SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15 (d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported ): July 16, 1996
ALLIANCE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 1-13054 13-3645913
(State or other (Commission (I.R.S. Employer
jurisdiction of incorporation) File Number) Identification No.)
110 East 59th Street, New York, New York 10022
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(212) 935-6662
Exhibit index on page 4.
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Item 5. Other Events
On July 16, 1996, Alliance Entertainment Corp. ("Alliance" or the
"Company") entered into a Preferred Stock Purchase Agreement with BT Capital
Partners, Inc. ("BT") and BCI Growth IV, L.P. ("BCI")("Preferred Stock Purchase
Agreement") pursuant to which the Company issued a total of $42.25 million of
new preferred stock, the proceeds of which will be 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 after stockholder approval of the preferred stock issuance is obtained.
The press release dated July 16, 1996, set forth in Exhibit 99 hereto
contains forward-looking statements as defined in Section 21E of the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties,
including, without limitation, the effect of economic and market conditions in
markets served by the Company, demand for recorded music product generally,
demand for the Company's proprietary product, returns of inventory, currency
fluctuations, changes in distribution methodology and technology, and the
effects of laws governing rights with respect to intellectual property, as well
as other risks detailed from time to time in the Company's reports filed with
the Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit 4.11 Preferred Stock Purchase Agreement dated July 16, 1996 between
the Company, BT Capital Partners, Inc. and BCI Growth IV, L.P.
Exhibit 99 Press Release dated July 16, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Anil K. Narang
--------------------------------------
Name: Anil K. Narang
Title: Vice Chairman and President
Date: July 19, 1996
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EXHIBIT INDEX
Page
Exhibit 4.11 Preferred Stock Purchase Agreement dated July 16, 1996
between the Company, BT Capital Partners, Inc. and
BCI Growth IV, L.P. 5
Exhibit 99 Press Release dated July 16, 1996. 64
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ALLIANCE ENTERTAINMENT CORP.
PREFERRED STOCK PURCHASE AGREEMENT
422,500 Shares of Series A Convertible Preferred Stock
$0.01 Par Value Per Share
July 16, 1996
To the Purchasers (the "PURCHASERS")
named in Section 1.1 below
Dear Sirs:
The undersigned, ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the Purchasers for cash 422,500 shares
(the "SHARES") of its Series A Convertible Preferred Stock, par value $0.01 per
share ("PREFERRED STOCK").
The Shares will be issued pursuant to and subject to the terms and
conditions of this Agreement (the terms "THIS AGREEMENT" or "PURCHASE AGREEMENT"
as used herein or in any Exhibit or Schedule hereto shall mean this Agreement
and the Exhibits and Schedules hereto individually and collectively as they may
from time to time be modified or amended).
As used in this Agreement, the following terms shall have the following
meanings:
"BCI" shall mean BCI Growth IV, L.P.
"BTC" shall mean BT Capital Partners, Inc.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close.
"CERTIFICATE OF DESIGNATIONS" shall have the meaning provided in Section 1.1(b).
"CLOSING DATE" shall mean the date of the closing of the purchase and sale
of Shares pursuant to the terms and conditions of this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the Company's Common Stock, par value $0.0001 per
share.
<PAGE>
"CONVERSION SHARES" shall mean shares of Common Stock issued or issuable upon
conversion of Preferred Stock.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FULLY-DILUTED" shall mean taking into account all outstanding warrants and
options to acquire Common Stock as though exercised, and all outstanding
securities convertible into Common Stock (including without limitation the
Preferred Stock) as though converted on the date of determination.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government. "HSR ACT" shall mean the Hart-Scott Rodino Antitrust Improvements
Act of 1976 or any successor law, together with the regulations and rules issued
thereunder. "Inducement agreement" shall mean the Inducement Agreement
substantially in the form of EXHIBIT C attached hereto, to be delivered pursuant
to Section 3(e). "NYSE" shall mean the New York Stock Exchange. "PUBLIC
OFFERING" shall mean any time a registration statement filed under the
Securities Act respecting a primary offering of Common Stock (or securities
convertible into, or exchangeable for, Common Stock or rights to acquire Common
Stock or such securities), which is underwritten on a firmly committed basis, is
declared effective and the securities so registered are issued and sold.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" shall mean the Restated Stockholders Agreement dated as
of November 30, 1993, as amended, among the Company, BTC and the other
stockholders of the Company parties thereto. "SUBSIDIARY" shall mean each
corporation or other entity, if any, of which the Company or another Subsidiary
shall own at least fifty percent (50%) of (x) the stock of any class having
power under ordinary circumstances to vote for the election of directors or (y)
the capital or equity, however named.
<PAGE>
In connection with the issuance of the Shares, the Company agrees with each
of the Purchasers and the Purchasers severally agree with the Company as
follows: Section 1. PURCHASE AND SALE OF SHARES. 1.1 PREFERRED STOCK. (a)
Subject to the terms and conditions of this Agreement, the Company agrees to
issue and sell to each Purchaser, and each Purchaser severally agrees to
purchase from the Company, on the Closing Date, at a price of $100.00 per Share,
the number of Shares of Preferred Stock set forth opposite such Purchaser's name
below:Shares of Preferred Stock set forth opposite such Purchaser's name below:
Name and Address
of Purchaser Number of Shares
BT Capital Partners, Inc. 350,000
130 Liberty Street, 25th Floor
New York, New York 10006
BCI Growth IV, L.P. 72,500
Glenpointe Centre West
Teaneck, New Jersey 07666-6883
(b) The Preferred Stock shall be issued pursuant to a Certificate of
Designations substantially in the form of EXHIBIT A hereto (the "CERTIFICATE OF
DESIGNATIONS"), which shall be in effect on the Closing Date.
1.2 PAYMENT OF PURCHASE PRICE FOR SHARES. The purchase price for the Shares
shall be payable on the Closing Date, in cash by wire transfer of immediately
available funds pursuant to the Company's written instructions.
1.3 FINANCING FEE. The Company agrees to pay to BTC on the Closing Date a
financing fee in the amount of $1,250,000.
1.4 REGISTRATION RIGHTS. (a) The Company agrees to use best efforts to
maintain with respect to the Conversion Shares and all other shares of Common
Stock held by the Purchasers on the Closing Date an effective registration
statement under the Securities Act and a current prospectus relating thereto,
and effective registration statements or qualifications under the securities
laws of each holder's state of residence, for a period of five (5) years after
the date hereof. To the extent such registration statements or qualifications
are not maintained in effect, the Purchasers and the Company shall have the
rights and obligations set forth in EXHIBIT B attached hereto with respect to
registrations of the Company's securities under the Securities Act. (b) The
rights of a Purchaser under Sections 2 and 3 of EXHIBIT B shall cease to be
exercisable after the later of (a) the fifth anniversary of the date of this
Agreement, and (b) any date as of
<PAGE>
which the Purchasers have disposed of sharesof Common Stock constituting
80% of the Common Stock held by them (including Conversion Shares issuable upon
conversion of the Shares held by them) on the date hereof (determined on a
fully-diluted basis), in either case provided that the Company shall continue to
comply with the public information requirements for the availability of Rule 144
with respect to subsequent sales by the Purchaser.
Section 2. REPRESENTATIONS OF THE COMPANY.
In order to induce the Purchasers to purchase the Shares, the Company
hereby represents and warrants to, and agrees with, the Purchasers and their
respective successors, endorsees and assigns that:
2.1 CERTIFICATE OF DESIGNATIONS. The Company has filed the Certificate of
Designations with the Secretary of State of the State of Delaware. The
Certificate of Designations and the resolutions of the Company's Board of
Directors contained therein are in full force and effect.
2.2 ORGANIZATIONAL DOCUMENTS. The Company has delivered to the Purchasers
an accurate and complete copy of (a) its Certificate of Incorporation and all
amendments thereto, certified by the Secretary of State or other comparable
authority of the jurisdiction of its incorporation, and (b) its By-laws and all
amendments thereto, certified by its Secretary or Assistant Secretary.
2.3 EXISTENCE AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction where failure to so qualify or be in
good standing as a foreign corporation could reasonably be expected to have a
material adverse effect on its business, operations, prospects, properties or
condition (financial or otherwise), or its ability to perform its obligations
hereunder.
2.4 POWER AND AUTHORITY. The Company has all corporate power and authority
necessary to own, operate or lease its properties and assets and to conduct its
business as now conducted by it. The Company has all corporate power and
authority necessary to issue the Shares, and to execute, deliver, and perform
its obligations under this Agreement (including without limitation EXHIBIT B
hereto) and the Shares (collectively, the "TRANSACTION DOCUMENTS").
2.5 CORPORATE ACTION. The Company has taken all corporate action required
to authorize the issuance of the Shares and the execution, delivery and
performance of the Transaction Documents.
2.6 DUE EXECUTION AND DELIVERY. The Company has duly executed and delivered
each of the Transaction Documents. The certificates representing the Shares have
been duly and properly authorized, executed and delivered.
<PAGE>
2.7 CONSENTS; GOVERNMENTAL APPROVALS. No consent or approval of any person,
firm or corporation, and no consent, license, approval or authorization of, or
registration, filing or declaration with, any Governmental Authority is required
to be obtained or made by or on behalf of the Company in connection with the
offer, issuance and sale of the Shares, the execution, delivery or performance
of any of the Transaction Documents or the completion of the transactions
contemplated thereby, except for (a) the approval of the Board of Directors of
the Company, (b) the filing of the Certificate of Designations in the State of
Delaware, (c) filings with the SEC, the NYSE and under state securities laws
that may be required, (d) filings under the HSR Act contemplated by Section 4.6,
and (e) approval of the stockholders of the Company contemplated by Section 4.7;
in the cases of (a) and (b) above, each of which shall have been obtained or
made prior to or simultaneously with the closing of the sale of Shares on the
Closing Date.
2.8 BINDING EFFECT. Each of the Transaction Documents is a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or limitations on the availability of
equitable remedies. The terms of the Certificate of Designations applicable to
the Preferred Stock are legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally or
limitations on the availability of equitable remedies.
2.9 ABSENCE OF CONFLICTS. The issuance of the Shares and the execution,
delivery and performance of the Transaction Documents by the Company do not and
will not (a) conflict with or violate any provision of the Restated Certificate
of Incorporation or By-laws of the Company, (b) conflict with or result in a
violation, breach or default by the Company under (i) any provision of any
existing statute, law, rule or regulation binding on it or any order, judgment,
award, decree, license or authorization of any court or governmental
instrumentality, authority, bureau or agency binding on it, or (ii) any material
provision of any mortgage, indenture, lease or other contract, agreement,
instrument or undertaking to which it is a party or will be a party immediately
after the Closing, or by which or to which it or any of its property or assets
is now or immediately after the Closing will be bound or subject, or (c) result
in the creation or imposition of any lien, encumbrance or other charge on any of
its properties or assets.
2.10 NO DEFAULTS. None of the Company or its Subsidiaries is, or
immediately after the Closing will be, in default under or in violation of (a)
its Certificate of Incorporation or By-laws, (b) any agreement or instrument to
which it is a party relating to its indebtedness for borrowed money, (c) any
other agreement or instrument to which it is a party, (d) any statute, rule,
writ, injunction, judgment, decree, order or regulation of any court or
governmental authority having jurisdiction over it, or (e) any license, permit,
certification or approval requirement of any customer, supplier, governmental
authority or other person, in the case of (c), (d) or (e) above, in any way that
could reasonably be expected to have a material adverse effect on the present or
prospective business, operations, prospects, properties, assets or condition
(financial or
<PAGE>
otherwise) of such corporation, or the Company's ability to perform its
obligations under any of the Transaction Documents.
2.11 CAPITALIZATION AND STOCKHOLDERS. The entire authorized, issued and
outstanding capital stock of the Company was as set forth in the SEC Documents,
on and as of the dates indicated therein. Immediately after the Closing, all
outstanding shares will be duly and validly issued and outstanding and
fully-paid and non-assessable. Immediately after the Closing, except as
described in the SEC Documents and other public announcements by the Company,
and except for the Shares, there will be no options, warrants or other rights
outstanding or proposed involving the issuance of any additional shares of
capital stock of the Company, and except for this Agreement and the Stockholders
Agreement there will be no agreements or other instruments providing
registration rights to stockholders or holders of other securities of the
Company.
2.12 SEC DOCUMENTS. (a) The Common Stock of the Company is registered
pursuant to Section 12(g) of the Exchange Act and the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), in addition to one
or more registration statements and amendments thereto heretofore filed by the
Company with the SEC. The Company has delivered or made available to the
Purchasers true and complete copies of (i) its annual reports on Form 10-K and
quarterly reports on Form 10-Q for its 1994 and 1995 fiscal years, (ii) proxy
statements, information and solicitation materials filed by the Company with the
SEC since January 1, 1994, and (iii) each other report, registration statement,
proxy statement and other document filed with the SEC since the filing of its
most recent Form 10-K (all of the foregoing, collectively, the "SEC DOCUMENTS").
The Company has not provided to the Purchasers any information which, according
to applicable law, rule or regulation, should have been disclosed publicly by
the Company but which has not been so disclosed, other than with respect to the
transactions contemplated by this Agreement. (b) As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.13 FINANCIAL STATEMENTS. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (a)
as may be otherwise indicated in such financial statements or the notes thereto
or (b) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
2.14 NO MATERIAL ADVERSE CHANGE. Since March 31, 1996, the date through
which the most recent quarterly report of the Company on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or reflected in other SEC Documents,
or otherwise disclosed in writing to the Purchasers on or before the Closing
Date.
<PAGE>
2.15 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to the Company or its Subsidiaries, or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company and which has not been so publicly disclosed or
announced, or otherwise disclosed in writing to the Purchasers on or before the
Closing Date.
2.16 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
2.17 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Securities Act.
2.18 BROKERS. The Company represents and warrants that it has employed no
brokers, agents or finders in carrying on the negotiations relating to this
Agreement or to the transactions herein contemplated.
2.19 UNTRUE OR MISLEADING STATEMENTS. Neither this Agreement nor any other
Transaction Document or other agreement, certificate, instrument or written
statement furnished by or on behalf of the Company or, to the best of the
Company's knowledge, by any other person, firm or corporation, to the Purchasers
in connection with the transactions contemplated by this Agreement, contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained therein not misleading in light of the circumstances in
which such statements were made.Agreement, contains any untrue statement of a
material fact or omits a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which such
statements were made.
Section 3. CONDITIONS PRECEDENT. The obligation of each Purchaser to
purchase Shares hereunder on the Closing Date shall be subject to the
satisfaction of each of the following conditions precedent on the Closing Date:
<PAGE>
(a) REPRESENTATIONS. All representations and warranties made in this
Agreement and in any other agreement, certificate or instrument furnished to the
Purchasers in connection herewith shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made at the time of, and immediately after giving effect to,
the sale of Shares.
(b) OFFICER'S CERTIFICATE. The Company shall deliver to the Purchasers a
certificate of its President or Executive Vice President dated the Closing Date,
in form and substance reasonably satisfactory to the Purchasers and their
counsel, certifying the satisfaction of the conditions in Sections 3(a).
(c) NO MATERIAL ADVERSE CHANGE. The Purchasers shall be satisfied that no
event, circumstance or condition shall have occurred and be continuing that
could reasonably be expected to have a material adverse effect on the Company's
business, operations, prospects, properties or condition (financial or
otherwise), or its ability to perform its obligations hereunder.
(d) SUSPENSION OF TRADING. Trading in the Company's Common Stock shall not
have been suspended by the SEC or any exchange on which it is listed for trading
(except for any suspension of trading of limited duration agreed to by the
Company solely to permit dissemination of material information regarding the
Company), and trading in securities generally as reported by such exchange(s)
shall not have been suspended or limited.
(e) INDUCEMENT AGREEMENT. Joseph J. Bianco shall have executed and
delivered to the Purchaser the Inducement Agreement, substantially in the form
of EXHIBIT C attached hereto.
(f) SENIOR DEBT AMENDMENTS. The Third Amended and Restated Credit Agreement
and Guaranty dated as of July 25, 1995 among the Company, The Chase Manhattan
Bank, N.A., as agent, and the banks parties thereto shall have been amended, in
form and substance satisfactory to the Purchasers, among other things, (i) to
provide in effect that proceeds of the sale of Shares will not be used to reduce
term loans outstanding thereunder, and (ii) to revise the financial covenants
therein so that certain restructuring charges taken or to be taken by the
Company will not breach such covenants.
(g) VOTING AGREEMENT. The parties thereto shall have executed and delivered
to the Purchasers a Voting Agreement substantially in the forms of EXHIBIT D
attached hereto.
(h) LEGAL OPINIONS. The Company shall have delivered to the Purchasers the
executed legal opinions of Messrs. Cahill Gordon & Reindel and Elliot Newman,
Esq., counsel to the Company, dated the Closing Date, in form and substance
reasonably satisfactory to the Purchasers and their counsel.
(i) FAIRNESS OPINION. The Company shall have received, and shall have
delivered to the Purchasers a copy of, the opinion of Tucker Anthony
Incorporated as to the fairness of the transactions contemplated hereby, in form
and substance reasonably satisfactory to the Purchasers.
<PAGE>
(j) FEES. The Purchasers (or their agents) shall have received the fees and
other amounts payable on the Closing Date referred to in Sections 1.3 and 10.5.
(k) ADDITIONAL DOCUMENTS. Each Purchaser shall have received all such
agreements, documents, instruments, approvals, certificates, legal opinions and
information as such Purchaser shall reasonably request in connection with this
Agreement, the Shares and the transactions herein and therein contemplated, all
of which shall be in form and substance reasonably satisfactory to the
Purchasers and their counsel.
(l) ADDITIONAL MATTERS. All other documents and legal matters in connection
with the transactions contemplated by this Agreement shall be reasonably
satisfactory to the Purchasers.
Section 4. COVENANTS. The Company covenants and agrees that:
4.1 REGISTRATION AND LISTING. The Company will cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or file
any document (whether or not permitted by the Securities Act or the Exchange Act
or the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under such Acts. The
Company will take all action within its power to continue the listing or trading
of its Common Stock on the NYSE and will comply in all respect with the
Company's reporting, filing and other obligations under the bylaws or rules of
such exchange.
4.2 FINANCIAL STATEMENTS AND INFORMATION. The Company will furnish or cause
to be furnished to each of the Purchasers the following financial statements and
information: 4.2.1 All reports and other written communications delivered by the
Company to its stockholders as such, and all registration statements (when
available to the public) and periodic reports filed by the Company or any
officer or director thereof with the SEC or any securities exchange, pursuant to
the Securities Act, the Exchange Act, or the rules of such securities exchange.
4.2.2 With reasonable promptness, (a) all financial statements or reports
(including comment letters to management) furnished to the Company by its
independent certified public accountants, and (b) all press releases other than
press releases dealing with the sale of its products in the usual and ordinary
course of its business. 4.2.3 Such information as any Purchaser shall reasonably
require in order to furnish reports to the Small Business Administration or any
other governmental authority.
<PAGE>
4.3 USE OF PROCEEDS. The Company will use the proceeds received from the
sales of Shares (a) to fund the purchase of catalog and other proprietary
rights, (b) for general corporate purposes, and (c) to fund the legal and other
reasonable expenses of the transactions contemplated by this Agreement and all
other agreements delivered in connection herewith and therewith.
4.4 REPRESENTATIVES OF PURCHASERS. The Company will (a) use best efforts to
cause to be elected to the Boards of Directors of the Company and (if so
requested) each Subsidiary two (2) directors designated by BTC, and shall take
no action that would diminish the prospects of such directors being elected; (b)
at the option of BTC, in lieu of directors appointed by BTC, permit up to two
non-voting representatives of BTC to attend all meetings of the Boards of
Directors of the Company and its Subsidiaries; (c) permit one non-voting
representative of BCI to attend all meetings of the Boards of Directors of the
Company and its Subsidiaries; (d) provide to such directors or representatives
all notices, documents and information furnished to the directors or
stockholders of the Company and its Subsidiaries, at the same time as furnished
to such directors or stockholders; (e) use best efforts to notify such directors
or representatives of and permit such directors or representatives to
participate by telephone in emergency meetings of the Boards and the
stockholders, and to provide such directors or representatives copies of the
minutes of all such meetings promptly after they are held; and (f) in connection
with attendance at meetings of the Boards of Directors, committees thereof and
of the stockholders of the Company and its Subsidiaries by each of the directors
designated by BTC and the representative designated by BCI, (i) provide to BTC
expense reimbursements, compensation and other benefits on terms at least as
favorable as those paid or provided to each other outside director, and (ii) pay
the reasonable expenses of the representative designated by BCI.
4.5 COMPLIANCE WITH APPLICABLE LAW. The Company will comply, and cause each
Subsidiary to comply, with each statute, law, rule, regulation, order or other
governmental requirement, noncompliance with which (in any one (1) instance or
in the aggregate) is likely to materially adversely affect (a) the business,
operations, property or financial condition of the Company or such Subsidiary,
or (b) the Company's ability to perform its obligations to the Purchasers.
4.6 PRE-MERGER NOTIFICATION ACT COMPLIANCE. If in connection with any
proposed conversion of Preferred Stock the Company or a Purchaser determines
that a filing is required under the HSR Act, as promptly as practicable after
notification of the proposed conversion is received the Company will make all
such filings required by the HSR Act to be made in order to complete the
proposed conversion. The Purchasers will cooperate with the Company to the
extent reasonably necessary to complete such filings. The Company will pay all
filing fees required in connection with such filings. The issuance of Conversion
Shares resulting from such conversion may be delayed until two (2) days after
the expiration of the applicable waiting period following such filing(s).
4.7 STOCKHOLDER APPROVAL. The Company shall exert best efforts as promptly
as practicable after the date hereof to obtain the stockholders' approval and
authorization of the issuance of Common Stock upon conversion of the Preferred
Stock, all in accordance with the terms of the Certificate of Designations, and
all to the extent necessary to satisfy the requirements of Rule 312.03 of the
New York Stock Exchange Listed Company Manual, as applied to the issuance of
Common Stock upon conversion of the Preferred Stock.
4.8 FURTHER ASSURANCES. The Company will execute and deliver or cause to be
executed and delivered such further instruments and do or cause to be done such
further acts as may be reasonably necessary to carry out its obligations under
this Agreement.
<PAGE>
Section 5. CONSENTS. Any provision in this Agreement to the contrary
notwithstanding, with the written consents of Purchasers holding a majority of
the outstanding Preferred Stock, or after the Preferred Stock has been redeemed
or converted in full a majority of the Conversion Shares then held by all
Purchasers, the Company may be relieved from the effect of any default hereunder
or from compliance with any covenant, agreement or undertaking contained herein
or in any instrument executed and delivered as herein provided, EXCEPT the
provisions of the Company's Restated Certificate of Incorporation and the
Certificate of Designations relating to the Shares.
Section 6. INVESTMENT REPRESENTATION.
6.1 SECURITIES ACT. Each Purchaser acknowledges that (a) the Shares being
acquired by such Purchaser are not being registered under the Securities Act on
the ground that the issuance thereof is exempt from registration under Section
4(2) of the Securities Act as not involving any public offering, and (b) the
Company's reliance on such exemption is predicated in part on the representation
hereby made to the Company by such Purchaser that it is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act, and is
acquiring its Shares for investment for its own account, with no present
intention of dividing its participation with others or reselling or otherwise
distributing the same, subject, nevertheless, to any requirement of law that the
disposition of its property shall at all times be within its control. None of
the Purchasers is aware of any particular occasion, event or circumstance upon
the occurrence or happening of which it intends to dispose of its Shares.
6.2 RESALES. None of the Purchasers will sell or transfer all or any part
of its Shares unless and until it shall first have given notice to the Company
describing such sale or transfer and furnished to the Company either (i) an
opinion, reasonably satisfactory to counsel for the Company, of Eaton & Van
Winkle, or other counsel skilled in securities matters (selected by such
Purchaser and reasonably satisfactory to the Company) to the effect that the
proposed sale or transfer may be made without registration under the Securities
Act, or (ii) an interpretive letter from the staff of the SEC to the effect that
no enforcement action will be recommended if the proposed sale or transfer is
made without registration under the Securities Act, in either case accompanied
by evidence that such transfer will be in compliance with applicable state
securities ("blue sky") laws; PROVIDED, HOWEVER, that the foregoing shall not
apply with respect to (1) any transfer pursuant to an effective registration
statement under the Securities Act, or pursuant to Rule 144 thereunder, or (2)
any transfers between a Purchaser and any institutional affiliate of such
Purchaser for its own account.
6.3 LEGENDS. The Company may place appropriate legends on the certificates
for the Shares and Conversion Shares concerning the restrictions set forth in
this Section 6 and may refuse to transfer any of the Shares or Conversion Shares
on its books should the holder thereof attempt to transfer any of them otherwise
than in compliance herewith and therewith. The Company agrees to reissue
certificates representing the Shares or, if applicable, the Conversion Shares
without the legend provided for above at such time as (i) the holder thereof is
permitted to dispose of such Shares or Conversion Shares pursuant to Rule 144(k)
under the Securities Act, (ii) the Shares or Conversion Shares are sold to a
purchaser or purchasers who (in the opinion of counsel to such purchasers, in
form and substance reasonably satisfactory to the Company and its counsel) are
able to dispose of such Shares or Conversion Shares publicly without
registration under the Securities Act, or (iii) such securities are registered
under the Securities Act.
<PAGE>
Section 7. TRANSFERS. Subject only to compliance with the requirements of
Section 6.2, each Purchaser shall be entitled to assign and transfer all or any
part of its Shares or Conversion Shares, or any interest or participation
therein, and its related rights under this Agreement; and upon the assignment or
transfer by such Purchaser of all or any part of its Shares or Conversion Shares
or its interest therein (except in a Public Offering, or a sale pursuant to Rule
144 thereunder), the term "Purchaser" as used herein shall thereafter include,
to the extent of the interest so assigned or transferred, the assignee or
transferee of such interest. Notwithstanding the foregoing, (a) Shares shall not
be transferred to a competitor of the Company without the prior consent of the
Company's Board of Directors, and (b) except for sales on the NYSE or otherwise
made in the open market, or pursuant to a Public Offering, the Purchasers shall
not sell or transfer Shares to any transferee unless such transferee has been
approved by the Company, such approval not to be unreasonably withheld or
delayed.
Section 8. EFFECTIVENESS OF AGREEMENT. The covenants contained in this
Agreement shall continue in full force and effect with respect to the Purchasers
until all Shares of Preferred Stock have been redeemed (and the redemption price
therefor paid in full) or have been converted, and all Conversion Shares have
been sold by the Purchasers in a Public Offering or pursuant to Rule 144, except
that (i) the covenants contained in Section 1.4 shall terminate as provided in
Section 1.4(b), and (ii) the covenants contained in Sections 4.2.2 and 4.4 shall
terminate at such time as the total number of shares of Common Stock held by the
Purchasers, on a fully-diluted basis, do not exceed 2,900,000.
Section 9. JUDICIAL PROCEEDINGS.
9.1 The Company irrevocably submits to the non-exclusive jurisdiction of
any New York State or Federal court sitting in the City of New York over any
suit, action or proceeding arising out of or relating to this Agreement or any
of the Shares or Conversion Shares. To the fullest extent it may effectively do
so under applicable law, the Company irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the
<PAGE>
jurisdiction of any such court, any objection that it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
in any such court and any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.
9.2 The Company agrees, to the fullest extent it may effectively do so
under applicable law, that a judgment in any suit, action or proceeding of the
nature referred to in Section 9.1 brought in any such court shall, subject to
such rights of appeal on issues other than jurisdiction as may be available, be
conclusive and binding upon the Company and may be enforced in the courts of the
United States of America or the State of New York (or any other courts to the
jurisdiction of which the Company is or may be subject) by a suit upon such
judgment.
9.3 The Company consents to service of process in any suit, action or
proceeding of the nature referred to in Section 9.1 by mailing a copy thereof by
registered or certified mail, postage prepaid, return receipt requested, to its
address specified in or designated pursuant to Section 10.1 Such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company.
9.4 Nothing in this Section 9 shall affect the right of any of the
Purchasers to serve process in any manner permitted by law, or limit any right
that any of the Purchasers may have to bring proceedings against the Company in
the courts of any jurisdiction or to enforce in any lawful manner a judgment
obtained in one (1) jurisdiction in any other jurisdiction.
9.5 THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE SHARES OR THE CONVERSION SHARES.
9.6 Upon breach or default by the Company with respect to any obligation
hereunder, under the Shares or the Conversion Shares, the Purchasers (or their
agents) shall be entitled to protect and enforce their rights at law, or in
equity or by other appropriate proceedings for specific performance of such
obligation, or for an injunction against such breach or default, or in aid of
the exercise of any power or remedy granted hereby or thereby or by law. Section
10. MISCELLANEOUS.
10.1 NOTICES. All notices, requests, demands or other communications to or
upon the respective parties hereto shall be in writing and shall be deemed to
have been given or made, and all financial statements, information and the like
required to be delivered hereunder shall be deemed to have been delivered, five
(5) days after deposited in the mails, registered or certified with postage
prepaid, addressed to the Company at 110 East 59th Street, New York, New York
10022 Attention: President, with a copy to the counsel for the Company, Elliot
Newman, Esq., 1401 University Drive, Suite 305, Coral Springs, Florida 33071,
and to the Purchasers at their respective addresses set forth in Section 1 of
this Agreement, or to such other address as any of
<PAGE>
them shall specify in writing to the others. The Company shall maintain
registers of the holders of the Shares and the Conversion Shares which shall
contain the last address specified as provided in the preceding sentence. No
other method of giving notice is hereby precluded. Upon reasonable request of
any Purchaser, the Company will deliver to such Purchaser, at the Company's
expense, additional copies of all financial statements, information and the like
required hereunder.
10.2 CUMULATIVE REMEDIES, ETC. No failure or delay on the part of any of
the Purchasers in exercising any right, power or privilege hereunder, and no
course of dealing between the Company and the Purchasers, or any of them, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude the simultaneous or later exercise
of any other right, power or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Purchasers, or any of them, would otherwise have. No notice to or demand on the
Company in any case shall entitle the Company to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Purchasers, or any of them, to take any other or further action in any
circumstances without notice or demand.
10.3 NO ORAL CHANGES; ASSIGNMENT; SURVIVAL OF REPRESENTATIONS. This
Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company and the Purchasers and their successors and assigns.
The Company shall not make any assignment of its rights under this Agreement or
subject this Agreement or its rights hereunder to any lien or security interest
of any kind whatsoever; and any such assignment, lien or security interest shall
be absolutely void and unenforceable as against the Purchasers. All agreements,
representations and warranties made herein or in writing otherwise in connection
herewith shall survive the issuance of the Shares.
10.4 SEVERAL OBLIGATIONS. The Purchasers shall not be jointly obligated
hereunder; their obligations are several. The sales of Shares to the Purchasers
shall be deemed separate sales to each Purchaser.
10.5 EXPENSES. The Company agrees to pay and save the Purchasers harmless
against liability for the payment of all out-of-pocket expenses arising in
connection with the negotiation, preparation, execution, delivery and
enforcement of, and any amendment, supplement or modification to, or waiver of
any provision of, this Agreement or the Shares, and the reasonable fees and
disbursements of Messrs. Eaton & Van Winkle, such fees and disbursements in
respect of such preparation, execution and delivery to be paid by the Company on
the Closing Date. Such other expenses shall be paid promptly by the Company as
and when payment thereof is requested by the Purchasers. The obligations
provided for in this Section 10.5 shall survive any termination of this
Agreement.
10.6 INDEMNIFICATION. The Company agrees to indemnify and hold harmless
each Purchaser, its subsidiaries, directors, officers and employees, to the
maximum extent permitted by law, from and against any and all liability
(including, without limitation, reasonable legal fees incurred in defending
against any such liability) under, arising out of or relating to this
<PAGE>
Agreement, the Shares, the transactions contemplated hereby or thereby or in
connection herewith or therewith, and all action or failures to act and the
transactions contemplated thereby, including (to the maximum extent permitted by
law) any liability arising under Federal or state securities laws, except to the
extent such liability shall result from any act or omission on such Purchaser's
part constituting willful misconduct or gross negligence or the inaccuracy of
representations in Section 6. The obligations of the Company under this Section
10.6 shall survive and continue to be in full force and effect notwithstanding
the Shares not having been purchased, the redemption of the Shares or the
termination of this Agreement.
10.7 PUBLICITY. Each party to this Agreement agrees not to disclose the
name of the other in any press release or other public disclosure, or in any
proxy statements, prospectus or other, similar materials filings with any
governmental entity, unless, in each such case, the other party first has
reviewed and approved such usage, with such review and approval not to be
unreasonably delayed or withheld.
10.8 GOVERNING LAW. This Agreement and the other agreements and instruments
executed as provided herein, and the rights and obligations of the parties
hereunder and thereunder, shall be construed and interpreted in accordance with
and governed by the laws of the State of New York.
10.9 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one (1) and the same instrument.
10.11 CAPTIONS; GENDER. The descriptive headings of the Sections of this
Agreement are inserted for convenience only and shall not affect the meaning,
construction or interpretation of any of the provisions hereof. The use of the
neuter form of a pronoun shall be deemed, where appropriate, to include the
masculine and feminine forms of such pronoun. If you are in agreement with the
foregoing, please sign in the space provided below.
ALLIANCE ENTERTAINMENT CORP.
By: /s/Joseph J. Bianco
-------------------------
Title:
The foregoing is hereby accepted
and agreed to as of the date
first above written.
PURCHASERS:
BT CAPITAL PARTNERS, INC.
By:/s/Robert Marakovits
----------------------
Title:
BCI GROWTH IV, L.P.
By:/s/Stephen Eley
----------------------
General Partner
Managing Member
<PAGE>
EXHIBIT A
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 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 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. (a) When declared
by the Board of Directors of the Corporation, dividends on the Preferred Stock
shall be
<PAGE>
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.
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
<PAGE>
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 of shares.
3.4 OPTIONAL REDEMPTION BY CORPORATION BASED ON MARKET PRICE. (a) 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 third (3rd) 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
<PAGE>
days prior to the notice of redemption delivered pursuant to Section 3.8
shall exceed eleven dollars (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. (a) 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 third (3rd) 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
<PAGE>
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: (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 Closing Date) 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.
<PAGE>
"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 (including without limitation the One Million two hundred and fifty
thousand dollar (1,250,000) fee paid to BT Capital Partners, Inc. in connection
with the original issuance of Preferred Stock) 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. "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.
<PAGE>
3.6 REDEMPTION UPON CORPORATE CHANGE. (a) At any time after the Preferred
Stock has become convertible by the holders thereof in accordance with Section
4.1(a), if a Corporate Change is to occur and the holders of Preferred Stock
refuse to provide the vote or written consent required to authorize such
Corporate Change pursuant to Section 9(c), the Corporation may redeem all of the
Outstanding Preferred Stock immediately prior to the consummation of such
Corporate Change. Written notice of any impending Corporate Change, and the
substance and intended date of consummation thereof, shall be mailed by
certified or registered mail, return receipt requested, not more than sixty (60)
nor less than ten (10) days prior to the date of consummation thereof, to each
record holder of shares of Preferred Stock at the address for such record holder
shown on the Corporation's records. The Corporation's redemption rights under
this Section 3.6 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. (b) "CORPORATE CHANGE" means (i) the sale, exchange or transfer
of all or substantially all of the Corporation's assets, or (ii) any transaction
or series of related transactions in which one (1) or more persons (other than a
holder of Preferred Stock or an affiliate thereof) shall directly or indirectly
acquire ownership of or control over capital stock (not including shares held or
controlled by them on the date of original issuance of the Preferred Stock) of
the Corporation (or securities exchangeable for or convertible into such stock)
entitled to elect fifty percent (50) or more of the Corporation's Board of
Directors and representing at least fifty percent (50) of the number of shares
of Common Stock Outstanding. (c) If a Corporate Change is proposed to occur, and
either (i) the Preferred Stock has not yet become convertible by the holders
thereof in accordance with Section 4.1(a), or (ii) and the Corporation would be
prevented from fulfilling its redemption obligations under this Section 3.6 by
any agreement to which it is a party with respect to its indebtedness for
borrowed money, then the Corporation shall not be entitled to redeem shares of
Preferred Stock pursuant to Section 3.6(a), and the Corporation shall not permit
the occurrence of such Corporate Change without the vote or approval of holders
of Preferred Stock required pursuant to Section 9(c).
3.7 MANDATORY REDEMPTION BASED ON FAILURE OF STOCKHOLDERS VOTE.
(a) In the event that the Preferred Stock has not become convertible in
accordance with Section 4.1(a) on or before July 26, 2005, then at any time
after such date (i) any holder of shares of Preferred Stock may require the
Corporation to redeem all or any portion of the Preferred Stock owned by such
holder, at the Redemption Price (as determined pursuant to this Section 3.7),
upon written notice to the Corporation requesting such redemption, or (ii) the
Corporation may, at its option, redeem the Preferred Stock then Outstanding in
whole (but not in part), at the Redemption Price (as determined pursuant to this
Section 3.7), upon written notice to the holders thereof. Notice of any such
election by the Corporation to redeem shall specify a redemption date not less
than 10 nor more than 30 days after the date of such notice. (b) The Redemption
Price for each holder's shares of Preferred Stock redeemed pursuant to this
Section 3.7 shall be the LESSER of
<PAGE>
date not less than 10 nor more than 30 days after the date of such notice.
(b) The Redemption Price for each holder's shares of Preferred Stock
redeemed pursuant to this Section 3.7 shall be the LESSER of (i) 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 being redeemed, and (ii) seventy-five percent (75) of the
Corporation's cumulative EBITDA, for the period from the date of original
issuance of the Preferred Stock to the date of such redemption, multiplied by a
fraction, the numerator of which is the number of shares of Preferred Stock to
be redeemed from such holder and the denominator of which is the aggregate
number of shares of Preferred Stock issued by the Corporation, PROVIDED THAT the
Redemption Price per share of Preferred Stock calculated pursuant to this
paragraph (ii) shall in no event be less than the Liquidation Value thereof.
3.8 REDEMPTIONS OR PURCHASE BY CORPORATION'S DESIGNEE(S). In lieu of any
redemption of Preferred Stock bythe 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.
3.9 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
or 3.7, 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 (ten (10) days, in the case of a redemption pursuant to
Section 3.6) 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, 3.5 or 3.6(b), 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.
3.10 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.
3.11 OTHER REDEMPTIONS. The Corporation shall neither redeem nor otherwise
acquire any shares of any class of Preferred Stock except (i) as expressly
authorized in this Certificate of
<PAGE>
Designations, or (ii) pursuant to any offer of redemption made to the
holders of Preferred Stock of such class PRO RATA according to the shares held
by them.
3.12 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.
4.1 CONVERSION PROCEDURES.
(a) The Preferred Stock shall be convertible into shares of Common Stock,
in accordance with the terms of this Section 4, at any time after the issuance
of Common Stock upon such conversion are approved by the holders of outstanding
Common Stock, in compliance with Rule 312.03 of the New York Stock Exchange
Listed Company Manual (or such approval otherwise is not required).
Notwithstanding anything to the contrary herein, conversion of the Preferred
Stock shall not be permitted without such approval of the holders of Common
Stock first being obtained (or the requirements of such Rule otherwise being
satisfied).
(b) A holder of shares of Preferred Stock may, at any time after the
requirements of Section 4.1(a) are satisfied, 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.
(c) 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
<PAGE>
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.
(d) 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.(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
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
<PAGE>
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.
(a) 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 percent 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.
<PAGE>
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) five dollars and fifty cents (5.50), 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 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 percent 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 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 percent 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
<PAGE>
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 percent 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.
(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
<PAGE>
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. (i) 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. (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
<PAGE>
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 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 (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,
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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 3.5 or 3.7, 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.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.
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.
<PAGE>
Section 6. VOTING RIGHTS OF PREFERRED STOCK.
Except as otherwise provided by law, by agreement among the stockholders,
or as otherwise provided in this Certificate of Designations, Preferred Stock
shall entitle the holders thereof to no voting rights.
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.
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. RESTRICTIONS ON CORPORATE ACTION. So long as the shares of
Common Stock receivable upon conversion of the Preferred Stock Outstanding
represent at least five percent (5) of the Common Stock outstanding, determined
on a fully-diluted basis, and in addition to any other approvals or consents
required by law, without the prior affirmative vote or written consent of the
holders of at least a majority of all shares of the Preferred Stock Outstanding
at the time:
(a) The Corporation shall not increase the number of shares of the
Preferred Stock which the Corporation is authorized to issue, or issue
additional shares of Preferred Stock except pursuant to Section 1.2(b).
<PAGE>
(b) Unless the dividend payment and redemption obligations of the
Corporation with respect to the Preferred Stock have, at such time, been fully
satisfied, the Corporation shall not declare or pay any dividend or make any
other distribution on any Junior Securities other than dividends or
distributions payable solely in Junior Securities, or purchase, redeem, or
otherwise acquire for any consideration, or set aside as a sinking fund or other
fund for the redemption or repurchase of any Junior Securities or any warrants,
rights or options to purchase the same.
(c) The Corporation shall not cause or permit any Corporate Change to
occur.
Section 10. CLOSING BOOKS. The Corporation will not close its books against
the transfer of any share of Preferred Stock.
Section 11. 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 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
<PAGE>
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.
"LIQUIDATION VALUE" of any share of Preferred Stock as of any particular
date means an amount equal to the sum of 100.00 dollars 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.
<PAGE>
"REDEMPTION DATE" as to any share of Senior Preferred Stock means the date
specified in the notice of redemption delivered pursuant to Section 3.9;
PROVIDED that for purposes of Section 3.10, 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 in trust for the benefit of such
holder pursuant to Section 3.12.
"REDEMPTION PRICE" as to any share of Preferred Stock means (a) for
purposes of Section 3.5 or 3.7, the Redemption Price specified therein, and (b)
in all other cases, the Liquidation Value of such share.
"SUBSIDIARY" means any corporation at least 50 percent 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 12. 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.
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
<PAGE>
EXHIBIT B
to
Preferred Stock Purchase Agreement
among Alliance Entertainment Corp.
and the Purchasers named therein
REGISTRATION RIGHTS
1. DEFINITIONS. As used in this Exhibit B, the following terms shall have
the following meanings:
"BCI STOCKHOLDER" means BCI Growth IV, L.P. and any transferee of Shares
originally owned by BCI Growth IV, L.P.
"BT STOCKHOLDER" means BT Capital Partners, Inc. and any transferee of
Shares originally owned by BT Capital Partners, Inc.
"COMMON STOCK" means Common Stock, par value $0.0001 per share, of the
Company, including without limitation the Conversion Shares.
"CONVERSION SHARES" means shares of Common Stock issued or issuable upon
conversion of Preferred Stock.
"PREFERRED STOCK" means the Company's Series A Preferred Stock, par value
$0.01 per share.
"PRO RATA" means, with respect to the shares of Common Stock that a
Registering Stockholder has requested be included in an underwritten public
offering, but which are to be excluded from such offering as provided in this
Exhibit B, the same proportion of the aggregate number of shares of Common Stock
to be excluded from such offering as the aggregate number of shares of Common
Stock held by such Registering Stockholder bears to the aggregate number of
shares of Common Stock held by all Registering Stockholders whose shares are to
be excluded.
"PURCHASE AGREEMENT" means the Preferred Stock Purchase Agreement dated as
of July ,1996, among the Company and the Purchasers named therein, to which this
Exhibit B is attached.
"REGISTRABLE SECURITIES" means, collectively, (i) Common Stock of the
Company issued to Stockholders, including without limitation the Conversion
Shares, and (ii) Common Stock issued or issuable by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise with respect to
Registrable Securities. Registrable Securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been sold pursuant to Rule 144 (or
any successor provision) under the Securities Act or (iii) such securities shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such securities shall not require the registration or
qualification of such securities under the Securities Act or any similar state
law then in effect.
<PAGE>
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with this Exhibit B and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all printing expenses, the fees and disbursements of the Company's
independent public accountants, including the expenses of any special audits,
reviews, compilations or other reports or information required by or incident to
such performance and compliance, and any fees or expenses of counsel for the
Company and of one special counsel to represent the holders on whose behalf
Registrable Securities are being registered, but excluding (i) any allocation of
the Company or selling Stockholder personnel or other general overhead expenses
of the Company or of any selling Stockholder or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business, which shall be borne by the
party incurring the expense in all cases, and (ii) any underwriting discounts
and commissions with respect to such Registrable Securities, which shall be
borne by the holder on whose behalf such Registrable Securities are being
registered.
"STOCKHOLDER" means a Purchaser or any other holder of Common Stock or
Preferred Stock.
Unless otherwise defined herein, capitalized terms used in this Exhibit B
have the meanings assigned to them in the Purchase Agreement.
2. REGISTRATION ON REQUEST. (a) Upon the written request of (i) BT
Stockholders holding more than fifty percent (50%) of the Shares then held by
all BT Stockholders, or (ii) BCI Stockholders holding at least one million
(1,000,000) shares of Common Stock (in either such case, the "REQUESTING
STOCKHOLDERS"), requesting that the Company effect the registration under the
Securities Act of all or part of the Conversion Shares held by such Requesting
Stockholders and specifying the intended method or methods of disposition of
such Conversion Shares, the Company will promptly give written notice of such
requested registration by registered or certified mail, return receipt
requested, to all Stockholders and thereupon will use its best efforts to
effect, at the earliest possible date, the registration, under the Securities
Act, subject to Section 2(d), of (i) the Conversion Shares which the Company has
been so requested to register by such Requesting Stockholders, for disposition
as stated in such request, and (ii) all other Registrable Securities which the
Company has been requested to register by Stockholders holding Registrable
Securities (which Stockholders, together with the Requesting Stockholders, are
referred to herein as "REGISTERING STOCKHOLDERS") by written request delivered
to the Company within thirty (30) days after the giving of such written notice
by the Company (which request shall specify the intended method of disposition
of such Registrable Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities to be so registered, PROVIDED that (A) if the Company
shall have previously effected a registration of which notice has been given to
all Stockholders holding Registrable Securities pursuant to Section 3, in which
all BT Stockholders wishing to do so were permitted to sell all Registrable
Securities they desired to sell, the Company shall not be required by any BT
Stockholder to effect a registration pursuant to this Section 2 until a period
of 90 days shall have elapsed from the effective date of the most recent such
previous registration, and (B) the Company shall not be obligated to effect more
than two (2) such registrations requested by BT Stockholders or one (1) such
registration requested by BCI Stockholders. Each registration requested pursuant
to this Section 2 shall be (i) effected by the filing of a registration
statement on Form S-1, Form S-2 or Form S-3 (or any other form which the Company
is qualified to use), and (ii) if the Company is qualified and if agreed to in
writing by the Requesting Stockholders, filed pursuant to Rule 415 under the
Securities Act (or equivalent rule then in effect).
(b) The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities effected by the Company pursuant to this
Section 2.
(c) The Company will not register securities for sale for the account of
any Person other than (i) the Company, and (ii) holders of Registrable
Securities. The Company will not grant to any Person the right to request a
registration of securities except pursuant to Section 2(a) and pursuant to the
Stockholders Agreement. The Company may grant incidental rights to participate
in registrations comparable to those granted in Section 3.
<PAGE>
(d) If the registration so requested by the Requesting Stockholders
involves an underwritten offering of the securities so being registered, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and the managing underwriter of such underwritten offering shall
advise the Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Registering
Stockholders have requested to register under Section 2(a)(i) or (ii) will cause
the total number of securities to be distributed to exceed the number which can
be sold in an orderly manner within a price range acceptable to the holders of a
majority of the Registrable Securities initially requesting the registration,
then the Company will promptly furnish each Registering Stockholder a copy of
the opinion of the managing underwriter, will register the shares of Common
Stock which the Registering Stockholders have requested pursuant to Section
2(a)(i) or (ii) in an amount not to exceed the maximum number of shares that the
managing underwriter deems advisable and, to the extent necessary so that the
aggregate number of shares to be registered does not exceed the maximum amount
the managing underwriter deems advisable, will first reduce the number of shares
that each Registering Stockholder, other than a Purchaser, has requested to
register pursuant to Section 2(a)(ii), Pro Rata, and then, to the extent
necessary, reduce the number of shares that each Purchaser has requested to
register pursuant to Section 2(a)(i) or (ii), Pro Rata.
(e) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a holder or holders of Registrable
Securities pursuant to a registration requested under this Section 2, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution provisions to the effect and to
the extent provided in Section 6.
(f) If, at any time after requesting registration pursuant to Section 2(a)
and prior to the effective date of the registration statement filed in
connection with such registration request, any Requesting Stockholder shall
determine for any reason not to register such Registrable Securities, such
Requesting Stockholder may, at its election, give written notice of such
determination to the Company. The Company shall then be relieved of its
obligations to register any Registrable Securities in connection with such
Requesting Stockholder's registration request (but not its obligation to pay the
Registration Expenses in connection therewith as provided in Section 2(b)),
without prejudice, however, to the rights pursuant to Section 2(a) of any other
Registering Stockholders to request that such registration be effected.
(g) In connection with the first request for registration pursuant to
Section 2(a), the Company may, within fifteen (15) days after its receipt of
such request, give the Requesting Stockholders notice that it is the good faith
intention of the Company to register securities under the Securities Act for
sale for its own account. Thereafter, the provisions of Section 3 shall govern,
and the Requesting Stockholders' registration request under Section 2(a) shall
be deemed rescinded. The Requesting Stockholders shall again be entitled to
request such registration under Section 2(a), but not sooner than the earliest
of (i) ninety (90) days after the effective date of the Company's registration,
(ii) the Company's determination (of which the Company shall promptly notify the
holders of Registrable Securities) not to proceed with its registration of
securities, and (iii) the Company's failure to use best efforts to effect the
registration of its securities.
<PAGE>
(h) In connection with any request for registration pursuant to Section
2(a), the Company may, on one occasion only, upon a good-faith determination by
the Company's Board of Directors that such a registration would interfere with
the completion of a proposed corporate transaction, notify the Requesting
Stockholders that it intends to defer such registration for up to one hundred
twenty (120) days. In such event the Requesting Stockholders may rescind their
registration request, and shall again be entitled to request such registration
under Section 2(a), but not sooner than the end of the period of deferral
determined by the Company.
3. INCIDENTAL REGISTRATIONS. (a) If, at any time, the Company proposes to
register any of its securities under the Securities Act, whether or not for sale
for its own account, on a form and in a manner which would permit registration
of Registrable Securities for sale to the public under the Securities Act, it
will each such time give prompt written notice to all holders of Registrable
Securities of its intention to do so, describing such securities and specifying
the form and manner and the other relevant facts involved in such proposed
registration, and upon the written request of any such holder delivered to the
Company within thirty (30) days after the giving of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such holder and the intended method of disposition thereof), the Company will
use its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, PROVIDED that:
(i) if, at any time after giving such written notice of its intention to
register any of its securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each holder of
Registrable Securities and thereupon shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection therewith
as provided in Section 3(b)), without prejudice however to the rights of any
Stockholders to request that such registration be effected as a registration
under Section 2(a);
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not for
sale for the account of the Company, to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and the managing
underwriter of such underwritten offering shall advise the Company in writing
that, in its opinion, the distribution of all or a specified portion of the
Registrable Securities which the Stockholders have requested the Company to
register in accordance with this Section 3(a) concurrently with the securities
being distributed by such underwriters will cause the total number of securities
to be distributed to exceed the number which can be sold in an orderly manner
within a price range acceptable to the Company or the holders of the other
securities to
<PAGE>
be distributed, as the case may be, then the Company will promptly furnish each
such holder of Registrable Securities with a copy of such opinion and may deny,
by written notice to each such holder accompanying such opinion, the
registration of all or a specified portion of such Registrable Securities (in
case of a denial as to a portion of such Registrable Securities, such portion to
be allocated Pro Rata among such holders); and
(iii) the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3 incidental to the registration of
any of its securities in connection with dividend reinvestment plans or stock
option or other employee benefit plans.
(b) The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 3.
4. REGISTRATION PROCEDURES. (a) If and whenever the Company is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2 or 3, the Company will as
expeditiously as possible: (i) prepare and promptly file with the Commission a
registration statement with respect to such Registrable Securities (in any
event, use its best efforts to file such registration statement within sixty
(60) days after the end of the period within which requests for registration may
be delivered to the Company) and use its best efforts to cause such registration
statement to become effective;
(ii) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities and other securities covered by such registration
statement until the earlier of such time as all of such Registrable Securities
and other securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement or the expiration of nine (9) months after such
registration statement becomes effective;
(iii) furnish to each seller of such Registrable Securities, without
charge, such number of conformed copies of such registration statement and of
each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable Securities
and other securities covered by such registration statement under the securities
or blue sky laws of such jurisdictions as each seller (or in an underwritten
offering, the managing underwriter) shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of its Registrable
Securities covered by such registration statement, except that the Company shall
not for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so
<PAGE>
qualified, or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(v) furnish to each seller of Registrable Securities by means of such
registration a signed counterpart, addressed to such seller, of (A) an opinion
of counsel for the Company, dated the effective date of such registration
statement (or, if such registration includes an underwritten public offering,
dated the date of the closing under the underwriting agreement speaking both as
of the effective date of the registration statement and the date of the closing
under the underwriting agreement)and (B) a "cold comfort" letter dated the
effective date of such registration statement (and, if such registration
statement includes an underwritten public offering, dated the date of the
closing under the underwriting agreement) signed by the independent public
accountants who have certified the Company's financial statements included in
such registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and, in the case of the accountants'
letter, such other financial matters, as such seller may reasonably request;
(vi) immediately notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and prepare and furnish to such seller a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities
or other securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing;
(vii) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its securities holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve (12)
months beginning with the first day of the first month of the first fiscal
quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder; and
(viii) use its best efforts to list such securities in the NASDAQ System
and each securities exchange on which the Common Stock of the Company is then
listed, if such securities are not already so listed and if such listing is then
permitted under the rules of such exchange, and, if necessary, provide a
transfer agent and registrar for such Registrable Securities not later than the
effective date of such registration statement.
<PAGE>
The Company may require each such holder of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
or by the Commission in connection therewith.
(b) If the Company at any time proposes to register any of its securities
under the Securities Act (other than pursuant to a request made under Section
2), and such securities are to be distributed by or through one or more
underwriters, the Company will make reasonable efforts, if requested by any
holder of Registrable Securities who requests incidental registration of
Registrable Securities in connection therewith pursuant to Section 3, to arrange
for such underwriters to include such Registrable Securities among those
securities to be distributed by or through such underwriters, PROVIDED that, for
purposes of this sentence, reasonable efforts shall not require the Company to
reduce the amount or sale price of such securities proposed to be so
distributed. In all registrations under Section 2 or Section 3 hereof, the
holders of Registrable Securities on whose behalf Registrable Securities are to
be distributed by underwriters shall be parties to any underwriting agreement
and the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters, shall also be made
to and for the benefit of such holders of Registrable Securities.
(c) Whenever a registration requested pursuant to Section 2 is for an
underwritten offering, the holders of a majority of the Registrable Securities
included in such registration shall have the right to select the managing
underwriter to administer the offering subject to the approval of the Company,
such approval not to be unreasonably withheld. If the Company at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the managing underwriter shall be selected by the Company and
approved by the holders of Registrable Securities requesting registration
thereof, such approval not to be unreasonably withheld.
(d) If any registration pursuant to Section 2 or 3 shall be made in
connection with an underwritten public offering, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so required
by the managing underwriters, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public offering)
within the period of time between seven days prior to the effective date of such
registration statement and one hundred twenty (120) days after the effective
date of such registration statement.
5. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered and their underwriters, if any, and their respective counsel and
accountants, the opportunity to review and comment upon such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary,
<PAGE>
in the reasonable opinion of such holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
6. INDEMNIFICATION; CONTRIBUTION. (a) In the event of any registration of
any securities of the Company under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless in the case of any registration
statement filed pursuant to Section 2 or 3, the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each officer and director of each underwriter, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such holder or any such underwriter
within the meaning of the Securities Act against any losses, claims, damages,
liabilities and expenses, joint or several, to which such holder or any such
director or officer or participating or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings or investigations in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus (unless, with respect to the indemnification of the
officers and directors of each underwriter and each other person participating
as an underwriter, any such statement is corrected in a subsequent prospectus
and the underwriters are given the opportunity to circulate the corrected
prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any violation by the Company of any securities laws, and the Company will
reimburse such holder and each such director, officer, participating person and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
be liable to any seller, director, officer, participating person or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company in an instrument executed by or under the direction of such seller,
director, officer, participating person or controlling person for use in the
preparation thereof, which information was specifically stated to be for use in
the registration statement, prospectus, offering circular or other document.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
participating person or controlling person and shall survive the transfer of
such securities by such seller. The Company shall agree to provide for
contribution relating to such indemnity as shall be reasonably requested by any
seller of Registrable Securities or the underwriters.
(b) The Company may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 2(a), that
the Company shall have received an undertaking satisfactory to it from the
prospective sellers of such securities and their
<PAGE>
underwriters, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in subdivision (a) of this Section 6) the Company, each
director of the Company, each officer of the Company who shall sign such
registration statement and each other person, if any, who controls the Company
within the meaning of the Securities Act, with respect to any statement in or
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, but only if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such sellers or their underwriters specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such sellers.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 6 except to the extent that the
indemnifying party's rights are prejudiced, or liabilities and obligations under
this Section 6 are increased, as a result of such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof unless
(i) the indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (ii) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (iii)
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other person represented by
such counsel in such proceeding or the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnifying party shall not be liable for any settlement of any
proceeding effected without the written consent of such indemnifying party
(which consent shall not be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify each indemnified party from and against any loss or
liability by reason of such settlement or judgment.
<PAGE>
(d) Indemnification and contribution similar to that specified in this
Section 6 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of such Registrable Securities under any federal or state
law or regulation or governmental authority other than the Securities Act.
(e) The rights and obligations of the parties under this Section 6 shall
survive any termination of the Purchase Agreement.
<PAGE>
EXHIBIT C
INDUCEMENT AGREEMENT
July 16, 1996
BT Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
BCI Growth IV, L.P.
Glenpointe Centre West
Teaneck, New Jersey 07666-6883
Dear Sirs:
This is in connection with the Preferred Stock Purchase Agreement dated as
of the date hereof (the "PURCHASE AGREEMENT"), between Alliance Entertainment
Corp. (the "COMPANY") and the Purchasers named therein. Unless otherwise defined
herein, capitalized terms used herein shall have the meanings assigned to them
in the Purchase Agreement.
Pursuant to the Purchase Agreement, BT Capital Partners, Inc. ("BTC") and
BCI Growth, L.P. ("BCI") propose to purchase from the Company an aggregate of
422,500 shares of the Company's Series A Convertible Preferred Stock, par value
0.01 per share ("PREFERRED STOCK"), for an aggregate purchase price of Forty Two
Million Two Hundred and Fifty
Thousand Dollars. The Preferred Stock is convertible into shares of the
Company's Common Stock, par value 0.0001 per share ("COMMON STOCK").
The undersigned (the "MANAGEMENT STOCKHOLDER") is the Chairman and Chief
Executive Officer of the Company, and owns or has the right to acquire under
stock options at least 6,137,500 shares of its Common Stock. As a result, the
Management Stockholder will obtain a valuable benefit from BTC's investment in
the Preferred Stock. The Purchasers have informed the Management Stockholder
that they are not willing to make such investment without the assurance that he
will continue to have a substantial economic stake in the Company.
In order to induce the Purchasers to purchase the Preferred Stock, the
Management Stockholder hereby agrees with the Purchasers as follows:
1. CONTINUED OWNERSHIP. The Management Stockholder agrees with BTC that:
(a) Subject to paragraph 4(e) below, from and after the date hereof the
Management Stockholder will continue to own, beneficially and of record,
determined on a fully-diluted basis, taking into account options, warrants and
convertible securities held by him as though exercised or converted, (i) until
the Preferred Stock becomes convertible in accordance with Section 4.1(a) of the
Certificate of Designations, at least 6,138,000 shares of Common Stock, and (ii)
after the Preferred Stock becomes convertible in accordance with Section 4.1(a)
of the Certificate of Designations, at least 4,910,000 shares of Common Stock.
The numbers of shares set forth in this paragraph shall be appropriately
adjusted to take into account stock dividends, stock splits, recapitalizations,
exchanges or reorganizations of the Company's Common Stock.
<PAGE>
(b) Notwithstanding the foregoing, the Management Stockholder may (i) sell
shares of Common Stock in an aggregate number sufficient to fund the $600,000
exercise price of options exercised by him prior to the date hereof in 1996, and
(ii) transfer shares of Common Stock pursuant any final order or decree of a
court in any action or proceeding in which the Management Stockholder is a
party.
2. CO-SALE RIGHTS. The Management Stockholder agrees with the Purchasers that:
(a) In the event that the Management Stockholder proposes to transfer
shares of Common Stock in any transaction or series of related transactions in
which Common Stock (or options therefor) having at least 50 percent of the
voting power of all Common Stock outstanding is to be transferred (a "SALE OF
CONTROL"), then the Management Stockholder (or his representative) shall deliver
to each of the Purchasers a written notice (the "SALE NOTICE") to such effect,
containing a description of the proposed transaction and the terms thereof. Upon
delivery of the Sale Notice each Purchaser shall have the right to require the
Management Stockholder to arrange for the sale to the proposed transferee(s) of
a percentage of such Purchaser's shares of Common Stock equal to the percentage
of the Management Stockholder's holdings of Common Stock (including options
therefor) that the Management Stockholder desires to sell or transfer to the
transferee(s), on terms and conditions at least as favorable to the Purchaser as
the terms and conditions set out in the Sale Notice.
(b) If the transferee(s) will not purchase all of the Common Stock which
the Management Stockholder and each Purchaser desire to sell or transfer
pursuant to this paragraph 2, then the number of shares which the Management
Stockholder and each Purchaser shall be permitted to sell or transfer to such
transferee(s) shall be the same proportion of the aggregate number of shares to
be sold or transferred as the shares held by the Management Stockholder or the
Purchaser bear to all shares held by the Management Stockholder and all of the
Purchasers desiring to participate in the sale or transfer to the transferee(s).
The sales or transfers by the Purchasers shall be for the same consideration and
otherwise on the same terms and conditions as specified in the Sale Notice.
(c) Each Purchaser may exercise its right under this paragraph 2 by written
notice to the Management Stockholder given within ten (10) days after the date
on which such Purchaser receives the Sale Notice.
<PAGE>
3. VOTING FOR DIRECTORS.
(a) VOTING BY MANAGEMENT STOCKHOLDER. Subject to paragraph 4(e) below, at
each meeting of the stockholders of the Company, and at such other times as may
be reasonably required, the Management Stockholder shall vote all Shares of
Common Stock held by him (or which he is otherwise entitled to vote) for, and
shall otherwise exert reasonable best efforts to cause (i) the election of the
directors of the Company designated by the Purchasers under Section 4.4 of the
Purchase Agreement, and (ii) the approval of the conversion of Preferred Stock
and the issuance of Common Stock pursuant to any such conversion, as
contemplated by Section 4.7 of the Purchase Agreement.
(b) PURCHASERS' PROXIES. Each of the Purchasers, severally, does hereby
irrevocably constitute and appoint the Management Stockholder its true and
lawful attorney, with full right of substitution, in its name, place and stead,
to vote the Common Stock owned by such Purchaser or standing in its name, as
such Purchaser's proxy, for the election of directors at any annual or special
meeting of Stockholders of the Company, as fully and with like effect as such
Purchaser might or could have done if personally present, hereby ratifying and
confirming any vote that such attorney may cast for the election of directors in
such Purchaser's name, place or stead. Notwithstanding the foregoing, within
thirty (30) days after a Purchaser has been notified in writing of any annual or
special election of directors (such notice including an accurate and complete
identification of the directors to be elected), such Purchaser may revoke this
proxy, for purposes of such election, by giving written notice of such
revocation to the Management Stockholder. Except as provided in the preceding
sentence, this proxy, being coupled with an interest, is irrevocable.
4. GENERAL PROVISIONS.
(a) SUCCESSORS AND ASSIGNS. The provisions of this agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
personal representatives, heirs, successors and assigns.
<PAGE>
(b) EQUITABLE RELIEF. The parties agree that legal remedies may be
inadequate to enforce the provisions of this agreement and that equitable
relief, including specific performance and injunctive relief, may be used to
enforce the provisions of this agreement.
(c) GOVERNING LAW. This agreement shall be construed in accordance with and
governed by the laws of the State of New York, except to the extent the general
corporation law of the Company's state of incorporation is required to govern.
(d) COUNTERPARTS. This agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(e) TERMINATION. This agreement shall terminate at any time agreed upon in
writing by the Management Stockholder and the holders of a majority of the
shares of Preferred Stock held by the Purchasers, or if no Preferred stock is
outstanding, a majority of the Common Stock held by the Purchasers. The
obligations of the Management Stockholder under paragraph 1(a) of this agreement
shall terminate at such time as either (i) BTC holds fewer than 2,900,000 shares
of Common Stock (including for this purpose Conversion Shares obtainable upon
conversion of Preferred Stock held by it), or (ii) the net proceeds of all sales
of Common Stock by BTC completed after the date of this agreement are, in the
aggregate, $75,000,000 or more. The obligations of the Management Stockholder
under paragraph 3(a)(i) of this agreement shall terminate at such time as the
covenants contained in the Purchase Agreement terminate pursuant to Section 8 of
the Purchase Agreement.
Please confirm our agreement on these matters by singing a copy of this
letter in the space provided below.
Sincerely,
/s/Joseph J. Bianco
- ---------------------
Joseph J. Bianco
ACKNOWLEDGED AND
AGREED:
BT CAPITAL PARTNERS, INC.
By: /s/Robert Marakovits
------------------------------------
Title:
BCI GROWTH IV, L.P.
By: /s/Stephen Eley
-----------------------------------
General Partner
Managing Member
<PAGE>
EXHIBIT D
VOTING AGREEMENT
THIS VOTING AGREEMENT, dated as of July 16, 1996 (this "Agreement"), is by
and among the stockholders and option holders of Alliance Entertainment Corp., a
Delaware corporation (the "COMPANY"), signing this Agreement at the end hereof
(collectively, the "STOCKHOLDERS", and individually, a "STOCKHOLDER").
WHEREAS, each Stockholder is the record and beneficial owner of that number
of shares of Common Stock, par value $.0001 per share ("COMMON STOCK"), of the
Company, set forth opposite such Stockholder's name on EXHIBIT A attached
hereto; and
WHEREAS, pursuant to a Preferred Stock Purchase Agreement dated as of the
date hereof (the "PURCHASE AGREEMENT"), between the Company and the Purchasers
named therein (the "PURCHASERS"), the Company has agreed to issue and sell to
the Purchasers 422,500 shares of its Series A Convertible Preferred Stock, par
value $0.01 per share ("PREFERRED STOCK"); and
WHEREAS, the Purchase Agreement requires the Company to use its best
efforts to obtain the approval of its stockholders with respect to the
conversion rights of the Preferred Stock, at the next regular or special meeting
of the stockholders of the Company (the "MEETING");
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the Stockholders hereby agree as
follows:
<PAGE>
1. VOTING OF SHARES BY STOCKHOLDERS. Each Stockholder agrees to vote all of
the shares of Common Stock and which are now or hereafter owned by such
Stockholder, beneficially or of record, or which he or it otherwise is entitled
to vote, including without limitation those shares identified on EXHIBIT A
attached hereto, at the Meeting or at any other 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 Preferred Stock, as set forth in the
Certificate of Designations attached to the Purchase Agreement, and (b) the
approval of the Company's issuance of Common Stock pursuant to any Purchaser's
exercise of any such conversion rights.
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 Stockholders 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 STOCKHOLDERS. Each Stockholder hereby represents and
warrants that such Stockholder (i) owns and 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) 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, and (iii) will not take any action
inconsistent with the purposes and provisions of this Agreement.
4. ENFORCEABILITY. Each Stockholder 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.
5. BENEFIT. This Agreement shall be binding upon and inure to the benefit
of the respective parties hereto and their successors and assigns. This
Agreement shall also inure to the benefit of the Purchasers and shall be fully
enforceable by each of them as though they were parties hereto.
6. 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.
7. 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.
8. NOTIFICATIONS. Each of the parties agrees to notify the others promptly
of to any matter which could reasonably be expected to give rise to a filing or
other requirement by such other parties under applicable Federal or state
securities laws.
<PAGE>
IN WITNESS WHEREOF, the Stockholders have executed this Agreement as of the
date first above written.
BT CAPITAL PARTNERS, INC.
By: /s/Robert Marakovits
-----------------------------------
Title:
BCI GROWTH III, L.P.
By: /s/Stephen Eley
------------------------------------
General Partner
BCI GROWTH IV, L.P.
By: Glenpointe Associates, LLC
By: /s/Stephen Eley
-----------------------------------
General Partner
BAIN CAPITAL, INC.
By: /s/ Robert C. Gay
----------------------------------
Title:
/s/Joseph J. Bianco /s/Joseph J. Bianco
- -------------------------------------- --------------------------------------
Joseph J. Bianco Joseph J. Bianco
Attorney-in-fact
/s/Peter Kaufmann and proxy for
- -------------------------------------- Alan Shapiro
Peter Kaufmann Laurence Berstein
Barry L. Goldin
/s/R. Tobias Knobel Anil K. Narang
- -------------------------------------- Jerry Bassin
R. Tobias Knobel
/s/John H. Friedman /s/Elliot B. Newman
- --------------------------------------- --------------------------------------
John H. Friedman Elliot B. Newman
/s/Robert O. Marx /s/Terence Shand
- --------------------------------------- --------------------------------------
Robert O. Marx Terence Shand
EXHIBIT 99
ALLIANCE ENTERTAINMENT ANNOUNCES $42.25 MILLION EQUITY INVESTMENT
AND PRELIMINARY SECOND QUARTER RESULTS
NEW YORK, July 16/PRNewswire/ --- Alliance Entertainment Corp. (NYSE: CDS)
said today that BT Capital Partners, an affiliate of Bankers Trust New York
Corporation and the Company's largest outside shareholder, had purchased $35
million of a $42.25 million issuance of new preferred stock. The preferred stock
is convertible at $7.25 per share and carries a 7-7/8% dividend payable in
additional shares of preferred stock. The preferred stock is convertible into
additional shares of common stock after shareholder vote. The preferred stock
may be redeemed by the Company under certain circumstances. The preferred stock
is initially convertible into approximately 11% of the fully diluted common
stock of Alliance before payment of dividends, with BT Capital's portion being
approximately 9%.
Joseph Bianco, Chairman and CEO of Alliance, said, "The additional
investment by one of our original institutional investors is particularly
gratifying. It will give Alliance the ability to acquire additional music
catalog and pursue more opportunities such as the exclusive distribution
agreement with EMI-Capitol Music Group North America announced last week."
Bianco further noted that he anticipated that the acquisition of the Immediate
Catalog featuring Amen Corner and Small Faces and a rhythm and blues catalog
including Jimmy Clantons' "Venus in Blue Jeans" would be completed shortly.
BT Capital Partners' managing director and Alliance board member, Robert
Marakovits, said, "We have great faith in the management of Alliance. Our
Alliance holdings, after conversion of the newly-issued preferred stock,
aggregate to approximately 8.7 million shares and represents one of our largest
equity investments. We believe that the Company's continued acquisition of
proprietary music will help it grow and attain its long-term goals."
Alliance also stated that it anticipated second quarter 1996 sales to be in
the range of $175 million to $180 million and EBITDA to be in the range of $3.5
million to $4.5 million. These results are prior to a non-recurring charge of
approximately $15 million in connection with the restructuring of the Company's
distribution operations.
Mr. Bianco stated that the second quarter results reflect, in part, the
impact of increased returns by traditional and alternative retailers who
continue to adjust their inventory positions to reflect the current sales
environment. "We expect this situation to ameliorate as retail conditions begin
to settle, and remain confident in our long-term growth prospects," he said.
Alliance Entertainment Corp. is the largest full-service distributor of
pre-recorded music and music-related product in the U.S. The Company is engaged
in the acquisition and exploitation of proprietary rights for recorded music,
video and video CDS. -0- 7/16/96 /CONTACT: Jeffrey Goldberger of Stern & Co.,
212-777-7722/ (CDS)
