including without limitation provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock acquirable and
receivable upon the exercise of the conversion rights granted in this Section 4)
shall thereafter be applicable in relation to any shares of stock, securities or
assets thereafter deliverable upon the conversion of such holder's shares
(including, in the case of any such consolidation, merger or sale in which the
successor corporation or purchasing corporation is other than the Corporation,
an immediate adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale if the value
so reflected is less than the Conversion Price in effect immediately prior to
such consolidation, merger or sale). The Corporation shall not effect any
consolidation, merger or sale, unless the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire or receive.
<PAGE>
4.8 Notice of Adjustment. Immediately upon any adjustment of the Conversion
Price, the Corporation shall send written notice thereof to all holders of
Preferred Stock, which notice shall state the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares of
Common Stock acquirable and receivable upon conversions of all shares of
Preferred Stock held by each such holder, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4.9 Other Adjustment-Related Notices. In the event that at any time:
(a) the Corporation shall declare a dividend (or any other distribution)
upon its Common Stock payable otherwise than in cash out of earnings or earned
surplus;
(b) the Corporation shall offer for subscription pro rata to the holders of
any class of its Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization, or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with, or sale of all or substantially all of its assets to, another corporation;
or
(d) there shall be any voluntary or involuntary dissolution, liquidation,
winding up or similar distribution of the Corporation;
then, in connection with any such event, the Corporation shall give by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:
(i) at least 30 days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding up or similar distribution; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding up or similar
distribution, at least 30 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or similar distribution).
4.10 Certain Events. If any event occurs as to which the other provisions
of this Section 4 are not strictly applicable or if strictly applicable would
not fairly protect the conversion rights of the Preferred Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
conversion rights as aforesaid.
4.11 Disputes. In the event that there is any dispute as to (a) the
computation of the price or the number of shares of Common Stock required to be
issued upon conversion of Preferred Stock, or (b) the computation of the
Redemption Price under Section 3.4 or 3.5, in either case in which holders of 50
percent or more of the Preferred Stock shall join, the holders and the
Corporation will retain an independent and nationally recognized accounting firm
to conduct at the expense of the Corporation an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
determination of such nationally recognized accounting firm shall, in the
absence of manifest error, be binding upon the holders of the Preferred Stock
and the Corporation. If there shall be a dispute as to the selection of such
nationally recognized accounting firm, such firm shall be appointed by the
American Institute of Certified Public Accountants ("AICPA") if willing,
otherwise the American Arbitration Association, ("AAA") upon application by the
Corporation or any holder or holders of at least 50 percent of the outstanding
Preferred Stock with notice to the others. If the price, number of shares of
Common Stock or Redemption Price as determined by such accounting firm is five
percent (5%) or more higher or lower than the price, number of shares of Common
Stock or Redemption Price computed by the Corporation, the expenses of such
accounting firm and, if any, AICPA and AAA, shall be borne completely by the
Corporation. In all other cases, they shall be borne by the disputing holders of
Preferred Stock.
<PAGE>
Section 5. Purchase Rights.
If at any time or from time to time the Corporation shall grant, issue or
sell any Options, Convertible Securities or rights to purchase property (any
"Purchase Rights") pro rata to the record holders of Common Stock and such
grant, issuance or sale does not result in an adjustment of the Conversion Price
under Section 4.4, then each holder of Preferred Stock shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable and receivable (directly or upon subsequent
conversion, assuming unrestricted convertibility) upon conversion immediately
prior to the time or times at which the Corporation, granted issued or sold such
Purchase Rights.
Section 6. Voting Rights of Preferred Stock.
(a) Unless otherwise specially provided for in this Section 6, the holders
of shares of Preferred Stock shall have the voting rights of the number of
shares of Common Stock of the Corporation into which their shares of Preferred
Stock are convertible pursuant to the terms of this Certificate of Designations
(without regard to partial shares), and shall have the same voting rights and
the same rights pertaining to the exercise of such voting right as those of the
holders of the Common Stock of the Corporation at any Annual or Special Meeting
of Stockholders of the Corporation with the holders of Preferred Stock voting
together with the holders of Common Stock as a single class.
(b) In addition to any other approvals or consents required by law, the
Company shall not take amend its Certificate of Incorporation or the Certificate
of Designation of any Series of preferred stock of the Company so as to
adversely affect the rights, powers, or preferences of the Preferred Stock
without the unanimous written consent or affirmative vote of a majority of
holders of shares of Preferred Stock, at the Annual or Special Meeting of
Shareholders of the Corporation at which the corresponding resolution is
proposed.
Section 7. Registration of Transfer.
The Corporation shall keep at its principal office (or such other place as
the Corporation reasonably designates) a register for the registration of shares
of Preferred Stock. Upon the surrender of any certificate representing Preferred
Stock at such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor representing the aggregate
number of shares represented by the surrendered certificate, subject to the
requirements of applicable securities laws. Each such new certificate shall be
registered in such name and shall represent such number of shares as shall be
requested by the holder of the surrendered certificate, shall be substantially
identical in form to the surrendered certificate, and the holders of the shares
represented by such new certificate shall be entitled to receive all theretofore
payable but unpaid dividends on the shares represented by the surrendered
certificate.
<PAGE>
Section 8. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing one or
more shares of the Preferred Stock and, in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the registered holder is an institutional investor
its own agreement of indemnity, without bond, shall be satisfactory), or, in the
case of any such mutilation, upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares represented by such
lost, stolen, destroyed or mutilated certificate, and the shares represented by
such new certificate shall be entitled, among other things, to receive all
theretofore payable but unpaid dividends on the shares represented by the lost,
stolen, destroyed or mutilated certificate.
Section 9. Closing Books.
The Corporation will not close its books against the transfer of any share
of Preferred Stock.
Section 10. Definitions.
As used in this Certificate of Designations the following terms shall have
the following meanings, which meanings shall be equally applicable to the
singular and plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday or a day
on which banks are permitted to close in New York, New York.
"Common Stock" means the Common Stock, par value $0.0001 per share, of the
Corporation, and any capital stock of any class of the Corporation hereafter
authorized which shall not be limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution,
winding up or similar distribution of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the sum of (a)
the number of shares of Common Stock actually outstanding at such time
(exclusive of any shares of Common Stock owned or held by or for the account of
the Corporation), plus (b) the number of shares of Common Stock into which
Outstanding shares of Preferred Stock are convertible at such time, plus (c) the
number of other shares of Common Stock deemed to be outstanding under Section 4
at such time.
"Conversion Price" means seven dollars and twenty-five cents ($7.25), as
such price may be adjusted from time to
<PAGE>
time pursuant to the provisions of Section 4.
"Dividend Payment Date" means, with respect to Preferred Stock, the last
day of March, June, September and December in each year (or if any such day is
not a Business Day the immediately preceding Business Day).
"Excluded Securities" means (a) Options or Convertible Securities issued
and outstanding on the date of original issuance of the Preferred Stock, and
Common Stock issued upon exercise or conversion thereof, (b) Common Stock,
Options or Common Stock issued upon exercise of such Options, issued to
employees of the Corporation or any of its Subsidiaries pursuant to the stock
option plans or other incentive plans adopted by the Board of Directors and
submitted for approval by the Corporation's stockholders at its 1996 annual
meeting of stockholders, and (c) any Common Stock, Options, or Common Stock
issued upon exercise of such Options, issued to employees of the Corporation or
any of its Subsidiaries pursuant to the provisions of any other stock bonus or
stock option or other incentive plan or plans subsequently adopted by the Board
of Directors, except any Common Stock, Options, or Common Stock issued upon
exercise of such Options, issued thereunder to Joseph J. Bianco.
"GAAP" means generally-accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.
"Junior Security" means the Corporation's Common Stock and any other equity
security of any kind which the Corporation or any Subsidiary shall at any time
issue or be authorized to issue other than Preferred Stock and Series A
Convertible Preferred Stock.
"Liquidation Value" of any share of Preferred Stock as of any particular
date means an amount equal to the sum of $100.00 plus any accrued and unpaid
dividends on such share of Preferred Stock.
"Market Price" means as to any security the average of the closing prices
of such security's sales on such day on all domestic exchanges on which such
security may at the time be listed, or, if there shall have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on such day such
security shall not be so listed or trading thereon or on such exchange shall be
suspended, the closing price on such day of any such security traded on the
NASDAQ System or, if no such closing price is available, (i) the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or (ii) if on such day such security shall not be
quoted in the NASDAQ System, the average of the high and low bid and asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in the case of (i) or (ii) averaged over a period of 21 business days consisting
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day (unless otherwise provided herein). If at any
time such security is not listed on any domestic exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Market Price" shall
be the fair market value per share of Common Stock, which shall be reasonably
determined by the Board of Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination is to be made.
"Outstanding" when used with reference to shares of Preferred Stock as of
any particular time shall mean shares thereof issued and outstanding at such
time and shall not include any shares of Preferred Stock represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Corporation in accordance with Section 7 or Section 8, but shall include
only those shares represented by such new certificate.
"Person" means and includes an individual, a partnership, a corporation, a
trust, a joint venture, an unincorporated organization and a government or any
department or agency thereof.
"Redemption Date" as to any share of Senior Preferred Stock means the date
specified in the notice of redemption delivered pursuant to Section 3.8;
provided that for purposes of Section 3.9, the Redemption Date shall be the date
on which the applicable Redemption Price is actually paid to the holder of such
share of Preferred Stock or deposited
<PAGE>
in trust for the benefit of such holder pursuant to Section 3.11.
"Redemption Price" as to any share of Preferred Stock means (a) for
purposes of Section 3.5, the Redemption Price specified therein, and (b) in all
other cases, the Liquidation Value of such share.
"Subsidiary" means any corporation at least 50% of the Voting Stock of
every class of which is, at the time as of which any determination is being
made, owned by the Corporation either directly or through one or more
Subsidiaries.
"Voting Stock" means any shares of stock having general voting power in
electing the board of directors (irrespective of whether or not at the time
stock of any other class or classes has or might have voting power by reason of
the happening of any contingency).
Section 11. Miscellaneous.
(a) The unenforceability or invalidity of any provision or provisions of
this Certificate of Designations shall not render invalid or unenforceable any
other provision or provisions herein contained.
(b) Section and paragraph headings herein are for convenience only and
shall not be construed as a part of this Certificate of Designations.
(c) All notices to holders of Preferred Stock required or permitted
hereunder shall be sent by overnight courier service, prepaid, addressed to each
such holder at the address for such holder shown on the books of the
Corporation.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on this 16th day of
July, 1996, and the signature of the undersigned shall constitute the
affirmation and acknowledgment of the undersigned, under penalties of perjury,
that this Certificate is the act and deed of the undersigned and that the facts
stated in the Certificate are true.
ALLIANCE ENTERTAINMENT CORP.
By:/s/Joseph J. Bianco
-----------------------------------
Joseph J. Bianco, Chairman
ATTEST:
/s/ Christopher J. Joyce
------------------------------------------
Christopher J. Joyce, Assistant Secretary
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 Capital, 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
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
<PAGE>
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
Acquisition 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, (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. 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.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
/s/Joseph J. Bianco
------------------------------
Joseph Bianco
/s/John Friedman
------------------------------
John Friedman
/s/Peter Kaufmann
------------------------------
Peter Kaufmann
/s/Robert Marx
------------------------------
Robert Marx
/s/Elliot Newman
------------------------------
Elliot Newman
/s/Alvin Teller
------------------------------
Alvin Teller
<PAGE>
BAIN CAPITAL, INC.
/s/Robert Gay
------------------------------
By: Robert Gay
Title: Managing Director
BT CAPITAL PARTNERS, INC.
/s/Robert Marakovits
------------------------------
By:
Title:
U.S. EQUITY PARTNERS, L.P.
by its general partner,
W.P. Management Partners, L.L.C.
/s/Vincent J. Capurso
------------------------------
By: Vincent J. Capurso
Title: Vice President
U.S. EQUITY PARTNERS (OFFSHORE),
L.P. by its general partner,
W.P. Management Partners, L.L.C.
/s/Vincent J. Capurso
------------------------------
By: Vincent J. Capurso
Title: Vice President
WASSERSTEIN & CO., INC.
/s/Vincent J. Capurso
------------------------------
By: Vincent J. Capurso
Title: Vice President
<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.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of the 15th day of
August, 1996, by and between Alliance Entertainment 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 Executive; and
WHEREAS, the Executive desires to accept such employment by the
Company, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants 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 ranking
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
<PAGE>
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.
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 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, 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 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").
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 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 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
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
<PAGE>
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 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. In addition, the
Executive 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 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. 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 depreciated 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 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
<PAGE>
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 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. Upon the early termination of this
Agreement by the Company for Cause, 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
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 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 Agreement 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
<PAGE>
consideration of $10,000 all right and title to the Company's facility located
on Lake Tenanah in Roscoe, New York; (vi) 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; (vii) provide coverage for the
Executive under the Company's automobile insurance policies, for which the
Company shall be reimbursed by the Executive; and (viii) 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. 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.
5.5 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 5.5. For the three year period after the
Executive's termination of employment 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, continued
accrual for retirement benefits, and all of the other benefits 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
participation 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
termination; (ii) transfer to the Executive all right and title to the
automobiles provided to the Executive pursuant to
<PAGE>
Section 3.4 herein; (iii) transfer to the Executive for consideration of $10,000
all right and title to the Company's facility located 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 Company 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 pursuant
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 Executive
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.
(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,
<PAGE>
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 5.7, 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 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 5.7
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 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
<PAGE>
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 5.7,
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
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
<PAGE>
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 5.7, 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 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 5.7, 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 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.
<PAGE>
7. 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 $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
understandings between the parties with respect to the subject matter hereof.
Upon execution of this Agreement and the Confidentiality 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 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
<PAGE>
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 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 obligations shall inure to, and be
binding upon, any such successor.
<PAGE>
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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By: /s/Elliot B. Newman
-------------------------------------
THE EXECUTIVE
/s/Joseph J. Bianco
------------------------------------------
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 15th day of August, 1996, is by and between
ALLIANCE ENTERTAINMENT CORP. (the "Company") and Joseph J. Bianco ("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 procedures; 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
<PAGE>
Company which contain or are derived from Confidential Information. 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 Confidential 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.
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
Chairman and Chief
Financial Officer
If to Employee: Joseph J. Bianco
23 West 12th Street
New York, New York 10012
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>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
/s/Joseph J. Bianco /s/Anil K. Narang
- ------------------------- -------------------------
(signature) (signature)
Joseph J. Bianco Anil K. Narang
- ------------------------ -------------------------
(name printed) (name printed)
President & Vice Chairman
-------------------------
(title)
<PAGE>
August 27, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
Dear Sirs,
Reference is made to that certain Amended and Restated Employment Agreement
dated as of the 15th day of August, 1996 (the "Agreement") by and between
Alliance Entertainment Corp. (the "Company") and the undersigned. As a further
inducement to the Company to enter into the Agreement and for other good and
valuable consideration, receipt of which is hereby acknowledged, this letter
will confirm the following:
1. It is understood and agreed by the undersigned that the cash payment to
be made by the Company pursuant to Section 7 of the Agreement is being made by
the Company for the purpose of retaining for the Company the services of the
undersigned over the term of the Agreement.
2. In the event that the actions or inactions of the undersigned constitute
a willful and continuing material failure by the undersigned to perform his
material duties under the Agreement, taken as a whole (a "Willful Breach"), the
undersigned will be obligated to pay over to the Company a pro rata portion of
the payment originally received pursuant to Section 7 of the Agreement, such pro
rata amount to be calculated by multiplying the total amount of such payment by
a fraction equal to the remaining portion of the term of the Agreement.
Notwithstanding anything in this paragraph 2 to the contrary, the Company
understands and agrees that the exercise by the undersigned of his rights
pursuant to Section 5.4 of the Agreement shall not constitute a Willful Breach
as such term is used in this letter.
3. The undersigned agrees that he will not take, or cause the Company to
take, any action or inaction which in turn would cause the undersigned to commit
a Willful Breach of the Agreement.
4. In the event that the undersigned ceases to perform his services prior
to the expiration of the term of the Agreement, and a bona fide dispute arises
as to whether such cessation constitutes a Willful Breach, the undersigned shall
not be obligated to make the repayment contemplated by paragraph 2 of this
letter, unless and until it is finally judicially determined that such cessation
was a Willful Breach.
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance hereof in the space provided below, whereupon this letter and
you acceptance shall constitute a binding agreement between us.
Very truly yours,
/s/Joseph J. Bianco
--------------------------------
Joseph J. Bianco
Accepted and agreed as of the date first written:
By:/s/Joseph J. Bianco
- ----------------------------
<PAGE>
August 15, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York
Gentlemen:
Reference is made to the Amended and Restated Employment Agreements, dated
as of the date hereof, between Alliance Entertainment Corp. and each of the
undersigned. Each of the undersigned agrees he will not exercise his right to
terminate their respective agreements other than for good reason pursuant to
Section 5.4 thereof in a manner that would violate or cause a default under any
existing credit agreement of the Alliance Entertainment Corp. with any bank.
Yours very truly,
/s/Joseph Bianco
----------------------------
Joseph Bianco
/s/Anil K. Narang
----------------------------
Anil K. Narang
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of the 15th day of August,
1996, by and between Alliance Entertainment 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 22575 Esplanada Circle West, Boca
Raton, Florida 33433 (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 Executive; and
WHEREAS, the Executive desires to accept such employment by the Company, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants 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 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>
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 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 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 t.arget 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 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 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 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 participate therein and subject to the
eligibility provisions of such
<PAGE>
plans in effect from time to time; provided, however, that such 100 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 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 (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 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.
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 depreciated 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 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 t . his 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
<PAGE>
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 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. Upon the early termination of this Agreement by the
Company for Cause, 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 nolocontenders 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 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 Agreement 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
<PAGE>
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 life insurance
policy maintained by the Company on the Executive's
life existing on the date of this Agreement, and (vii) provide coverage for the
Executive under the Company's automobile 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, 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.
5.5 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
5.5. For the three year period after the Executive's termination of employment
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, continued accrual for retirement benefits, and all of the other
benefits 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 participation 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 termination; (ii) transfer to the Executive all right and title
to the automobiles provided to the Executive pursuant to Section 3.4
<PAGE>
herein; 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.
5.6 Nature of Payments. Any payments pursuant to the provisions of this Section
5 shall not be subject to any 249 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 pursuant 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 Executive 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.
(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 h-as 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
<PAGE>
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 5.7, 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 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 5.7 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 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 cla@_m 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
<PAGE>
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 5.7,
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
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
<PAGE>
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 5.7, 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 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 5.7, 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 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
<PAGE>
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 l5, 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.
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 Confidentiality and Non-Competition Agreement, the employment
agreement between the Executive and the Company dated March 15, 19195, 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
<PAGE>
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 490 State of New York applicable to contracts made
and to be per 491 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 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 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.
<PAGE>
8.7 Assiqnability. 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 obligations 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By:/s/Joseph J. Bianco
- ---------------------------
THE EXECUTIVE
/s/Anil K. Narang
- ---------------------------
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 15th day of August, 1996, is by and between
ALLIANCE ENTERTAINMENT CORP. (the "Company") and Anil K. Narang ("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:
l. 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 procedures; 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'.
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
<PAGE>
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.
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.
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 Confidential 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
<PAGE>
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 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:
<PAGE>
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 the Employee shall be deemed to be "work made for hire"
within the meaning of ss. 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
<PAGE>
the Company, and which shall be surrendered to the Company upon request and
upon the termination of Emp loyee'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 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,
<PAGE>
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 J. Bianco
If to Employee: Anil K. Narang
22575 Esplanada Circle West
Boca Raton, Florida 33433
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
<PAGE>
of ongoing employment, or to otherwise limit the Company's right to terminate
Employee's employment at any time.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
EMPLOYEE:
/s/Anil K. Narang
- ------------------------------
(signature)
Anil K. Narang
- ------------------------------
(name printed)
ALLIANCE ENTERTAINMENT CORP.
/s/Joseph J. Bianco
- ------------------------------
(signature)
Joseph J. Bianco
- ------------------------------
(name printed)
Chairman & C.E.O.
- ------------------------------
(title)
<PAGE>
August 27, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
Dear Sirs,
Reference is made to that certain Amended and Restated Employment Agreement
dated as of the 15th day of August, 1996 (the "Agreement") by and between
Alliance Entertainment Corp. (the "Company") and the undersigned. As a further
inducement to the Company to enter into the Agreement and for other good and
valuable consideration, receipt of which is hereby acknowledged, this letter
will confirm the following:
1. It is understood and agreed by the undersigned that the cash payment to
be made by the Company pursuant to Section 7 of the Agreement is being made by
the Company for the purpose of retaining for the Company the services of the
undersigned over the term of the Agreement.
2. In the event that the actions or inactions of the undersigned constitute
a willful and continuing material failure by the undersigned to perform his
material duties under the Agreement, taken as a whole (a "Willful Breach"), the
undersigned will be obligated to pay over to the Company a pro rata portion of
the payment originally received pursuant to Section 7 of the Agreement, such pro
rata amount to be calculated by multiplying the total amount of such payment by
a fraction equal to the remaining portion of the term of the Agreement.
Notwithstanding anything in this paragraph 2 to the contrary, the Company
understands and agrees that the exercise by the undersigned of his rights
pursuant to Section 5.4 of the Agreement shall not constitute a Willful Breach
as such term is used in this letter.
3. The undersigned agrees that he will not take, or cause the Company to
take, any action or inaction which in turn would cause the undersigned to commit
a Willful Breach of the Agreement.
4. In the event that the undersigned ceases to perform his services prior
to the expiration of the term of the Agreement, and a bona fide dispute arises
as to whether such cessation constitutes a Willful Breach, the undersigned shall
not be obligated to make the repayment contemplated by paragraph 2 of this
letter, unless and until it is finally judicially determined that such cessation
was a Willful Breach.
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance hereof in the space provided below, whereupon this letter and
you acceptance shall constitute a binding agreement between us.
Very truly yours,
/s/Anil K. Narang
---------------------------------
Anil K. Narang
Accepted and agreed as of the date first written:
By:/s/Joseph J. Bianco
- -----------------------------
<PAGE>
August 15, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York
Gentlemen:
Reference is made to the Amended and Restated Employment Agreements, dated
as of the date hereof, between Alliance Entertainment Corp. and each of the
undersigned. Each of the undersigned agrees he will not exercise his right to
terminate their respective agreements other than for good reason pursuant to
Section 5.4 thereof in a manner that would violate or cause a default under any
existing credit agreement of the Alliance Entertainment Corp. with any bank.
Yours very truly,
/s/Joseph Bianco
--------------------------------------
Joseph Bianco
/s/Anil Narang
---------------------------------------
Anil Narang
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of the 15th day of
August, 1996, by and between Alliance Entertainment 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 Executive; and
WHEREAS, the Executive desires to accept such employment by the
Company, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants 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 Business 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 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>
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
<PAGE>
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 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 Executive's Disability, the Company shall be
obligated to assist the Executive in obtaining payment under the existing
<PAGE>
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 termination of this
Agreement by the Company for Cause, 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.
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 30% of
the Executive's Base Salary at the time of termination through March 15, 2000,
or if this Agreement 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 life insurance policy
maintained by the Company on the Executive's life existing on the date of this
Agreement, and (vii) provide coverage for the Executive under the Company's
automobile 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, 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.
<PAGE>
5.5 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 5.5. For the three year period after the
Executive's termination of employment 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, 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.
5.6 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 pursuant
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 Executive
shall be entitled to receive an additional
<PAGE>
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.
(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 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 5.7, 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
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 5.7 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
<PAGE>
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
<PAGE>
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 5.7, 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
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 5.7, 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 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 5.7, 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.
<PAGE>
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 Confidentiality 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
<PAGE>
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 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
<PAGE>
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 obligations 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
THE COMPANY
ALLIANCE ENTERTAINMENT CORP.
By: /s/Joseph J. Bianco
----------------------------------
Joseph J. Bianco
THE EXECUTIVE
/s/Elliot B. Newman
---------------------------------
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 15th day of August, 1996, is by and between
ALLIANCE ENTERTAINMENT CORP. (the "Company") and Elliot B. Newman ("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 procedures; 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,
<PAGE>
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. 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 Confidential 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.
<PAGE>
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 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 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
<PAGE>
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, 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
<PAGE>
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 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
Chairman and Chief
Executive Officer
If to Employee: Elliot B. Newman
12366 Classic Drive
Coral Springs, Florida 33071
<PAGE>
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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
/s/Elliot B. Newman /s/Joseph J. Bianco
- ------------------------- -------------------------
(signature) (signature)
Elliot B. Newman Joseph J. Bianco
- ------------------------ -------------------------
(name printed) (name printed)
Chairman & CEO
-------------------------
(title)
<PAGE>
August 27, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
Dear Sirs,
Reference is made to that certain Amended and Restated Employment Agreement
dated as of the 15th day of August, 1996 (the "Agreement") by and between
Alliance Entertainment Corp. (the "Company") and the undersigned. As a further
inducement to the Company to enter into the Agreement and for other good and
valuable consideration, receipt of which is hereby acknowledged, this letter
will confirm the following:
1. It is understood and agreed by the undersigned that the cash payment to
be made by the Company pursuant to Section 7 of the Agreement is being made by
the Company for the purpose of retaining for the Company the services of the
undersigned over the term of the Agreement.
2. In the event that the actions or inactions of the undersigned constitute
a willful and continuing material failure by the undersigned to perform his
material duties under the Agreement, taken as a whole (a "Willful Breach"), the
undersigned will be obligated to pay over to the Company a pro rata portion of
the payment originally received pursuant to Section 7 of the Agreement, such pro
rata amount to be calculated by multiplying the total amount of such payment by
a fraction equal to the remaining portion of the term of the Agreement.
Notwithstanding anything in this paragraph 2 to the contrary, the Company
understands and agrees that the exercise by the undersigned of his rights
pursuant to Section 5.4 of the Agreement shall not constitute a Willful Breach
as such term is used in this letter.
3. The undersigned agrees that he will not take, or cause the Company to
take, any action or inaction which in turn would cause the undersigned to commit
a Willful Breach of the Agreement.
4. In the event that the undersigned ceases to perform his services prior
to the expiration of the term of the Agreement, and a bona fide dispute arises
as to whether such cessation constitutes a Willful Breach, the undersigned shall
not be obligated to make the repayment contemplated by paragraph 2 of this
letter, unless and until it is finally judicially determined that such cessation
was a Willful Breach.
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance hereof in the space provided below, whereupon this letter and
you acceptance shall constitute a binding agreement between us.
Very truly yours,
/s/Elliot Newman
------------------------------------
Accepted and agreed as of the date first written:
By: /s/Anil Narang
----------------------------------------
Anil Narang
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,
residing 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 Executive; and
WHEREAS, the Executive desires to accept such employment by the
Company, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants 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 Company and all of its subsidiaries. In such capacity,
the Executive shall be the most senior executive of the Company and all of its
subsidiaries and report solely and directly to the Company'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 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 Executive's
business time, attention and energy to performing the Executive'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 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
<PAGE>
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.
3.2 Annual Bonus. In addition to Base Salary and Signing Options, with
respect to each fiscal year of the
<PAGE>
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
<PAGE>
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 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>
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 New York
City headquarters, office furnishings and secretarial assistance at least
comparable to those of the
<PAGE>
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
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.
<PAGE>
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 "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 Executive'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
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:
<PAGE>
(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 Executive
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>
(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 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.
<PAGE>
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 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
<PAGE>
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 repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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.
<PAGE>
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 Executive'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 understandings between the
parties with respect to the subject matter hereof.
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
<PAGE>
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
effective 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 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
<PAGE>
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 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,
<PAGE>
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 successor 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 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
ALLIANCE ENTERTAINMENT CORP.
By:/s/Anil K. Narang
--------------------------------------
Name: Anil K. Narang
Title: President and Vice Chairman
/s/Alvin N. Teller
-------------------------------------
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 procedures; 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, directors and employees,
disclose to any person or use any Confidential Information whatsoever for any
purpose whatsoever,
<PAGE>
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 Confidential 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
<PAGE>
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 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 material 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
<PAGE>
Severance Pay shall be deemed additional consideration for Employee's binding
obligation not to 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 whatever kind and nature
now or hereafter to distribute and reproduce such Work Product in any and all
media throughout the
<PAGE>
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.
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
<PAGE>
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
22nd Floor
Los Angeles, California 90067
Attn: Allen D. Lenard, Esq.
12. Miscellaneous. This Agreement is legally
<PAGE>
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 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
/s/Alvin Teller /s/Anil K. Narang
- ------------------------- -------------------------
(signature) (signature)
Alvin Teller Anil K. Narang
- ------------------------ -------------------------
(name printed) (name printed)
President & Vice Chairman
-------------------------
(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 hereinafter 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.
<PAGE>
Target Price % of Tranche 1 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 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
<PAGE>
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.
(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>
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>
Alliance Entertainment Corp.
110 East 59th Street
New York, New York 10022
August 26, 1996
Mr. Alvin N. Teller
900 Stradella Road
Los Angeles, California 90077
Dear Al:
Reference is hereby made to the Employment Agreement dated as of August 15,
1996, (the "Employment Agreement") between Alliance Entertainment Corp.
("Alliance") and you. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Employment Agreement.
Alliance and you desire to clarify certain provisions of the Employment
Agreement, including, without limitation, the Restricted Stock Plan attached as
Exhibit B thereto (the "Plan").
Accordingly, in consideration of our mutual agreements and obligations,
Alliance and you hereby agree as follows:
1. The "Effective Date" for all purposes of the Plan shall be deemed to be
the Effective Date as such term is defined in the Stock Acquisition and Merger
Agreement dated as of August 15, 1996, (the "Acquisition Agreement") among you,
Wasserstein & Co., Inc., U.S. Equity Partners, L.P., U.S. Equity Partners
(Offshore), L.P., Red Ant Box, Inc., Alliance, and Alliance Acquisition Co.,
Inc.
2. Alliance confirms (i) that the references to "the exhibits hereto," the
"agreements referenced herein" and "the transactions contemplated by the
Agreement" contained in the representations and warranties in Section 6 of the
Acquisition Agreement include the Plan and (ii) that such representations and
warrranties are true and correct as they apply to the Plan.
3. Alliance hereby represents and warrants that upon the issuance of any
shares of Common Stock of the Company pursuant to the Plan, and pursuant to the
Stock Option Agreement between the Company and you dated as of August 15, 1996,
such shares will be duly and validly issued, fully paid, and nonassessable.
<PAGE>
4. This Letter Agreement may be executed in one or more counterparts, each
of which shall be an original, but all of which, taken together, shall
constitute one agreement.
Very truly yours,
ALLIANCE ENTERTAINMENT CORP.
By:/s/ Christopher J. Joyce
-----------------------------------------
Name: Christopher J. Joyce
Title: Senior Vice President, General
Counsel, and Assistant Secretary
ACCEPTED AND AGREED:
/s/Alvin N. Teller
- ----------------------------------------
Alvin N. Teller
ALLIANCE ENTERTAINMENT CORP.
Stock Option Agreement
No. of shares subject to option: 5,000,000
THIS AGREEMENT, dated as of the fifteenth day of August, 1996, between Alliance
Entertainment Corp., a Delaware corporation (the "Company") and Alvin N. Teller
("Optionee")
1. Grant of Option. The Company, as of the date written above (the "Date of
Grant"), hereby grants to Optionee, subject to the terms and conditions herein
set forth, the right and option (the "Option") to purchase from the Company all
or any part of an aggregate of 5,000,000 shares of Common Stock (the "Option
Shares") at the option price of $6 per share. This Option is to be exercisable
as hereinafter provided. This Option shall not be treated as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended.
2. Terms and Conditions. This Option is subject to the following terms and
conditions:
a. Exercise of Option. Except as otherwise provided herein, this Option is
exercisable as follows: This Option shall be exercisable for one-fifth (1/5) of
the Option Shares on the Date of Grant and shall be exercisable for an
additional one-fifth (1/5) of the shares on each of August 15, 1997, August 15,
1998, August 15, 1999 and August 15, 2000. After this Option becomes
exercisable, this Option shall continue to be exercisable until the earlier of
the termination of Optionee's rights hereunder or until the Expiration Date (as
defined below). This Option may be exercised with respect to any number of whole
shares less than the full number for which this Option could be exercised. A
partial exercise of this Option shall not affect Optionee's right to exercise
this Option again for the balance thereof, subject to the conditions of this
Agreement.
b. Expiration Date. The portion of the Option exercisable on the date hereof
shall expire six (6) years from the date hereof. The portion of the Option
exercisable on the first anniversary hereof shall expire seven (7) years from
the date hereof. The portion of the Option exercisable on the second, third and
fourth
<PAGE>
anniversaries hereof shall expire seven (7), eight (8), nine (9) and ten (10)
years, respectively, from the date hereof.
c. Method of Exercising and Payment for Shares. This Option is exercisable by
written notice, accompanied by payment of the Option Price, delivered to the
attention of the Company's Secretary at either the Company's office in Coral
Springs, Florida or the Company's office in New York City. The Date of Exercise
shall be the date the payment of the option price is received by the Company.
The option price may be paid in cash, certified or bank cashiers check or other
consideration acceptable to the Compensation Committee of the Board of Directors
(provided that such other consideration has an aggregate Fair Market Value which
is not less than the option price).
d. Nontransferability. This Option is nontransferable, except by will or by the
laws of descent and distribution. In the event of any such transfer, this Option
is to be exercised only by such transferee. During Optionee's, lifetime, this
option is to be exercised only by Optionee.
e. No Additional Right. This Option does not confer upon Optionee any right with
respect to continuance of employment by the Company or any Affiliate.
3. Fractional Share. A fractional share of Common Stock is not to be issuable
hereunder, and when any provision hereof may entitle Optionee to a fractional
share, such fraction is to be disregarded.
4. Exercise Rights upon Certain Events.
a. Termination by Death or Disability. If the Optionee's employment is
terminated by death or Disability (as defined in the Optionee's Employment
Agreement with the Company dated August 15, 1996 (the "Employment Agreement"))
50% of the not yet exercisable Option shall become exercisable by the Optionee
or the persons to whom the Optionee's rights hereunder shall pass by will or the
laws of descent and distribution and shall be exercisable until the Option
expires by its terms hereunder.
b. Termination for Cause or Other than Good Reason. If the Optionee's employment
is terminated by the Company for Cause or voluntarily by the Optionee other than
for Good Reason (as
<PAGE>
defined in the Employment Agreement) any portion of the Option not exercisable
at the time of such termination shall be canceled.
c. Good Reason or Other Than Cause. If the Optionee's employment is terminated
by the Optionee for Good Reason or by the Company for other than Cause (as
defined in the Optionee's Employment Agreement), the entire Option shall become
immediately exercisable and shall be exercisable until the Option expires by its
terms hereunder.
d. Additional Events. In the event that there shall occur (i) any sale, lease,
exchange or other transfer of all, or substantially all, of the assets of the
Company, or (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 Common Stock of the Company of more
than 50% of the Common Stock of the Company, or (iii) any merger, sale of
capital stock, exchange, combination, consolidation or other 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, then the Option shall become exercisable in full
immediately prior to the consummation of any of the foregoing events. In
connection therewith, the Company shall notify the Optionee not less than
fifteen days prior to the intended consummation date of any such transaction,
and the Optionee may exercise the Option contingent upon the occurrence of such
transaction and at any time after the occurrence of such transaction. In the
event that any such proposed transaction does not occur, the Option shall no
longer be deemed currently exercisable pursuant to this clause (d) and the
exercisability of the Option shall be governed by the other terms of this
Agreement.
5. Adjustments Based on Change in Capital Structure. The terms of this Option
are to be adjusted by way of increase or decrease, as the Compensation Committee
of the Board of Directors determines in the exercise of its reasonable judgment
to be equitably appropriate, in the event that the Company (a) effects one or
more stock dividends, stock splits, reverse stock splits, subdivisions,
consolidations or other similar events, (b) engages in a transaction to which
section 424 of the Code applies, or (c) there occurs any other events which, in
the exercise of its reasonable judgment, the Compensation Committee believes
<PAGE>
necessitates such action. In the event of a merger in which the Company is not
the surviving corporation, upon becoming exercisable this Option shall be
exercisable for the amount of Common Stock or other property as would have been
received had this Option been fully exercised prior to the effective date of
such merger. The aggregate exercise price to the Option shall not change.
6. Governing Law. This Agreement is to be governed by the laws of the State of
Delaware.
7. Binding Effect. This Agreement is to be binding upon and inure to the benefit
of the legatees, distributees and personal representatives of Optionee and the
successors of the Company.
8. Registration Rights. The Company agrees to use its best efforts to maintain
with respect to the Option Shares an effective registration statement under the
Securities Act and a current prospectus relating thereto for a period of five
years after the expiration date of the Option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly
authorized officer, and Optionee has affixed his signature hereto.
ALLIANCE ENTERTAINMENT CORP.
By: /s/Anil K. Narang
-------------------------
Anil K. Narang
/s/Alvin Teller
--------------------------
Alvin Teller
W. Townsend Ziebold. Jr.
Managing Director
Wasserstein Perella & Co., Inc.
31 West 52nd Street
WASSERSTEIN New York, New, York 10019
PERELLA & CO Telephone 212-969-2690
Fax 2l2-969-7879
August 15, 1996
Alliance Entertainment Corp.
110 East 59th Street
New York, NY 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
appropriate in connection with performing its services hereunder, WP&Co. may
utilize the services of one or more of its affiliates, 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 Company may reasonably request:
(a) WP&Co. will meet with the Company's management and familiarize itself to the
extent it reasonably 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
<PAGE>
and business plan of the Company and any significant recent developments;
(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 l(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 l(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;
(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.
<PAGE>
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) of 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 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
<PAGE>
property paid or 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 of 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 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
<PAGE>
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 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 of 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 six months following such termination, any Financial Transaction
and/or any Strategic Trans be, is consummated; and (c) termination of WP&Co.'s
engagement he the Company's obligation to reimburse the expenses accruing prior
to 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
<PAGE>
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 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: /s/W. Townsend Ziebold, Jr.
---------------------------------
Name: W. Townsend Ziebold, Jr.
Title: Managing Director
ACCEPTED AND AGREED TO:
ALLIANCE ENTERTAINMENT CORP.
By: /s/Timothy J. Dahltorp
---------------------------------------------
Name: Timothy J. Dahltorp
Title: Executive Vice President
<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 indemnification
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 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,
<PAGE>
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 appropriate to reflect the relative benefits to us, on the one
hand, 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.
<PAGE>
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 contribution may be sought hereunder (whether or not
WP&Co. or any other indemnified person is a party) 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
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:/s/Timothy J. Dahltorp
---------------------------------
Name: Timothy J. Dahltorp
Title: Executive Vice President
Accepted:
WASSERSTEIN PERELLA & CO., INC.
By:/s/W. Townsend Ziebold
----------------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
RIGHT OF FIRST REFUSAL AGREEMENT
AGREEMENT dated as of August 15, 1996 by and among Alvin N. Teller ("Teller"),
an individual residing at 900 Stradella Road, Los Angeles, California 90077,
Joseph J. Bianco ("Bianco"), an individual residing at 23 West 12th Street, New
York, NY 10012, and Anil K. Narang ("Narang", and Narang and Bianco being
referred to herein as the "Stockholders"), an individual residing at 22575
Esplanada Circle West, Boca Raton, Florida 33433.
WHEREAS, each of the Stockholders is the owner of substantial blocks of capital
stock (the "Stock") of Alliance Entertainment Corp., a Delaware corporation (the
"Company");
WHEREAS, Teller is to serve as the Chief Executive Officer of the Company and
will be the owner of a significant block of capital stock of the Company;
WHEREAS, Teller wishes to retain shares of capital stock of the
Company in the hands of the Company's management;
WHEREAS, pursuant to the Restated and Amended Stockholders Agreement, dated as
of November 30, 1993, as amended (the "Stockholders Agreement"), by and among
the Company, Bianco, Jerry Bassin, Alan Shapiro, Narang, R. Tobias Knobel, John
H. Friedman, Robert O. Marx, Elliot Newman, Alan Tuchman, Barry Goldin, Lawrence
Burstein, BT Capital Corporation, BCI Growth L.P., CIG & Co., The Chase
Manhattan Bank, N.A., Tucker Anthony Incorporated, PaineWebber Incorporated,
Bear Stearns & Co., Inc. and the other signatories thereto (collectively, the
"1993 Stockholders"), each of the parties thereto has the right in certain
instances, upon the disposition of Stock by another party thereto, of
transferring a portion of their Stock to the contemplated transferee ("Co-Sale
Rights");
WHEREAS, pursuant to the Inducement Agreement dated July, 1996 among Bianco, BT
Capital Partners, Inc. ("BTC") and BCI Growth IV, L.P. ("BCI"), each of BTC and
BCI has Co-Sale Rights in certain instances (BTC and BCI, together with the 1993
Stockholders, being hereinafter referred to collectively as the "Other
Stockholders"); and
<PAGE>
WHEREAS, in order to accomplish the foregoing, each of the Stockholders is
willing to provide Teller with a right of refusal on any bona fide offer to
transfer Stock to a third-party purchaser.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Restriction on Transfer of Stock. Except in accordance with Section 3 hereof,
each of the Stockholders agrees that he will not at any time or in any manner
sell, assign, convey, transfer, donate or otherwise dispose of, or pledge,
hypothecate or otherwise encumber, any Stock owned by him except in accordance
with this Agreement. As used herein, "Stock" shall include Common Stock issuable
upon the exercise of Options.
2. Right of Refusal on Disposition of Stock. If a Stockholder (the "Offeror")
shall at any time desire to sell, assign, transfer or otherwise dispose of any
or all of the Stock owned by him (the "Offered Stock") pursuant to the terms of
a bona fide cash offer received in writing from a third party (the "Proposed
Purchaser"):
a. The Offeror shall give written notice (the "Offer Notice") to Teller of his
desire to sell, assign, transfer or otherwise dispose of his Stock, which notice
shall (i) state the name and address of the Proposed Purchaser and (ii) the cash
purchase price and the other terms and conditions (if any) on which the Offeror
proposes to sell the Offered Stock to the Proposed Purchaser (the "Third Party
Terms"). The Offer Notice shall constitute an offer to sell to Teller all of the
Offered Stock, at the election of Teller, upon the Third Party Terms.
b. Teller shall have a period of ten (10) days after his receipt of the Offer
Notice within which to accept such offer by giving notice to such effect to the
Offeror within such period.
c. If Teller shall accept the offer made by the Offer Notice, then the Offeror
shall sell to Teller, and Teller shall purchase from the Offeror, the Offered
Stock upon the Third Party Terms. Upon purchasing the Offered Stock, Teller
shall also have the right to purchase, in accordance with the Stockholders
Agreement or Inducement Agreement (as applicable), any Stock offered for sale by
the Other Stockholders (and any other stockholders having Co-Sale Rights with
respect to such sale, transfer or disposition of Stock by the Offeror) on the
Third Party Terms.
<PAGE>
d. If Teller shall not accept the offer made by the Offer Notice, then within
the ninety (90) day period after the giving of the Offer Notice, the Offeror
shall have the right to sell all, but not less than all, of the Offered Stock to
the Proposed Purchaser; provided, however, that any such sale shall be at the
price, upon the terms and in the manner set forth in the Offer Notice. If the
Offeror shall not so sell the Offered Stock to the Proposed Purchaser within the
ninety (90) day period specified in this Section 2(d), the Offeror shall
continue to hold the Offered Stock subject to all of the terms and conditions of
this Agreement.
3. Permitted Transfers. Notwithstanding anything herein to the contrary, the
provisions of Section 2 hereto shall not apply to: (a) any sale of Stock by a
Stockholder which represents less than 5% of the Stock owned by such Stockholder
as the date hereof, which sale is made in a public market transaction; (b) any
transfer of Stock by a Stockholder by gift or bequest or through inheritance to,
or for the benefit of, any member or members of his immediate family; (c) any
transfer of Stock by a Stockholder to a trust in respect of which he serves as
trustee, provided that the trust instrument governing said trust shall provide
that such Stockholder, as trustee, shall retain sole and exclusive control over
the voting and disposition of said Stock until the termination of this
Agreement; (d) any sale or transfer of Stock to the Company pursuant to the
terms of a stock restriction or stock repurchase agreement; (e) the pledge of
Stock pursuant to third party margin transactions with a bank or broker-dealer;
and (f) any transfer of Stock pursuant to a court order or marital settlement.
In the event of any such transfer under clause (b), (c) or (d), the transferee
of the Stock shall hold the Stock so acquired subject to the restrictions
imposed by this Agreement.
4. Stockholders Agreement. Teller's prior written consent shall be required to
terminate or amend Section 6 of the Stockholders Agreement, and Bianco and
Narang shall not take any action to terminate or amend said Section 6 without
Teller's prior written consent.
5. Termination. This Agreement shall terminate at such time as Teller ceases to
serve as the Chief Executive Officer of the Company.
6. Assignments. This Agreement shall be binding upon and inure to the benefit of
Teller, Bianco and Narang and
<PAGE>
their respective heirs, legal representatives, successors and permitted assigns,
and shall apply to any Stock which may here after be acquired by the
Stockholders.
7. Notices. All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, first class mail (registered or
certified, return receipt requested), telecopy or commercial courier
guaranteeing next-day delivery, to Teller, Bianco or Narang at his address set
forth in the preamble hereof, or at such other address as such party may have
furnished in writing to the other parties.
All such notices and communications shall be deemed to have been duly given at
the time delivered by hand, if personally delivered; five business days after
having been deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged (verbally or electronically), if telecopied; and the next busi ness
day after timely delivery to the courier, if sent by com mercial courier
guaranteeing next-day delivery.
8. Entire Agreement; Amendment and Waiver. All prior or contemporaneous
agreements, contracts, promises, representations and statements, if any, among
the parties hereto, or their representatives, relating to the subject matter of
this Agreement are merged into this Agreement and this Agreement shall
constitute the entire agreement between them. This Agreement constitutes the
entire understanding among the parties. Any term of this Agreement may be
amended and the observance of any term hereof may be waived (either
prospectively or retroactively and either generally or in a particular instance)
only with the written consent of each party hereto.
9. Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed wholly therein.
11. Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, are held to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and
<PAGE>
of the remaining provisions hereof shall not be in any way
affected thereby.
- ---------------------
- ---------------------PB
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
/s/Alvin N. Teller
----------------------------
Alvin N. Teller
/s/Joseph J. Bianco
----------------------------
Joseph J. Bianco
/s/Anil K. Narang
----------------------------
Anil K. Narang
FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
AND GUARANTY
FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY dated as of September 30, 1996 ("Fourth Amendment") among Alliance
Entertainment Corp. ("Alliance"), AEC Holdings (UK) Limited ("AEC (UK)"), Castle
Communications Limited ("Castle"), each of the BANKS as specified in the Credit
Agreement referred to below, each of the GUARANTORS as specified in the Credit
Agreement referred to below, and THE CHASE MANHATTAN BANK (successor by merger
to The Chase Manhattan Bank, N.A.), as agent for the Banks (in such capacity,
together with its successors, the "Agent"). Alliance, AEC (UK), and Castle are
referred to herein individually as a "Borrower" and collectively as the
"Borrowers".
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Banks and the
Agent have entered into a Third Amended and Restated Credit Agreement and
Guaranty dated as of July 25, 1995, as amended by First Amendment to Third
Amended and Restated Credit Agreement and Guaranty dated as of September 30,
1995, as further amended by a Second Amendment to Third Amended and Restated
Credit Agreement and Guaranty dated as of December 31, 1995, and as further
amended by a Third Amendment to Third Amended and Restated Credit Agreement and
Guaranty Dated as of June 30, 1996 (as further modified, amended or supplemented
from time to time, the "Credit Agreement"). Any term used herein shall have the
meaning assigned to such term in the Credit Agreement.
Each of the parties hereto have agreed to amend the Credit Agreement as
hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows;
(1) The following definition is added in its proper alphabetical order:
"Matrix Acquisition" means the acquisition by Alliance of Matrix Software,
Inc. under and pursuant to the terms of that certain Merger Agreement Dated as
of October 11, 1996.
(2) The definition of "Permitted Acquisition" is amended by adding after
"purchase" in the last line thereof the following:
"and (4) the Matrix Acquisition".
(3) The definition of "Permitted Acquisition Amount" is amended in its
entirety to read as follows:
" ' Permitted Acquisition Amount' means (1) during the period from July 1,
1996 to and including October 10, 1996, Four Million Six Hundred Thousand
Dollars ($4,600,000), and (2)
<PAGE>
during the period from October 11, 1996 to and including December 31, 1996, up
to Two Million One Hundred Thousand Dollars ($2,100,000) in Cash consideration
in connection with the Matrix Acquisition."
(4) The definition of "Permitted Employee Loans" is amended by deleting all
text after "that," in the fourth line thereof and inserting in its place the
following: ", the aggregate principal amount of all such loans or advances to
all employees outstanding at any time is equal to or less than One Million Six
Hundred Twenty Thousand Dollars ($1,620,000) less an amount equal to the total
of all repayments of such loans or advances made by all employees."
(5) The definition of "Permitted Investment Affiliate Advance" is amended
by deleting all text after "that" in the second line thereof and inserting in
its place the following: " , the aggregate principal amount of all such loans or
advances to Investment Affiliates outstanding at an time is equal to or less
than Twelve Million Five Hundred Thousand Dollars ($12,500,000) less an amount
equal to the total of all repayments of such loans or advances made by all
Investment Affiliates."
(6) The definition of "Permitted Investments" is amended by deleting clause
"(3)" thereof in its entirety.
(7) The definition of "Permitted Investment Amount" is amended in its
entirety to read as follows:
"Permitted Investment Amount" means an amount equal to eight Hundred
Thousand Dollars ($800,000) less an amount equal to the total of all repayments
of Permitted Investments.
(8) Section 8.10, New Restricted Subsidiaries, is amended by adding at the
end thereof the following:
"Notwithstanding the foregoing, no Subsidiary is or can be designated a
Restricted Subsidiary if the assets of or any of the capital stock of such
Subsidiary was acquired by Alliance or any of its Subsidiaries in exchange for
or otherwise through the issuance of capital stock of Alliance or any of its
Subsidiaries."
(9) The financial test set forth in Section 10.02, Consolidated Leverage
Ratio, is deleted for September 30, 1996 and each of the financial tests set
forth in Section 10.03, Consolidated Cash Flow Coverage Ratio, and Section
10.05, Consolidated Minimum Interest Coverage Ratio, are deleted for the four
quarters (taken as a whole) ended September 30, 1996.
SECTION 2. Conditions of Effectiveness. This Fourth Amendment shall become
effective as of the date on which each of the following conditions has been
fulfilled:
(1) This Fourth Amendment. The Borrowers, the Guarantors, the Required
Banks and the Agent shall each have executed and delivered this Fourth
Amendment.
<PAGE>
(2) Amendment Fee. Alliance shall have paid to the Agent an amendment fee
in the amount of Two Hundred Forty Thousand Six Hundred Twenty-Five Dollars
($240,625) for the account of the Banks, and the Agent will deliver to each Bank
its Pro Rata Share of such fee.
3. Officer's Certificate. The following statements shall be true and the
Agent shall have received a certificate signed by a duly authorized officer of
Alliance dated the date hereof stating that, after giving effect to this Fourth
Amendment and the transactions contemplated hereby:
(a) The representations and warranties contained in the Credit Agreement
and in each of the other Loan Documents are correct on and as of the date hereof
as though made on and as of such date in all material respects if such
representation and warranty is not subject to a Material Adverse Change
exception, and if such representation and warranty is subject to such an
exception, is correct, and
(b) No Default or Event of Default has occurred and is continuing.
(4) Additional Documentation. The Agent and each Bank shall have received
such other approvals, opinions or documents as the Agent or such Bank may
reasonably request.
SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of Section 1 hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and each reference in the other Loan Documents to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) The execution, delivery and effectiveness of this Fourth Amendment
shall not operate as a waiver of any right, power or remedy of the Agent or any
Bank under any of the Loan Documents, nor constitute a waiver of any provision
of any of the Loan Documents, and, except as specifically provided herein, the
Credit Agreement and each other Loan Document shall remain in full force and
effect and are hereby ratified and confirmed.
SECTION 4. Costs, Expenses and Taxes. Alliance agrees to reimburse the
Agent and each Bank on demand for out-of-pocket costs, expenses and charges
(including without limitation, all fees and charges of external legal counsel
for the Agent and each Bank) incurred by the Agent and each Bank in connection
with the preparation, reproduction, execution and delivery of this Fourth
Amendment and any other instruments and documents to be delivered hereunder. In
addition, Alliance shall pay any and all stamp and other taxes and fees payable
or determined to be payable in connection with the execution and delivery,
filing or recording of this Fourth Amendment and the other instruments and
documents to be delivered hereunder, and agrees to save the Agent and each Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes or fees.
SECTION 5. Governing Law. This Fourth Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE>
SECTION 6. Headings. Section headings in this Fourth Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Fourth Amendment for any other purpose.
SECTION 7. Counterparts. This Fourth Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Fourth Amendment by
signing any such counterpart.
IN WITNESS HEREOF, the parties hereto have caused this Fourth Amendment to
be duly executed as of the day and year first above written.
ALLIANCE ENTERTAINMENT CORP.
By /s/ Elliot B. Newman
--------------------------------------------
Name: Elliot B. Newman
Title: Senior Executive Vice President
AEC ONE STOP GROUP, INC.
By
------------------------------------------------
Name: Anil K. Narang
Title: Vice Chairman, President and
Chief Financial Officer
PASSPORT DISTRIBUTION, INC.
By /s/ Elliot B. Newman
----------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS LIMITED
By /s/ Elliot B. Newman
-------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
CASTLE COMMUNICATIONS (U.S.), INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EXECUSOFT, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CONCORD JAZZ, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE JAZZ ALLIANCE, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PASSPORT MUSIC WORLDWIDE, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
AEC ACQUISITION CORP.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC AMERICAS, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
ALLIANCE VENTURES, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER ARTISTS SERVICES, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER SIGNATURES, INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
FL ACQUISITION CORP.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DISQUEMUSIC COMMERCIAL IMPORTADORA
LTDA.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
BRASISON DISTRIBUIDORA DE DISCOS
LTDA.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC HOLDINGS (UK) LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (DEUTSCHLAND)
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
THE ST. CLAIR ENTERTAINMENT GROUP
INC.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
A.E. LAND CORP.
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DOJO LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
HENDRING LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EASTERN LIGHT PRODUCTIONS LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
WHITE METAL MUSIC LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COPYRIGHTS LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
KAZ RECORDS LIMITED
By /s/ Elliot B. Newman
--------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
INDEPENDENT NATIONAL DISTRIBUTORS INC.
By /s/ Christopher J. Joyce
--------------------------------------------------
Name: Christopher J. Joyce
Title: Executive Vice President
ONE WAY RECORDS, INC.
By /s/
--------------------------------------------------
Name: Anil K. Narang
Title: Executive Vice President
<PAGE>
DEJA VU MUSIC, INC.
By /s/
--------------------------------------------------
Name: Anil K. Narang
Title: Executive Vice President
THE CHASE MANHATTAN BANK,
as Bank
By /s/ Maria B. Florez
--------------------------------------------------
Name: Maria B. Florez
Title: Vice President
THE CHASE MANHATTAN BANK,
(London Branch) as Bank
By /s/ Maria B. Florez
--------------------------------------------------
Name: Maria B. Florez
Title: Vice President
CREDITSTALT CORPORATE
FINANCE, INC.
By /s/ Clifford L. Wells
--------------------------------------------------
Name: Clifford L. Wells
Title: Vice President
By /s/ Fiona McKone
--------------------------------------------------
Name: Fiona McKone
Title: Senior Associate
<PAGE>
CREDITANSTALT-BANKVEREIN,
(London Branch)
By /s/ E. Wenusch
--------------------------------------------------
Name: E. Wenusch
Title: Assistant Director
By /s/ M.A. Bowles
--------------------------------------------------
Name: M.A. Bowles
Title: Senior Manager
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ John D. Runger
--------------------------------------------------
Name: John D. Runger
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
(London Branch)
By /s/ John D. Runger
--------------------------------------------------
Name: John D. Runger
Title: Managing Director
IBJ SCHRODER BANK & TRUST COMPANY
By
--------------------------------------------------
Name:
Title:
<PAGE>
NATIONAL BANK OF CANADA
By /s/ Gaetan R. Frosina
--------------------------------------------------
Name: Gaetan R. Frosina
Title: Vice President
By /s/ Joseph M. Triseso
--------------------------------------------------
Name: Joseph M. Triseso
Title: Assistant Vice President
EUROPEAN AMERICAN BANK,
By /s/ Robert Maichin
--------------------------------------------------
Name: Robert Maichin
Title: Vice President
ABN AMRO BANK N.V.
By /s/ K. Page
--------------------------------------------------
Name: K. Page
Title: Authorized Signatories
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Russell D. Solomon
--------------------------------------------------
Name: Russell D. Solomon
Title: Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
(London Branch)
By /s/ Russell D. Solomon
--------------------------------------------------
Name: Russell D. Solomon
Title: Vice President
GIROCREDIT BANK
AKTIENGESELLSCHAFT der
SPARKASSEN, Grand Cayman
Island Branch
By /s/ Anca Trifan
--------------------------------------------------
Name: Anca Trifan
Title: Vice President
By /s/
--------------------------------------------------
Name:
Title:
NATIONAL CITY BANK
By /s/ Lisa Beth Lisi
--------------------------------------------------
Name: Lisa Beth Lisi
Title: Account Officer
<PAGE>
FIRST SOURCE FINANCIAL, LLP.
by FIRST SOURCE FINANCIAL, INC.,
Its Agent
By /s/ James W. Wilson
--------------------------------------------------
Name: James W. Wilson
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By /s/ Brian Allen
--------------------------------------------------
Name: Brian Allen
Title: Senior Relationship Manager
SCOTIABANK (U.K.), LTD.
By /s/ Barry G. Hodges
--------------------------------------------------
Name: Barry G. Hodges
Title: Relationship Manager
THE CHASE MANHATTAN BANK,
as Agent
By /s/ Maria B. Florez
--------------------------------------------------
Name: Maria B. Florez
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains sumary financial information extracted from consolidated
Balance Sheets as of September 30, 1996, and Consolidated Statements of
Operations for the Nine Months ended September 30, 1996, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 17,736
<SECURITIES> 0
<RECEIVABLES> 153,987
<ALLOWANCES> 0
<INVENTORY> 198,071
<CURRENT-ASSETS> 433,947
<PP&E> 31,074
<DEPRECIATION> 0
<TOTAL-ASSETS> 667,579
<CURRENT-LIABILITIES> 308,322
<BONDS> 228,715
0
4
<COMMON> 4
<OTHER-SE> 122,715
<TOTAL-LIABILITY-AND-EQUITY> 667,575
<SALES> 499,992
<TOTAL-REVENUES> 499,992
<CGS> 417,869
<TOTAL-COSTS> 417,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,223
<INCOME-PRETAX> (53,686)
<INCOME-TAX> (17,716)
<INCOME-CONTINUING> (35,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,970)
<EPS-PRIMARY> (.95)
<EPS-DILUTED> (.95)
</TABLE>
