SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________________ TO ______________________
Commission File Number 1-13054
ALLIANCE ENTERTAINMENT CORP.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3645913
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 935-6662
--------------
( Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of May 8, 1996, the number of shares outstanding of the issuer's common
stock was 36,396,094.
Exhibit Index on page 21
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ALLIANCE ENTERTAINMENT CORP.
PART I--FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholder's Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except Share Data)
DECEMBER 31, MARCH 31,
1995 1996
----------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,852 $ 992
Accounts receivable, less allowance for doubtful
accounts 193,785 159,628
Inventory 192,604 204,291
Advances and other prepaid expenses 24,609 24,566
Refundable income taxes 783 4,643
Deferred income taxes 9,061 9,843
--------- ---------
Total current assets 433,694 403,963
--------- ---------
INVESTMENTS, at cost 782 763
PROPERTY AND EQUIPMENT 24,826 24,942
COPYRIGHTS, less accumulated amortization 64,150 64,641
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED,
less accumulated amortization 97,262 96,660
COVENANTS NOT TO COMPETE, less accumulated
amortization 10,586 10,031
DEFERRED INCOME TAXES 1,894 1,894
OTHER ASSETS, less accumulated amortization 12,214 12,098
--------- ---------
TOTAL ASSETS $ 645,408 $ 614,992
========= =========
CURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 73,700 $ 81,445
Current maturities of long-term debt 8,983 7,413
Current obligations under capital leases 432 433
Accounts payable and accrued expenses 229,088 200,309
Income taxes payable 434 -
--------- ---------
Total current liabilities 312,637 289,600
--------- ---------
LONG-TERM DEBT 234,622 232,535
OBLIGATIONS UNDER CAPITAL LEASES 367 356
DEFERRED INCOME TAXES 8,955 8,614
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 100,000,000
shares authorized, shares issued and outstanding
1995 35,638,331; 1996 36,036,655 3 3
Additional paid-in capital 71,276 71,734
Employee notes for stock purchases (67) (67)
Retained earnings 17,369 12,741
Foreign currency translation adjustment 246 (524)
--------- ---------
Total stockholders' equity 88,827 83,887
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 645,408 $ 614,992
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Share Data)
Three Months Ended
March 31,
-------------------
1995 1996
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<S> <C> <C>
Net sales $ 150,249 $ 176,188
Cost of sales 121,574 143,394
--------- --------
Gross profit 28,675 32,794
Selling, general and administrative expenses 19,536 31,169
Amortization of intangible assets 2,467 2,848
--------- --------
22,003 34,017
--------- --------
6,672 (1,223)
--------- --------
Other income (expense)
Amortization of deferred financing costs (244) (469)
Other income (expense) - net 93 204
Interest expense (3,545) (8,256)
--------- --------
(3,696) (8,521)
--------- --------
Income (loss) before income taxes 2,976 (9,744)
Provision (benefit) for income taxes 1,280 (5,116)
--------- --------
Net income (loss) $ 1,696 $ (4,628)
========= ========
Earnings (loss) per common share and
common share equivalents $ .05 $ (.13)
=========== ===========
Weighted average number of shares of
common stock and equivalents outstanding 34,941,429 35,837,493
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(Amounts in Thousands, Except Share Data)
Employee Foreign
Additional Notes for Currency
Common Paid-In Stock Retained Translation
Stock Capital Purchases Earnings Adjustment
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 3 $ 71,276 $ (67) $ 17,369 $ 246
Exercise of options and warrants
for 398,324 shares of common stock - 458 - - -
Net income (loss) - - - (4,628) -
Translation adjustment - - - - (770)
---------- ---------- ---------- ---------- ---------
Balance at March 31, 1996 $ 3 $ 71,734 $ (67) $ 12,741 $ (524)
========== ========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31,
------------------
1995 1996
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<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 1,696 (4,628)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 3,535 4,834
Change in assets and liabilities:
Decrease in accounts receivable 15,674 34,157
(Increase) in inventory (3,354) (11,687)
(Increase) in prepaid expenses and other (667) (349)
(Increase) in deferred income taxes (762) (1,122)
(Decrease) in accounts payable and
accrued expenses (25,142) (21,452)
(Decrease) in income taxes payable (1,054) (4,294)
---------- ----------
Net cash used in operating activities (10,074) (4,541)
---------- ----------
Cash Flows From Investing Activities
Purchase of property and equipment (2,322) (1,525)
(Increase) in copyrights (1,796) (1,946)
(Increase) decrease in other assets (791) 27
Purchase of businesses including costs,
net of cash acquired (155) (747)
---------- ----------
Net cash used in investing activities (5,064) (4,191)
---------- ----------
Cash Flows From Financing Activities
(Decrease) in excess of outstanding
checks over bank balance (654) (7,327)
Proceeds from issuance of stock (154) 458
Proceeds from borrowings 51,500 74,324
Payments on borrowings (41,530) (70,246)
Payments for financing costs 211 (337)
---------- ----------
Net cash provided by (used in) financing 9,373 (3,128)
activities ---------- ----------
Net (decrease) in cash and cash equivalents (5,765) (11,860)
Cash and cash equivalents
Beginning of period 8,230 12,852
---------- ----------
End of period $ 2,465 $ 992
========== ==========
</TABLE>
6<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31,
--------------------
1995 1996
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<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash payments for interest $ 4,506 $ 10,715
Cash payments for income taxes $ 1,996 $ 473
Supplemental Disclosure of Noncash Investing
and Financing Activities
Common stock issued to employees for notes $ 25 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
7<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited balance sheet as of March 31, 1996 and the unaudited
statements of operations, cash flows and stockholders' equity for the three
month periods ended March 31, 1995 and 1996 (interim financial information), are
unaudited and have generally been prepared on the same basis as the audited
financial statements. In the opinion of the Company, the interim financial
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results of operations for the three months ended March 31, 1996 may not be
indicative of the operating results for the full year or any interim period.
Certain amounts have been reclassified to conform with the presentation in
the current period.
Termination of Metromedia Merger
On December 20, 1995, Metromedia International Group, Inc. ("MIG") and
Alliance signed a merger agreement (the "Merger Agreement") pursuant to which
Alliance was to merge with a newly formed, wholly owned subsidiary of MIG. On
April 29, 1996, Alliance and MIG entered into a Termination and Release
Agreement in which both companies mutually agreed to terminate the Merger
Agreement. As a result of the termination of the Merger Agreement, the Company
has accrued for certain non-recurring charges totalling approximately
$2.5 million related to the merger in the three months ended March 31, 1996.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Alliance Entertainment Corp. ("Alliance") is the largest full service
distributor of pre-recorded music and music related products in the United
States and is also actively engaged in the acquisition and exploitation of
proprietary rights with respect to recorded music, video and video CDs.
Since 1990, the Company has expanded rapidly through several strategic
acquisitions, including the acquisition of three of the largest full service
distributors of pre-recorded music in the United States, as well as through
internal growth. The Company's larger size has enabled it to realize certain
economies of scale associated with the purchasing, inventory management, and
sales and marketing functions of a large distribution operation. The Company has
capitalized on, and benefited from, the entry and growth of alternative
retailers, such as bookstore and consumer electronics chains, into the retail
sale of music products and the emergence of superstores which carry large
inventories of music products and rely on just-in-time distribution to fill
specific inventory requirements.
The Company operates two business segments. The Company's distribution
segment is conducted through the One Stop Group, Independent Distribution Group
and International Distribution Group. The One Stop Group specializes in the
wholesale distribution of all available pre-recorded music product (i.e.,
pre-recorded music manufactured by the six major record companies: Sony Music,
Time Warner, Polygram, MCA, EMI and BMG as well as music manufactured by
independent labels). The Independent Distribution Group specializes in the
wholesale distribution of pre-recorded music manufactured by third party
independent labels on an exclusive and regional basis. The Independent
Distribution Group was augmented by the acquisition of Independent National
Distributors, Inc. ("INDI") and One Way Records, Inc. ("One Way") in 1995. The
Independent Distribution Group has historically generated higher gross margins
than has the One Stop Group, but also carry a higher degree of risk related to
industry conditions due to a greater dependence on new release product and a
higher degree of exposure to product returns.
The International Distribution Group specializes in wholesale distribution
of pre-recorded music product, primarily in Brazil and Canada. The International
Distribution Group was augmented by the acquisition in October 1995 of
Distribuidora de Discos E Fitas Canta Brasil Ltda ("Canta Brasil").
The Company's proprietary products business segment is conducted through
its Proprietary Products Group. The Proprietary Products Group specializes in
the commercial exploitation of copyrights owned by the Company.
Recent Events
Termination of Metromedia Merger
On December 20, 1995, Metromedia International Group, Inc. ( "MIG" ) and
Alliance signed a merger agreement (the "Merger Agreement") pursuant to which
Alliance was to merge
9
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with a newly formed, wholly owned subsidiary of MIG. On April 29, 1996,
Alliance and MIG entered into a Termination and Release Agreement in which both
companies mutually agreed to terminate the Merger Agreement. A Form 8-K was
filed on April 29, 1996, announcing the termination of the Merger Agreement. As
a result of the termination of the Merger Agreement, the Company has accrued for
certain non-recurring charges totalling approximately $2.5 million related to
the merger in the three months ended March 31, 1996.
Industry Conditions
During the three months ended March 31, 1996, the Company's distribution
segment, in particular the Independent Distribution Group, experienced lower
than anticipated net sales to its customers due in part to: (i) excess
inventories at the Company's retail customers, resulting from weak fourth
quarter 1995 sales; (ii) limited budgets allocated to the purchase of new
product at certain of the Company's customers; (iii) higher than expected
product returns from customers, particularly traditional retailers; and (iv) the
lack of successful new product released during the first quarter of 1996. The
Company's International Distribution Group was also adversely affected by weaker
than anticipated retail sales growth and increased competition in Brazil.
According to the International Federation of the Phonographic Industry, Brazil
experienced a 13% growth rate for the year ended December 31, 1995, versus a 79%
growth rate for the year ended December 31, 1994.
Results of Operations
The following discussion and analysis should be read in conjunction with
the unaudited financial statements of the Company and the notes thereto included
elsewhere in this report.
The following table sets forth, for the three months ended March 31,
certain operating data as a percentage of net sales.
Three Months Ended
March 31,
-------------------
1995 1996
---- ----
Net Sales..................................... 100.0% 100.0%
Gross Profit.................................. 19.1 18.6
Selling, General & Administrative Expenses.... 13.0 17.7(1)
Amortization of Intangible Assets............. 1.6 1.6
Other income (expense) primarily
interest expense.............................. (2.5) (4.8)
Provision (benefit) for income tax............ .9 (2.9)
Net Income (Loss)............................. 1.1 (2.6)
(1) Selling, general & administrative expenses for the three months ended
March 31, 1996 include certain non-recurring charges of approximately $2.9
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Events - Termination of Metromedia Merger" and
"Results of Operations-Three Months Ended March 31, 1996 vs. Three Months Ended
March 31, 1995."
10
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The following table sets forth, for the three months ended March 31, 1996,
certain operating data by business segment, excluding corporate related expenses
and assets.
Three Months Ended
March 31, 1996
------------------
in thousands
Proprietary
Distribution Products
------------ -----------
Net Sales............................... $157,063 $19,000
Depreciation & Amortization............. 1,185 1,887
Operating Income........................ 4,502 1,084
Capital Expenditures.................... 577 348
Identifiable Assets..................... 356,321 121,503
Three Months Ended March 31, 1996 vs. Three Months Ended March 31, 1995
Net sales increased from $150.2 million for the three months ended March
31, 1995 to $176.2 million for the three months ended March 31, 1996, or 17.3%,
as a result of (i) inclusion of three months of net sales of INDI, One Way and
Canta Brasil; and (ii) increased net sales to existing as well as new customers.
Net sales attributable to the Company's distribution segment for the three
months ended March 31, 1996 were approximately $157.1 million compared to $133.4
million for the three months ended March 31, 1995. Net sales attributable to the
Company's proprietary product segment for the three months ended March 31, 1996
were approximately $19 million, compared to $16.9 million for the three months
ended March 31, 1995. During the three months ended March 31, 1996, the
Company's distribution segment, in particular the Independent Distribution
Group, experienced lower than anticipated net sales to its customers in part due
to: (i) excess inventories at the Company's retail customers resulting from weak
fourth quarter 1995 sales; (ii) limited budgets allocated to the purchase of new
product at certain of the Company's customers; (iii) higher than expected
product returns from customers as a result of weak retail sales, especially with
respect to traditional retailers; and (iv) the lack of successful new product
released during the first quarter of 1996. The Company's business is seasonal
with the smallest percentage of sales typically occurring in the first quarter
and the largest percentage of annual sales typically occurring in the fourth
quarter.
The Company's gross margin decreased to 18.6% for the three months ended
March 31, 1996 from 19.1% for the three months ended March 31, 1995. The
decrease in the Company's gross margin resulted primarily from a decrease
in the gross margins of the Proprietary Products Group caused by such
Group's decision to distribute its products directly in certain territories
(where it had previously licensed such products) in order to obtain greater
control
11
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over the sale and marketing of such products. For the three months ended
March 31, 1996, the gross margin of the distribution segment was 15.9%, compared
to 15.8% for the three months ended March 31, 1995. For the three months ended
March 31, 1996, the gross margin of the proprietary products segment was 40.8%
compared to 46.1% for the three months ended March 31, 1995.
Selling, general and administrative expenses increased from $19.5 million,
or 13% of net sales, for the three months ended March 31, 1995 to $31.2 million,
or 17.7% of net sales, for the three months ended March 31, 1996. The Company's
selling, general and administrative expenses as a percentage of net sales
increased on an overall basis in the period for several reasons including: (i)
non-recurring charges of approximately $2.9 million consisting of $2.5 million
relating to the termination of the merger with MIG and non-recurring charges of
approximately $400,000 associated with the elimination of duplicative facilities
and employee terminations in accordance with the Company's overall consolidation
plan; (ii) the inclusion of three months results for INDI, One Way and Canta
Brasil which typically carry higher expenses as a percentage of sales; (iii)
costs associated with the duplication of certain overhead related to the
consolidation of operations within the One Stop Group which is anticipated to be
completed in September 1996; and (iv) the incremental costs of processing higher
than anticipated customer returns during the period. The Company expects that it
will incur charges of approximately $2 million through the end of 1996 in
connection with the completion of the Company's consolidation and modernization
plan.
Net income for the three months ended March 31, 1995 was $1.7 million
compared to a net loss in the three months ended March 31, 1996 of $4.6 million
primarily as a result of: (i) the results of operations and non-recurring
charges discussed above; (ii) increased depreciation and amortization of
intangible assets associated with acquisitions ($3.5 million for the three
months ended March 31, 1995 compared to $4.8 million for the three months ended
March 31, 1996); (iii) increased interest expense of $4.7 million resulting
from: (a) higher interest rates associated with the Company's borrowings under
the 11=% Senior Subordinated Notes, and (b) increased working capital
requirements related to the increase in sales, as well as the working capital
needs of recently acquired companies; and (iv) an on-going timing difference
between the financing of copyright acquisitions by the Proprietary Products
Group and the generation of sales associated with products produced pursuant to
such acquired rights.
Liquidity and Capital Resources
Cash Used in Investing Activities
The Company's capital expenditures for the three months ended March 31,
1996, were $1.5 million compared to $2.3 million for the three months ended
March 31, 1995. The Company anticipates that capital expenditures for the twelve
months ended December 31, 1996 will be approximately $11 million related to the
Company's consolidation and modernization program (including approximately $5.8
million for improvements and equipment for the newly acquired facility in Coral
Springs, Florida), as well as for general maintenance.
The Company spent $1.9 million for the acquisition of proprietary music
rights in the three months ended March 31, 1996, compared to $1.8 million for
the three months ended March 31, 1995. The Company anticipates continued
expenditures related to the acquisition of proprietary
12
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music rights as opportunities are presented that are consistent with the
Company's long term objectives.
Cash Provided from Financing Activities
The Company anticipates that while cash flow from operations will be
sufficient to satisfy its debt service obligations, the cash flow required for
the anticipated growth of the Company and the Company's capital expenditure
program will be provided by borrowings under the Company's Credit Agreement. In
addition, the Company also receives proceeds from the issuance of common stock
upon the exercise of stock options and warrants.
New Accounting Pronouncements
The Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
be Disposed Of," must be implemented by the Company in 1996. This statement
requires that long-lived assets and certain intangibles to be held and used by
the Company be reviewed for impairment. This pronouncement is not expected to
have material impact on the financial statements of the Company.
In addition, SFAS No. 123, "Accounting for Stock-Based Compensation" must
also be implemented by the Company in 1996. This pronouncement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. It encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on new fair value accounting rules. Companies
that choose not to adopt the new fair value accounting rules will be required to
disclose pro forma net income and earning per share under the new method. The
Company anticipates adopting the disclosure provisions of SFAS No. 123, although
the impact of such disclosure has not yet been determined.
13
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On March 15, 1996, an action was commenced against the Company and two
unrelated individuals by Six Palms Music Corporation in the United States
District Court for the Central District of California. The action seeks payment
of mechanical royalties to the plaintiff, who purports to be the United States
proprietor of background music contained on a record album which was distributed
by the Company known as "The Rosary With Pope John Paul II," which consists of
the Pope's recitations of the rosary. The complaint seeks damages alleged to be
not less than $1,500,000, but the Company's estimate of the amount at issue is
approximately $475,000. The Company distributed the record pursuant to a
distribution agreement with the Company's supplier, ISR Corporation, which had a
license for such product from Radio Vatican. The Company believes that it has
meritorious defenses to the action and intends to contest the action vigorously.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement dated December 20, 1995, by and among Metromedia
International Group, Inc., Alliance Merger Corp. and the Registrant.
(Incorporated by reference from Exhibit 1 filed in the Registrant's
Form 8-K dated December 21, 1995 (File No. 1-13054).)
2.2 Termination and Release Agreement dated April 29, 1996. (Incorporated
by reference from Exhibit 1 filed in the Registrant's Form 8-K dated
April 29, 1996 (File No 1-13054).)
3.1 Certificate of Incorporation, as amended. (Incorporated by reference
from Exhibit 3.1 filed in the Registrant's Amendment No. 1 to
Registration Statement on Form S-4 filed September 22, 1995
(Registration No. 33- 95386).)
3.2 By-Laws, as amended. (Incorporated by reference from Exhibit 3.2 filed
as part of the Proxy and Prospectus in connection with the Special
Meeting held on November 30, 1993 (File No. 33-68816).)
4.1 Restated Stockholders' Agreement dated as of November 30, 1993.
(Incorporated by reference from Exhibit 4.1 filed in the Registrant's
Registration Statement on Form S-3 dated September 22, 1995
(Registration No. 33-97280).)
4.2 Amendment to Restated Stockholders' Agreement dated as of May 18,
1995. (Incorporated by reference from Exhibit 4.2 filed in the
Registrant's Registration Statement on Form S-3 dated September 22,
1995 (Registration No. 33-97280).)
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4.3 Indenture dated July 25, 1995, among the Company, the Subsidiary
Guarantors and Bankers Trust Company, as trustee. (Incorporated by
reference from Exhibit 4.1 filed in the Registrant's Registration
Statement on Form S-4 filed August 3, 1995 (Registration No.
33-95386).)
4.4 First Supplemental Indenture dated July 26, 1995, among the Company,
the Subsidiary Guarantors and Bankers Trust Company, as trustee.
(Incorporated by reference from Exhibit 4.2 filed in the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 filed September
22, 1995 (Registration No. 33-95386).)
4.5 Registration Rights Agreement dated July 25, 1995, among the Company,
the Subsidiary Guarantors and the Initial Purchasers. (Incorporated by
reference from exhibit 4.3 filed in the Registrant's Registration
Statement on Form S-4 filed August 3, 1995 (Registration No.
33-95386).)
4.6 Purchase Agreement dated July 18, 1995, among the Company, the
Guarantors and the Initial Purchasers. (Incorporated by reference from
Exhibit 4.4 filed in the Registrant's Registration Statement on Form
S-4 filed August 3, 1995 (Registration No. 33-95386).)
4.7 Second Supplemental Indenture dated September 6, 1995, among the
Company, the Subsidiary Guarantors and Bankers Trust Company, as
trustee. (Incorporated by reference from Exhibit 4.5 filed in the
Registrant's Amendment No. 1 to Registration Statement on Form S-4
filed September 22, 1995 (Registration No. 33-95386).)
4.8 Purchase Agreement made as of May 18, 1995, between AEC Americas Inc.
and Bain Capital Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP
Associates and BCIP Trust Associates, L.P. (Incorporated by reference
from Exhibit 4.5 filed in the Registrant's Form 10-Q for the period
ended June 30, 1995 (File No. 1-13054).)
4.9 Parent Covenant Agreement dated as of May 18, 1995, by and between
Alliance Entertainment Corp., AEC Americas, Inc. and Bain Capital Fund
IV L.P., Bain Capital Fund IV-B L.P., BCIP Associates and BCIP Trust
Associates, L.P. (Incorporated by reference from Exhibit 4.6 filed in
the Registrant's Form 10-Q for the period ended June 30, 1995 (File No
1- 13054).)
4.10 Third Supplemental Indenture dated February 26, 1996, among the
Company, the Subsidiary Guarantors and Bankers Trust Company as
Trustee.*
10.1 Incentive Stock Option Plan for Executives of Jerry Bassin, Inc.
(Incorporated by reference from Exhibit 10.1 filed as a part of the
Proxy and Prospectus in connection with the Special Meeting held on
November 30, 1993 (File No. 33-68816).)
15
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10.2 1992 Non-Qualified Stock Option Plan. (Incorporated by reference from
Exhibit 10.2 filed as part of the Proxy and Prospectus in connection
with the Special Meeting held on November 30, 1993 (File No.
33-68816).)
10.3 1993 Stock Option Plan. (Incorporated by reference from Exhibit 10.3
filed as part of the Proxy and Prospectus in connection with the
Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.4 1993 Stock Option Incentive Plan. (Incorporated by reference from
Exhibit 10.4 filed as part of the Proxy and Prospectus in connection
with the Special Meeting held on November 30, 1993 (File No.
33-68816).)
10.5 Form of Employment Agreement dated as of March 16, 1995, between the
Company and Joseph J. Bianco. (Incorporated by reference from Exhibit
10.46 filed in the Registrant's Registration Statement on Form S-4
filed August 3, 1995. (Registration No. 33-95386).)
10.6 Form of Employment Agreement dated as of March 16,1995, between the
Company and Anil K. Narang. (Incorporated by reference from Exhibit
10.47 filed in the Registrant's Registration Statement on Form S-4
filed August 3, 1995 (Registration No. 33-95386).)
10.7 Form of Employment Agreement dated as of March 16, 1995, between the
Company and Jerry Bassin. (Incorporated by reference from Exhibit
10.48 filed in the Registrant's Registration Statement on Form S-4
filed August 3, 1995 (Registration No. 33-95386).)
10.8 Form of Employment Agreement dated as of March 16, 1995, between the
Company and Elliot B. Newman. (Incorporated by reference from
Exhibit 10.49 filed in the Registrant's Registration Statement on
Form S-4 filed August 3, 1995 (Registration No. 33-95386).)
10.9 Employment Agreement dated as of December 11, 1992, between Encore
Distributors, Inc. and R. Tobias Knobel (Incorporated by reference
from Exhibit 10.9 filed as part of the Proxy and Prospectus in
connection with the Special Meeting held on November 30, 1993 (File
No. 33-68816).)
10.10 Lease dated March 25, 1993, between Howard L. Bellowe and E. James
Judd (as Landlord) and Encore Distributors, Inc., relating to the
premises located at 2345 Delgany Street, Denver, Colorado.
(Incorporated by reference from Exhibit 10.11 filed as part of the
Proxy and Prospectus in connection with the Special Meeting held on
November 30, 1993 (File No. 33-68816).)
10.11 Lease dated November 30, 1992, between Harriet Shapiro and Jerry
Bassin, Inc., relating to the premises located at 15959 N.W. 15th
Avenue, Miami, Florida, as amended. (Incorporated by reference from
Exhibit 10.13 filed as part of the Proxy and Prospectus in
connection
16
<PAGE>
with the Special Meeting held on November 30, 1993 (File
No. 33-68816).)
10.12 Stock Sale Agreement dated December 11, 1992, between R. Tobias
Knobel and the Registrant. (Incorporated by reference from Exhibit
10.20 filed as part of the Proxy and Prospectus in connection with
the Special Meeting held on November 30, 1993 (File No. 33-68816).)
10.13 Merger Agreement dated August 11, 1993, among the Registrant, CD
Acquisition Corp., Titus Oaks Records, Inc., Alan Meltzer and Diana
Meltzer. (Incorporated by reference from Exhibit 10.21 filed as part
of the Proxy and Prospectus in connection with the Special Meeting
held on November 30, 1993 (File No. 33-68816).)
10.14 Engagement Letter dated October 29, 1992, between the Registrant and
Tucker Anthony Incorporated. (Incorporated by reference from Exhibit
10.22 filed in the Registrant's Form 10-K for the year ended
December 31, 1993 (File No. 1-13054).)
10.15 Amendment of Stock Sale Agreement and Employment Agreement dated as
of September 30, 1993, between R. Tobias Knobel and the Registrant.
(Incorporated by reference from Exhibit 10.23 filed in the
Registrant's Form 10-K for the year ended December 31, 1993 (File
No. 1-13054).)
10.16 Form of Employment Agreement dated as of March 14, 1994, between the
Registrant and Eric S. Weisman. (Incorporated by reference from
Exhibit 10.28 filed in the Registrant's Form 10-K for the year ended
December 31, 1993 (File No. 1-13054).)
10.17 Form of 1994 Long-Term Incentive and Share Award Plan. (Incorporated
by reference from Exhibit 10.29 filed in the Registrant's Form 10-K
for the year ended December 31, 1993 (File No. 1-13054).)
10.18 Form of Amendment to the 1994 Long-Term Incentive and Share Award
Plan. (Incorporated by reference from Exhibit 10.18 filed in the
Registrant's Form 10-K for the year ended December 31, 1995 (File
No. 1-13054).)
10.19 Engagement Letter dated September 9, 1993, between the Registrant
and PaineWebber Incorporated. (Incorporated by reference from
Exhibit 10.30 filed in the Registrant's Form 10-K for the year ended
December 31, 1993 (File No. 1-13054).)
10.20 Engagement Letter dated May 27, 1993, between the Registrant and
Bear, Stearns & Co., Inc. (Incorporated by reference from Exhibit
10.31 filed in the Registrant's Form 10-K for the year ended
December 31, 1993 (File No. 1-13054).)
17
<PAGE>
10.21 Asset Purchase Agreement dated December 16, 1993, between the
Registrant and Nova Distributing Corp. (Incorporated by reference
from Exhibit 10.32 filed in the Registrant's Form 10-K for the year
ended December 31, 1993 (File No. 1-13054).)
10.22 Merger Agreement dated as of February 4, 1994, between the
Registrant and Airlie, Inc. (Incorporated by reference from Exhibit
10.35 filed in the Registrant's Form 8-K dated February 4, 1994
(File No. 1-13054).)
10.24 Stock Purchase Agreement dated as of April 17, 1994, by and among
Alliance, Premier Artists Services and the shareholders thereof.
(Incorporated by reference from Exhibit 10.39 filed in the
Registrant's Form 8-K dated May 26, 1994 (File No. 1-13054).)
10.25 Offer Document dated July 28, 1994, from AEC Holdings (UK) Limited
to the Shareholders of Castle and press release issued in the United
Kingdom in connection therewith. (Incorporated by reference from
Exhibit 10.41 filed in the Registrant's Form 10-Q for the quarterly
period ended June 30, 1994 (File No. 1-13054).)
10.26 Lease between the Registrant and The Northwestern Mutual Life
Insurance Company dated January 12, 1995, relating to the premises
located at 15050 Shoemaker Avenue, Santa Fe Springs, California.
(Incorporated by reference from Exhibit 10.45 filed in the
Registrant's Form 10-K for the fiscal year ended December 31, 1994
(File No. 1- 13054).)
10.27 Third Amended and Restated Credit Agreement and Guaranty dated as of
July 25, 1995, among the Company, the Guarantors, the Banks and The
Chase Manhattan Bank, N.A., as Agent. (Incorporated by reference
from Exhibit 10.50 filed in the Registrant's Registration Statement
on Form S-4 filed August 3, 1995 (Registration No. 33-95386).)
10.28 Merger Agreement dated as of September 1, 1995, relating to One Way
Records, Inc. (Incorporated by reference from Exhibit 10.51 filed in
the Registrant's Amendment No. 1 to Registration Statement on Form
S-4 filed September 22, 1995 (Registration No. 33-95386).)
10.29 Merger Agreement dated as of September 1, 1995, relating to Deja Vu
Music, Inc. (Incorporated by reference from Exhibit 10.52 filed in
the Registrant's Amendment No. 1 to Registration Statement on Form
S-4 filed September 22, 1995 (Registration No. 33-95386).)
10.30 Management Consulting Agreement dated as of May 10, 1995, among
Alliance Entertainment Corp. and Bain Capital, Inc. (Incorporated by
reference from Exhibit 10.51 filed in the Registrant's Form 10-Q for
the period ended June 30, 1995 (File No. 1-13054).)
18
<PAGE>
10.31 Merger Agreement by and between the Company, INDI Acquisition Corp.
and INDI Holdings, Inc., dated July 17, 1995. (Incorporated by
reference from Exhibit 2.3 filed in the Registrant's Form 10-Q for
the period ended June 30, 1995. (File No. 1-13054).)
10.32 Employment Agreement dated as of July 1, 1995, between the Company
and Christopher J. Joyce.*
10.33 Quota Purchase Agreement dated October 11, 1995, relating to the
acquisition of Distribuidora de Discos E Fitas Canta Brasil Ltda.*
11.1 Statement Re: Computation of Earnings (Loss) per Share.
(Incorporated by reference from Exhibit 11.1 filed with the
Registrant's Form 10-K for the year ended December 31, 1995. (File
No. 1-13054).)
27.1 Financial Data Schedule.*
_____________________
* Filed herewith.
(b) Reports on Form 8-K
The Company's current report on Form 8-K dated March 22, 1996, was filed to
announce expected first quarter sales and cash flow.
The Company's current report on Form 8-K dated April 29, 1996, was filed to
announce termination of the Merger Agreement pursuant to a Termination Agreement
dated as of April 29, 1996.
The Company's current report on Form 8-K dated May 9, 1996, was filed to
announce first quarter sales and cash flow.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Timothy Dahltorp
--------------------------------
Timothy Dahltorp
Executive Vice President,
Chief Financial Officer and Treasurer
Date: May 10, 1996
20
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description Page No.
2.1 Merger Agreement dated December 20, 1995, by and among Metromedia *
International Group, Inc., Alliance Merger Corp. and the Registrant.
2.2 Termination and Release Agreement dated April 29, 1996. *
3.1 Certificate of Incorporation, as amended. *
3.2 By-Laws, as amended. *
4.1 Restated Stockholders' Agreement dated as of November 30, 1993. *
4.2 Amendment to Restated Stockholders' Agreement dated as of May 18, 1995.*
4.3 Indenture dated July 25, 1995, among the Company, the Subsidiary *
Guarantors and Bankers Trust Company, as trustee.
4.4 First Supplemental Indenture dated July 26, 1995, among the Company, *
the Subsidiary Guarantors and Bankers Trust Company, as trustee.
4.5 Registration Rights Agreement dated July 25, 1995, among the Company, *
the Subsidiary Guarantors and the Initial Purchasers.
4.6 Purchase Agreement dated July 18, 1995, among the Company, the *
Guarantors and the Initial Purchasers.
4.7 Second Supplemental Indenture dated September 6, 1995, among *
the Company, the Subsidiary Guarantors and Bankers Trust Company,
as trustee.
4.8 Purchase Agreement made as of May 18, 1995, between AEC Americas *
Inc. and Bain Capital Fund IV L.P., Bain Capital Fund IV-B L.P.,
BCIP Associates and BCIP Trust Associates, L.P.
4.9 Parent Covenant Agreement dated as of May 18, 1995, by and between *
Alliance Entertainment Corp., AEC Americas, Inc. and Bain Capital
Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP Associates and
BCIP Trust Associates, L.P.
4.10 Third Supplemental Indenture dated February 26, 1996, among the 24
Company, the Subsidiary Guarantors and Bankers Trust Company as
Trustee.
10.1 Incentive Stock Option Plan for Executives of Jerry Bassin, Inc. *
10.2 1992 Non-Qualified Stock Option Plan. *
10.3 1993 Stock Option Plan. *
21
<PAGE>
Exhibit No. Exhibit Description Page No.
10.4 1993 Stock Option Incentive Plan. *
10.5 Form of Employment Agreement dated as of March 16, 1995, between *
the Company and Joseph J. Bianco.
10.6 Form of Employment Agreement dated as of March 16,1995, between *
the Company and Anil K. Narang.
10.7 Form of Employment Agreement dated as of March 16, 1995, between *
the Company and Jerry Bassin.
10.8 Form of Employment Agreement dated as of March 16, 1995, between *
the Company and Elliot B. Newman.
10.9 Employment Agreement dated as of December 11, 1992, between *
Encore Distributors, Inc. and R. Tobias Knobel.
10.10 Lease dated March 25, 1993, between Howard L. Bellowe and E. James *
Judd (as Landlord) and Encore Distributors, Inc., relating to the
premises located at 2345 Delgany Street, Denver, Colorado.
10.11 Lease dated November 30, 1992, between Harriet Shapiro and Jerry *
Bassin, Inc., relating to the premises located at 15959 N.W. 15th
Avenue, Miami, Florida, as amended.
10.12 Stock Sale Agreement dated December 11, 1992, between R. Tobias *
Knobel and the Registrant.
10.13 Merger Agreement dated August 11, 1993, among the Registrant, *
CD Acquisition Corp., Titus Oaks Records, Inc., Alan Meltzer and
Diana Meltzer.
10.14 Engagement Letter dated October 29, 1992, between the Registrant *
and Tucker Anthony Incorporated.
10.15 Amendment of Stock Sale Agreement and Employment Agreement dated *
as of September 30, 1993, between R. Tobias Knobel and the
Registrant.
10.16 Form of Employment Agreement dated as of March 14, 1994, between *
the Registrant and Eric S. Weisman.
10.17 Form of 1994 Long-Term Incentive and Share Award Plan. *
10.18 Form of Amendment to the 1994 Long-Term Incentive and Share Award *
Plan.
10.19 Engagement Letter dated September 9, 1993, between the Registrant *
and PaineWebber Incorporated.
22
<PAGE>
Exhibit No. Exhibit Description Page No.
10.20 Engagement Letter dated May 27, 1993, between the Registrant and *
Bear, Stearns & Co., Inc.
10.21 Asset Purchase Agreement dated December 16, 1993, between the *
Registrant and Nova Distributing Corp.
10.22 Merger Agreement dated as of February 4, 1994, between the Registrant *
and Airlie, Inc.
10.24 Stock Purchase Agreement dated as of April 17, 1994, by and among *
Alliance, Premier Artists Services and the shareholders thereof.
10.25 Offer Document dated July 28, 1994, from AEC Holdings (UK) Limited *
to the Shareholders of Castle and press release issued in the United
Kingdom in connection therewith.
10.26 Lease between the Registrant and The Northwestern Mutual Life *
Insurance Company dated January 12, 1995, relating to the premises
located at 15050 Shoemaker Avenue, Santa Fe Springs, California.
10.27 Third Amended and Restated Credit Agreement and Guaranty dated as of *
July 25, 1995, among the Company, the Guarantors, the Banks and The
Chase Manhattan Bank, N.A., as Agent.
10.28 Merger Agreement dated as of September 1, 1995, relating to One *
Way Records, Inc.
10.29 Merger Agreement dated as of September 1, 1995, relating to Deja *
Vu Music, Inc.
10.30 Management Consulting Agreement dated as of May 10, 1995, among *
Alliance Entertainment Corp. and Bain Capital, Inc.
10.31 Merger Agreement by and between the Company, INDI Acquisition Corp. *
and INDI Holdings, Inc., dated July 17, 1995.
10.32 Employment Agreement dated as of July 1, 1995, between the Company 31
and Christopher J. Joyce.
10.33 Quota Purchase Agreement dated October 11, 1995, relating to the 39
acquisition of Distribuidora de Discos E Fitas Canta Brasil Ltda.
11.1 Statement Re: Computation of Earnings (Loss) per Share. *
27.1 Financial Data Schedule. 57
_____________________
* Incorporated by reference.
23
- --------------------------------------------------------------------------------
ALLIANCE ENTERTAINMENT CORP.,
Company,
The Parties named herein, as GUARANTORS,
and
BANKERS TRUST COMPANY,
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of February 26, 1996
to
INDENTURE
Dated as of July 25, 1995
-----------------
11 1/4% Senior Subordinated Notes due 2005
-----------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
THIRD SUPPLEMENTAL INDENTURE, dated as of February 26, 1996, between
Alliance Entertainment Corp., a Delaware corporation (the "Company"), the
parties named herein as Guarantors and Bankers Trust Company, a New York banking
corporation, as trustee (the "Trustee").
WHEREAS, the Company, the parties named therein as Guarantors, and the
Trustee executed an Indenture, dated as of July 25, 1995 (as subsequently
supplemented the "Indenture"), in respect of $125,000,000 aggregate principal
amount of the Company's 11 1/4% Senior Subordinated Notes due 2005 (the
"Notes");
WHEREAS, the parties to such Indenture and certain additional
Guarantors executed the First Supplemental Indenture dated as of July 26, 1995
and the Second Supplemental Indenture dated as of September 6, 1995, to amend
Exhibit F to the Indenture;
WHEREAS, Jerry Bassin, Inc., Airlie, Inc. and Titus Oaks Records,
Inc., which are Guarantors of the Notes, have merged with and into AEC One Stop
Group, Inc. ("AEC"), AEC being the surviving corporation;
WHEREAS, INDI Holdings, Inc. and AEC Music Distribution Inc., which
are Guarantors of the Notes, have merger with and into Independent National
Distributors, Inc. ("Indi"), Indi being the surviving corporation;
WHEREAS, Indi is a Guarantor of the Notes and AEC will become a
Guarantor of the Notes pursuant to this Supplemental Indenture;
WHEREAS, the Company hereby requests that Jerry Bassin, Inc., Airlie,
Inc., Titus Oaks Records, Inc., INDI Holdings, Inc. and AEC Music Distribution
Inc., (the "Released Guarantors") be released from their obligations as
Guarantors of the Notes;
WHEREAS, the Company has requested via an Officers' Certificate dated
December 29, 1995, that Disquemusic Comercial
<PAGE>
<PAGE>
Importadora Ltda., and Brasison Distribuidora de Discos, Ltda., (the "Brazilian
Guarantors"), be released from their obligations as Guarantors pursuant to
Section 3.05 of the Indenture as it relates to release of Guarantors that are
Foreign Subsidiaries;
WHEREAS, the Company desires to further amend Exhibit F to the
Indenture to release the Released Guarantors and the Brazilian Guarantors from
their obligations as Guarantors and to include AEC One Stop Group, Inc. as a
Guarantor;
WHEREAS, pursuant to Section 10.01 of the Indenture, the requested
amendments to Exhibit F to the Indenture may be effected without the prior
consent of the Holders (as defined in the Indenture);
WHEREAS, all conditions and requirements necessary to make this Third
Supplemental Indenture a valid, binding and legal instrument in accordance with
its terms have been performed and fulfilled and the execution and delivery
hereof have been in all respects duly authorized.
NOW, THEREFORE, in consideration of the above premises, each party
agrees, for the benefit of the other and for the equal and ratable benefit of
the Holders of the Notes, as follows:
EXHIBIT F
AMENDMENTS
The Company and the Trustee hereby amend the Indenture and agree that
Exhibit F to the Indenture be amended and restated as set forth in Attachment 1.
The parties hereto may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement. One signed copy is enough to prove this
Supplemental Indenture.
<PAGE>
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Supplemental Indenture on behalf of the respective parties hereto
as of the date first above written.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Anil K. Narang
-----------------------------------
Name: Anil K. Narang
Title: Vice Chairman, President and
Chief Financial Officer
BANKERS TRUST COMPANY, as Trustee
By: /s/ Jenna Kaufman
-----------------------------------
Name: Jenna Kaufman
Title: Vice President
GUARANTORS:
JERRY BASSIN INC.
PASSPORT MUSIC DISTRIBUTION, INC.
TITUS OAKS RECORDS, INC.
AIRLIE, INC.
AEC AMERICAS, INC.
ALLIANCE VENTURES, INC.
PREMIER ARTISTS SERVICES, INC.
PREMIER SIGNATURES, INC.
AEC MUSIC DISTRIBUTION, INC.
FL ACQUISITION CORPORATION
EXECUSOFT INC.
CASTLE COMMUNICATIONS (U.S.), INC.
<PAGE>
<PAGE>
CONCORD JAZZ, INC.
THE JAZZ ALLIANCE
AEC ACQUISITION CORP.
PASSPORT MUSIC WORLDWIDE, INC.
A.E. LAND CORP.
INDI HOLDINGS INC.
INDEPENDENT NATIONAL DISTRIBUTORS INC.
ONE WAY RECORDS, INC.,
DEJA VU, INC.
INDI HOLDINGS, INC.
INDEPENDENT NATIONAL DISTRIBUTORS, INC.
DISQUEMUSIC COMERCIAL IMPORTADORA
LTDA. *
BRASISON DISTRIBUIDORA DE DISCOS
LTDA. BRAZIL *
AEC HOLDINGS (UK) LIMITED *
CASTLE COMMUNICATIONS PLC *
CASTLE COPYRIGHTS LIMITED *
CASTLE COMMUNICATIONS
(DEUTSCHLAND) GMBH *
THE ST. CLAIR ENTERTAINMENT GROUP
INC.
DOJO LIMITED *
HENDRING LIMITED *
EASTERN LIGHT PRODUCTIONS LIMITED *
WHITE METAL MUSIC LIMITED *
KAZ RECORDS LIMITED *
MOVIE GEMS (UK) DISTRIBUTION LIMITED *
For each of the above:
By: /s/ Anil K. Narang
----------------------------------
Name: Anil K. Narang
Title: Executive Vice President
or *Attorney-in-Fact
AEC ONE STOP GROUP, INC., as an additional Guarantor
By: /s/ Anil Narang
---------------------------------
Name: Anil Narang
Title: Executive Vice President
<PAGE>
<PAGE>
ATTACHMENT 1
EXHIBIT F
GUARANTORS OF THE ALLIANCE ENTERTAINMENT CORP.
11 1/4 SENIOR SUBORDINATED NOTES DUE 2005
DOMESTIC SUBSIDIARIES:
1. Passport Music Distribution, Inc., a Colorado corporation
2. AEC Americas, Inc., a Delaware corporation
3. Alliance Ventures, Inc., a Delaware corporation
4. Premier Artists Services, Inc., a Florida corporation
5. Premier Signatures, Inc., a Florida corporation
6. FL Acquisition Corporation, a California corporation
7. Execusoft, Inc., a Florida corporation
8. Castle Communications (U.S.), Inc., a Delaware corporation
9. Concord Jazz, Inc., a California corporation
10. The Jazz Alliance, Inc., a California corporation
11. AEC Acquisition Corp., a Delaware corporation
12. Passport Music Worldwide, Inc., a Delaware corporation
13. A.E. Land Corp., a Delaware corporation
14. Independent National Distributors, Inc., a Delaware corporation
15. One Way Records, Inc., a New York corporation
16. Deja Vu Music, Inc., a New York corporation
17. AEC One Stop Group, Inc., a Delaware corporation
<PAGE>
<PAGE>
FOREIGN SUBSIDIARIES
1. AEC Holdings (UK) Limited, a United Kingdom corporation
2. Castle Communications PLC, a United Kingdom corporation
3. Castle Copyrights Limited, a United Kingdom corporation
4. Castle Communications (Deutschland) Gmbh, a German corporation
5. The St. Clair Entertainment Group Inc., a Canadian corporation
6. DOJO Limited, a United Kingdom corporation
7. Hendring Limited, a United Kingdom corporation
8. Eastern Light Productions Limited, a United Kingdom corporation
9. White Metal Music Limited, a United Kingdom corporation
10. Kaz Records Limited, a United Kingdom corporation
11. Movie Gems (UK) Distribution Limited, a United Kingdom corporation
EMPLOYMENT AGREEMENT, dated as of the 10th of July, 1995, by and
between Alliance Entertainment Corp., a Delaware corporation having its
principal office at 110 East 59th Street, New York, NY 10022, (the "Company"),
and Christopher J. Joyce, residing at 138 East 36th Street, New York, New York
10016 (the "Executive").
RECITALS:
The Company desires to employ the Executive, and the Executive desires
to accept such employment by the Company, upon the terms and conditions
hereinafter set forth.
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties.
(a) The Company agrees to employ the Executive as Executive Vice
President/Business Affairs of Indi Holdings, Inc. ("INDI",), a subsidiary of the
Company, and as Senior Vice President and General Counsel of the Company, and
the Executive accepts such employment and agrees to perform all duties and
services consistent with the Executive's position. The Executive agrees to
devote substantially all of the Executive's business time, attention and energy
to perform the Executive's duties and services hereunder.
(b) Executive's duties are set forth in Exhibit A, Which is
attached hereto and made a part hereof.
2. Term of Employment.
This Agreement shall commence on the date hereof and end on the fourth
anniversary of the date hereto unless sooner terminated as provided in Section 7
hereof (the "Employment Period").
3. Consideration and Benefits.
3.1 Base Salary and Percentage Salary.
(a) The Company shall pay the Executive a base
salary of Two Hundred Thirty-Five Thousand Dollars ($235,000) per annum ("Base
Salary"). The Base Salary for each year after the first year may be increased
from time to time in the sole discretion of the Board and in any event will be
increased annually to reflect, corresponding increases in the United States
Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban
Consumers, United States City Average, all items (1982-88 - 100). Base Salary
shall be payable at such intervals as salaries are paid by the Company to its
other executive employees.
<PAGE>
<PAGE>
3.2 Bonus.
With respect to each fiscal year during the
Employment Period, the Company shall pay the Executive a bonus (the "Bonus") in
an amount to be determined by the Board of Directors in its sole discretion. The
Bonus shall be pro rated for the year ended December 31, 1995 and for the last
partial fiscal year of the Employment Period.
3.3 Benefits Plans
During the Employment Period, the Executive shall be
entitled to participate in all plans adopted for the general benefit of the
Company's employees or executive employees, such as pension plans, medical
plans, investment plans and group or other insurance plans and benefits
(including disability and life insurance plans) to the extent that the Executive
is and remains eligible to participate therein and subject to the eligibility
provisions of such plans in effect from time to time. The Executive shall be
reimbursed for his reasonable out-of-pocket expenses incurred in the performance
of his duties upon submission of appropriate evidence thereof in conformity with
normal Company policy.
3.4 Stock Options.
The Company shall grant to the Executive an option
under the Company's Stock Option Plan to purchase from the Company an aggregate
of seventy-five thousand (75,000) shares of the Company's common stock at a
price per share equal to 7 5/8 dollars.
4. Vacation.
For each year during the Employment Agreement the Executive
shall be entitled to paid vacation as follows: the greater of (a) three (3)
weeks or (b) the number of weeks vacation provided to executives pursuant to
Company policy.
5. Automobile.
The Company shall assume the lease of the automobile which is
at present leased by or for the Executive.
6. Place of Employment.
The Executive's principal place of employment with the Company
shall be such location as may be determined by the Board within New York or New
Jersey.
<PAGE>
<PAGE>
7. Termination.
7.1 Death.
This Agreement shall automatically terminate upon the
death of the Executive, whereupon the Company shall be obligated to pay the
Executive's estate any unpaid Base Salary through the date of death, and the
Bonus, if any, as determined by the Board of Directors. Amounts payable under
this Section 7.1 shall be payable at the times and intervals set forth in
Section 3.1 hereof.
7.2 Disability.
The Company shall have the right to terminate this
Agreement during the continuance of any Disability of the Executive, as
hereinafter defined, upon fifteen (15) days prior notice, to the Executive
during the continuance of the Disability. "Disability" for purposes of this
Section 7.2 shall mean an inability by the Executive to perform a substantial
portion of the Executive's duties hereunder by reason of physical or mental
incapacity or disability for a total of one hundred eighty (180) days or more in
any consecutive period of three hundred and sixty-five (365) days, as determined
by the Board of Directors in its good faith judgment. In the event of a
termination by reason of the Executive's Disability, the Company shall be
obligated to pay the Executive any unpaid Base Salary through the date of
termination, and Bonus, if any, as determined by the Board of Directors. Amounts
payable under this Section 7.2 shall be payable at the times and intervals set
forth in Section 3. 1 hereof.
7.3 Termination for Cause.
The Company may terminate this Agreement for cause.
As used herein, cause shall mean (i) the Executive shall have committed an act
of fraud, embezzlement or misappropriation against the Company or committed a
material breach of fiduciary duty owed to the Company; or (ii) the Executive
shall have been convicted by a Court of competent jurisdiction of any felony or
crime involving moral turpitude, other than (a) violations of federal, state or
local obscenity laws relating to the distribution of prerecorded music, video
cassettes and other media products, or (b) criminal violations of federal
antitrust or securities laws arising out of the performance of the Executive's
duties hereunder; or (iii) the Executive shall have breached his obligations
under Section 8 or 9 of this Agreement; (iv) the Executive shall take any
willful action which is intended to and has the effect of substantially
diminishing the reputation of the Company or any of its directors; or (v) the
Executive shall willfully violate a direct written order of the Board of
Directors of the Company delivered pursuant to this Section 7.3, provided that
any such directive does not require the commission by the Executive of an
illegal act. In the event of termination pursuant to this Section 7.3, the
Company shall be obligated to pay the Executive any unpaid Base Salary through
the date of termination, and Bonus, if any, as determined by the Board of
Directors. Amounts payable under this Section 7.3 shall be payable at the times
and intervals set forth in Section 3.1 hereof.
<PAGE>
<PAGE>
7.4 Termination for Other Reason.
If the Executive's employment is terminated other
than by reason of (i) death, (ii) Disability, (iii) for cause, or (iv) the
Executive's voluntary termination of employment, then the Company shall pay the
Executive severance pay equal to the balance of the Base Salary payable
hereunder for the term of this Agreement. Such amount shall be payable at the
times and intervals set forth in Sections 3.1 and 3.2 hereof. Company's
obligation to make payments hereunder to the Executive shall immediately cease
upon the Executive's subsequent death or disability. In addition the Company
shall continue to provide Executive's disability insurance coverage. The
obligation of the Company to provide disability insurance shall cease on the
fifth anniversary of the date hereof.
8. Restrictions.
8.1 Confidentiality.
(i) The Executive recognizes that the
Executive's position with the Company is one of trust and confidence. The
Executive acknowledges that, during the course of the Executive's employment
with the Company, the Executive will necessarily become acquainted with
confidential information relating to the customers (include names, addresses and
telephone numbers) of the Company, and/or its subsidiaries and affiliates, and
trade secrets, processes, methods of operation and other information, Which the
Company, and/or its subsidiaries and affiliates, regards as confidential and in
the nature of trade secrets (collectively "Confidential Information"). The
Executive acknowledges and agrees that the Confidential Information is of
incalculable value to the Company and that the Company would suffer damage if
any of the Confidential Information was improperly disclosed.
(ii) The Executive covenants and agrees that the
Executive will not, at any time during or after the termination of the
Executive's relationship with the Company, reveal, divulge, or make known to any
person, firm or corporation, any Confidential Information made known to the
Executive or of which the Executive has become aware, regardless of whether
developed, prepared, devised or otherwise created in whole or in part by the
efforts of the Executive, except and to the extent that such disclosure is
necessary to carry out the Executive's duties for the Company. The Executive
further covenants and agrees that the Executive shall retain a Confidential
Information in trust for the sole benefit of the Company, and will not divulge
or deliver or show any Confidential Information to any unauthorized person
including, without limitation, any other employer of the Executive, and the
Executive will not make use thereof in an independent business related to the
business of the Company or any of its subsidiaries or affiliates.
(iii) The Executive agrees that, upon termination
of the Executive's employment with the Company, for any reason whatsoever, or
for no reason, and at any time, the Executive shall return to the Company all
papers, documents and other property of the Company and/or its subsidiaries and
affiliates have placed in the Executive's custody or obtained by the Executive
during the course of the Executive's employment which relate to Confidential
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Information, and the Executive will not retain copies of any such papers,
documents or other property for any purpose whatsoever.
8.2 Non-Competition.
The Executive agrees that during the Employment
Period the Executive shall not (i) engage, directly or indirectly, in North
America, alone or as a shareholder, partner, officer, director, employee or
consultant of any other business organization, in the business of the wholesale
or independent distribution of prerecorded music, music videos and accessories,
including, without limitation, the development of software, the sale, licensing
or leasing of software and hardware and the rendering of services in connection
with such distribution business (the "Business") (ii) divert to any other
organization in the Business any customer of the Company or any of its
subsidiaries or affiliates or business units, or (iii) hire, solicit or
encourage any officer, employee or consultant of the Company or any of its
subsidiaries or affiliates or business units to leave its employ for employment
by or with any other organization in the Business; provided, however, that the
Executive may own less than five percent (5%) of the outstanding capital stock
of any other corporation in the Business and provided further than nothing
herein contained shall prevent the Executive from purchasing or otherwise
beneficially owning, without restriction on amount any securities in the
Company. At the election of the Company by written notice to the Executive given
within thirty (30) days following the termination of the Executive's employment
hereunder for any reason, the foregoing restrictions may be extended for a
period of one year following the termination of the Employment Period; provided
that, unless the termination occurs as a result of the Executive's voluntary
termination of employment, the Company shall pay to the Executive for such one
year period an amount not less than the Base Salary in effect immediately prior
to the termination of the Employment Period (including for this purpose any
amounts paid by the Company pursuant to Section 7 hereof). Such amount shall be
payable at the times and in the intervals set forth in Section 3.1 hereof. If at
any time the provisions of this Section 8.2 shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 8.2 shall be considered divisible and shall
become and be immediately amended to only such area, duration and scope of
activity as shall be determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the Executive agrees that
this Section 8.2 as so amended shall be valid and binding as though any invalid
or unenforceable provision had not been included herein.
9. Work Product.
The Executive agrees that all innovations, inventions,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the actual business or
product lines of the Company or any of its subsidiaries or affiliates, or any
business or product lines which the Company or any of its subsidiaries or
affiliates has taken significant action to pursue, and which are conceived,
developed or made by the Executive while employed by the Company (any of the
foregoing, hereinafter "Work Product"), belong to the Company. The Executive
will promptly disclose all such Work Product to the Board of Directors and
perform all actions reasonably requested by the
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Board to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
10. Enforcement.
The Executive acknowledges that the Company will suffer
substantial and irreparable damages not readily ascertainable or compensable in
terms of money in the event of the breach of any of the Executive's obligations
under Sections 8.1 and 9 hereof shall be the Executive therefore agrees that the
provisions of Section 8.1 and 9 hereof shall be construed as an agreement
independent of the other provisions of this Agreement and any other agreement,
and that the Company, in addition to any other remedies (including damages)
provided by law, shall have the right and remedy to have such provisions
specifically enforced by any court having equity jurisdiction thereof the rights
and remedies set forth in this Section 10 shall be in addition to, and not in
lieu of, any other rights and remedies available to the Company under law or
equity.
11. Miscellaneous Provisions.
11.1 Entire Agreement.
This Agreement sets forth the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements, and understandings between the
parties with respect to the subject matter hereof including the Employment
Agreement dated October 1, 1994 between Independent National Distributors, Inc.
and the Executive.
11.2 Modification.
This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties or in the case of a
waiver, by the party waiving compliance.
11.3 Waiver.
The failure of either party at any the or times to
require, performance of any provision hereof in no manner shall affect the right
at a later time to enforce the same. No waiver by either party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or a waiver of any other term or
covenant contained in this Agreement.
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11.4 Notices.
All notices, demands, consents or other
communications; hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given) upon the earlier of receipt, one business day
after being sent by telecopier or three business days after being sent by
registered or certified mail, to the parties at the addresses set forth above or
to such other address as either party shall hereafter specify by notice to the
other party. Irrespective of the foregoing, notice of change of address shall be
effective only upon receipt.
11.5 Governing Law.
This Agreement shall be construed in accordance with
and governed by the laws of the State of New York applicable to contracts made
and to be performed wholly within such state.
11.6 Arbitration.
Any controversy or claim arising out of or relating
to this Agreement, the making, interpretation or the breach thereof, other than
a claim solely for injunctive relief for any alleged breach of the provisions of
Section 8 or 9 as to which the parties shall have the right to apply for
specific performance to any court having equity jurisdiction shall be resolved
by arbitration in New York, New York, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof and any party to the arbitration may, if such party so
elects, institute proceedings in any court having jurisdiction for the specific
performance of any such award. The powers for the arbitrator or arbitrators
shall include, but not be limited to the awarding of injunctive relief. The
arbitrator shall include in any award in the prevailing party's favor the amount
of his or its reasonable attorney's fee and expenses and all other reasonable
costs and expenses of the arbitration. In the event the arbitrator does not rule
in favor of the prevailing party in respect of all the claims alleged by such
party, the arbitrator shall include in any award in favor of the prevailing
party the amount of his or its reasonable costs and expenses of the arbitration
as he deems just and equitable under the circumstances. Except as provided
above, each party shall bear his or its own attorney's fees and expenses and the
parties shah bear equally a other costs and expenses of the arbitration.
11.7 Assignability.
This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of the Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
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11.8 Binding Effect.
This Agreement shall be binding upon and shall inure,
to the benefit of the parties and their respective legal representatives, heirs,
permitted successors and permitted assigns
11.9 Headings and Word Meanings.
Headings and titles in this Agreement are for
convenience of reference only and shall not control the construction or
interpretation of any provisions hereof. The words "herein," "hereof,"
"hereunder," and words of similar import, when used anywhere in this Agreement,
refer to this Agreement as a whole and not merely to a subdivision in which such
words appear, unless the context otherwise requires. The singular shall include
the plural unless the context otherwise requires.
11.10 Separability.
Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
THE COMPANY
Alliance Entertainment Corp.
By: /s/ Joseph J. Bianco
--------------------------------
Joseph J. Bianco
THE EXECUTIVE
By: /s/ Christopher J. Joyce
--------------------------------
Christopher J. Joyce
[English Language Translation of Document]
QUOTA PURCHASE AGREEMENT
QUOTA PURCHASE AGREEMENT, made as of this 11th day of October, 1995, by and
among of the one side:
1. ALLIANCE AMERICAS INC., a company duly organized and validly existing
under the laws of the State of Delaware, U.S.A., with principal place of
business at 115 East 57th Street, in the City of New York, State of New
York, U.S.A., herein duly represented in accordance with the provisions
of its By-laws, by Mr. Pedro Joseph Hedegus Kaufmann, a Brazilian
citizen, married, business administrator, with its office in the City of
Sao Paulo, State of Sao Paulo, at Rua Sarah de Souza, 242, Brazil, bearer
of the Identification Card RG No. 3,698,996 and of CIC No.
056,797,708-06, hereinafter referred to as "Buyer"; and,of the other
side,
II. FINANCIERA FENIX S.A., a company duly organized and validly existing
under the laws of Western Republic of Uruguay, with principal place of
business at Juan Carlos Gomes, No. 1,348, 4th floor, in the City of
Montevideu, Uruguay, with its By-laws duly approved by and registered
with the General Trade Public Registry of the City of Montevideu on
April, 28, 1994, under No. 700, pages 1399/1400, of the By-laws' Book No.
2 (No. 11461/94), herein duly represented by its attorney-in-fact, Mr.
Mauricio Jose Chiavatta, a Brazilian citizen, married, lawyer, with its
office in the City of Sao Paulo, State of Sao Paulo, at Rua Sao Bento,
No. 45, 2nd floor, suite 204/206, bearer of the Identification Card RG
No. 9,253,508-2 and of CIC No. 048,416,958-00; and
III. LUIZ DOMINGOS RODRIGUES, a Brazilian citizen, married, businessman,
residing and domiciled in the City of Sao Paulo, State of Sao Paulo, at
Rua Guanabara, 321, bearer of Identification Card RG No. 9,542,708 and of
CIC No. 820,723,618-34 (hereinafter collectively referred to as "Sellers"
and individually as "Fenix" and "Luiz", respectively), and , as
intervening party,
IV. ALLIANCE ENTERTAINMENT CORP., a company duly organized and validly
existing under the laws of the State of Delaware, U.S.A., with principal
place of business at 110 East 59th Street, in the City of New York, State
of New York, U.S.A., herein represented in accordance with the provisions
of its By-laws, hereinafter referred to as "AEC".
WHEREAS, Sellers are the sole quotaholders of a certain limited liability
company named DISTRIBUTORA DE DISCOS E FITAS CANTA BRASIL LTDA., with head
offices in the City of Sao Paulo, State of Sao Paulo, at Rua Casper Libero, 52,
enrolled with the Taxpayers' Registry CGC/MF under No. 58,027,665/0001-79
(hereinafter referred to as the "Company");
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WHEREAS, the Quotas (as defined below) are held free and clear of any
encumbrances, liens, pledge, or other burdens;
WHEREAS, Canta Brasil is a company duly organized and existing under the
laws of the Federative Republic of Brazil with its articles of incorporation and
amendments thereto duly registered with the Board of Trade of the State of Sao
Paulo - JUCESP;
WHEREAS, Buyer desires to purchase from Sellers all of the quotas of the
Company as more fully specified in Section 3.2 hereof (hereinafter referred to
as the "Quotas") and Sellers are willing to assign, transfer and convey the
Quotas to Buyer;
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the terms herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. QUOTA PURCHASES.
(a) In reliance on the representations and warranties of Sellers
contained herein, Buyer hereby agrees to purchase and Sellers agree to sell the
Quotas from Sellers on the terms and subject to the conditions set forth herein.
Buyer shall purchase all of the Quotas of the Company, all of which Quotas are
owned by Sellers as set forth on Schedule 3.2 to the Disclosure Letter (as
defined herein below).
(b) Simultaneously with the execution hereof, Sellers shall
execute an amendment to the Articles of Incorporation of the Company whereby
Sellers shall transfer and assign the Quotas to Buyer and to a nominee
individual, as instructed by Buyer
(c) Sellers hereby undertake to execute, at any time, any and all
documents deemed required or necessary to vest in the Buyer the ownership of the
Quotas.
2. PURCHASE PRICE.
2.1 The Purchase price to be paid by Buyer to Sellers in consideration
for the assignment and transfer of the Quotas hereby shall be a maximum amount
of five million seven hundred and fifty thousand US Dollars (US$ 5,750,000). The
Purchase Price shall be paid in the following manner:
(a) a down payment in the amount of two million seven hundred
fifty thousand US Dollars (US$ 2,750,000), on October 13, 1995;
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(b) subject to the provisions of Section 9.1 below an installment
of seven hundred and fifty thousand US Dollars (US$ 750,000), on January 5,
1996;
(c) subject to the provisions of Section 9.1 below an installment
of seven hundred and fifty thousand US Dollars (US$ 750,000), on July 5, 1996,
in consideration for the Sellers entering into the non-competition covenants
mentioned in Section 5 hereof;
(d) subject to the provisions of Section 9.1 below installment of
one million and five hundred thousand US dollars (US$ 1,500,000), to be paid by
Buyer to Sellers by means of delivery to Sellers of common shares issued by AEC,
an aggregate amount equivalent to one million and five hundred thousand US
dollars (US$ 1,500,000) (herein referred to as "AEC Shares") . The AEC Shares
shall be issued and delivered to the Sellers pursuant to the following rules:
(i) If the invoicing of CANTA BRASIL for the period comprised
between 10/01/95 and 12/31/95 is equal or in excess of eight
million US dollars (US$ 8,000,000), AEC shall issue a number of
AEC Shares corresponding to US$ 500,000 and deliver such AEC
Shares to the Sellers five (5) business days after the date on
which the Coopers & Lybrand Invoicing Report (as defined below) is
delivered to the Buyer.
(ii) If the invoicing of CANTA BRASIL for the period comprised
between 01/01/96 and 06/30/96 is equal or in excess of nine
million and five hundred thousand US dollars (US$ 9,500,000), AEC
shall issue a number of AEC Shares corresponding to US$ 750,000
and deliver such AEC Shares to the Sellers five (5) business days
after the date on which the Coopers & Lybrand Invoicing Report is
delivered to the Buyer.
(iii) Upon due accomplishment of the condition specified in
item (i) and (ii) hereinabove, AEC shall issue a number of AEC
Shares corresponding to US$ 250,000 and deliver such AEC Shares to
the Sellers five (5) business days after the date on which the
Coopers & Lybrand Invoicing Report is delivered to the Buyer.
(iv) If the invoicing requirements are achieved before the end
of any of the periods described above, the Buyer shall issue and
deliver to the Sellers the corresponding shares within five (5)
business days from the date of the relevant Coopers & Lybrand
Invoicing Report. However the delay in the achievement of the
invoicing requirements shall cause the delay on the release of the
corresponding shares, which shall only occur five (5) business
days from the date of the relevant Coopers & Lybrand Invoicing
Report.
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(v) It is hereby agreed that, in the case it is proved that
the invoicing requirements were not met due to the commercial
policies adopted by the Buyer, and not due to conditions out of
the Buyer's control, the Buyer shall cause the release of each of
the shares corresponding to the relevant period, irrespective of
the achievement of the invoicing requirements, PROVIDED, HOWEVER,
that the Buyer shall retain the right to reject sales that are not
made under customary margins. To that end, Luiz shall not
implement any sales or marketing programs that decrease Canta
Brasil net margins.
(vi) For purposes of this Section, the invoicing of a relevant
period shall be ascertained by Coopers & Lybrand, Biedermann,
Bordasch Auditores Independentes Ltda. ("Coopers & Lybrand"),
within up to thirty (30) days following the Closing date of each
applicable period (the relevant conclusions to be reflected in the
"Coopers & Lybrand Invoicing Report").
(vii) The number of AEC Shares to be issued for fulfillment by
Buyer of any of its payment obligations provided in this item (d)
shall be defined as per the average New York Stock Exchange
closing price of the AEC outstanding shares twenty (20) calendar
days prior to the date of each payment.
(viii) AEC shall have a Period of ninety (90) days from the
date of the Coopers & Lybrand Invoicing Report to obtain the
registration of the relevant issue of AEC Shares with the US
Securities and Exchange Commission ("SEC").
(ix) It is hereby further agreed that as soon as any portion
of the AEC Shares is delivered to the Sellers, Sellers shall
appoint Mr. Joseph Bianco, Chairman of AEC, or his nominee, as
their attorney-in-fact with full and irrevocable power to use the
voting rights associated with the AEC Shares. Such appointment
shall be reflected in an Irrevocable Power-of-Attorney to be
timely issued by Sellers as per the draft instrument attached
hereto as Exhibit I, which shall be valid until the date on which
the Sellers dispose of the AEC Shares.
2.2 The installments of the Purchase Price shall be paid by Buyer as
timely instructed by Sellers. It is hereby expressly understood that Buyer shall
not bear any responsibility in connection with how the Purchase Price shall be
allocated between Fenix and Luiz.
2.3 It is hereby expressly understood and agreed by the parties that
the maximum amount set forth above for the Purchase Price was established by
Sellers and Buyer based upon the following assumptions by Buyer:
(a) the Company has no tax liability, actual or contingent, as of
September 30, 1995, except for those mentioned in the Section below.
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(b) the difference between (i) accounts receivable plus
inventories and (ii) accounts payable ("Working Capital") is equal to or greater
than zero (0) , as of September 30, 1995, and the net worth of the Company is
equal to or greater than zero (0), as of September 30, 1995;
(c) the fixed assets of the Company shall be, as of September
30, 1995, those contained in Schedule 3.9 to the Disclosure Letter.
2.4 (a) It is hereby understood and agreed by the parties that the
Company has delivered to Buyer prior to the date hereof balance sheets of the
Company as of September 30, 1995 (the "Pro Forma Balance Sheet"). The Pro Forma
Balance Sheet has been prepared in accordance with Brazilian generally accepted
accounting principles, applied on a consistent basis. The Pro Forma Balance
Sheet present fairly in all respects the financial position of the Company and
the results of the operations of the Company for the period then ended.
(b) Within sixty (60) days of the date hereof, Coopers &
Lybrand shall prepare and promptly deliver to the Company and Buyer an audited
balance sheet of the Company as of October 31, 1994, and related statements of
income (the "Audited Financial Statements"), which shall comprise the period
ranging from January 1, 1994 through October 31, 1994. Should the Working
Capital and/or the net worth of the Company shown in the Audited Financial
Statements be lesser than zero (0), in violation to the assumptions by Buyer
stated in Clause 2.3(b), the Purchase Price shall then be reduced by an amount
equal to such negative Working Capital.
(c) Any such adjustment to the Purchase Price shall be applied
against and automatically reduce the installments of the Purchase Price payable
pursuant to Section 2.1(b) hereof, commencing with the installment due
immediately after the receipt by Buyer and the Company of the Audited Financial
Statements. If the amount of such installment is insufficient to adjust the
Purchase Price, the adjustment shall then be applied against and automatically
reduce the subsequent installment or installments of the Purchase Price. The
balance of any adjustment to the Purchase Price remaining after reduction of the
installments, if any, shall be paid by sellers in accordance with the terms of
Section 10 herein below.
2.5 Any amounts which fail to be paid by Buyer as required by the
provisions of this Section 2 hereof shall be subject to (i) monetary correction
as per IPC-R (in accordance with the applicable legislation then in force), (ii)
a fine of ten percent (10%) of the updated amount, and (iii) default interest of
one percent (1%) per month or fraction thereof.
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3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS,
Each of the Sellers hereby represents and warrants to the Buyer
(contained in this Agreement or set forth in any certificate delivered in
connection herewith), except as otherwise stated specifically in the Disclosure
Letter of even date herewith delivered by the Company and the Sellers to the
Buyer (the "Disclosure Letter"), as follows:
3.1 Quotas of the Company. The capital of the Company, the amount of
five thousand reais (R$ 5,000), is divided into five thousand (5,000) quotas of
the par value of one real R$ 1.00 each, four thousand seven hundred and fifty
(4,750) of which are owned by Fenix and two hundred and fifty (250) of which are
owned by Luiz. The Quotas are owned by Sellers free and clear of any and all
encumbrances, are fully paid and non-assessable; there are other outstanding
qoutas, warrants, scrip, rights, options, calls or any obligations or
instruments evidencing the right to purchase or effect a conversion into any
quotas thereof, nor any agreement, instrument, arrangement, contract,
obligation, commitment or understanding relating to the issuance or transfer of
any thereof, whether or not such may be authorized, issued or outstanding
pertaining to the Company except as set forth in Schedule 3.1 to the Disclosure
Letter; there are no "phantom" quota rights or agreements or similar rights or
agreements intended to or which confer on any person, partnership, corporation
or other entity, rights similar to any rights accruing to owners of quotas; and,
except as disclosed in Schedule 3.1 to the Disclosure Letter, neither the
Sellers nor the Company have any liability to any former quotaholder of the
Company in connection with the purchase or sale of any quota or other security
to or from such former quotaholder, whether in the form of preemptive rights or
otherwise.
3. 2 Power and Authority of the Company and Sellers.
(a) The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of Brazil. The Company has
full power and authority to carry on its business and to own or leave its
properties as and in the places where such business is now conducted and such
properties are now owned, leased or operated and has all licenses necessary for
the operation of such business as currently operated.
(b) Each of the Seller has full power and authority to execute and
deliver this Agreement, the Disclosure Letter and the other instruments to be
executed and delivered by the Sellers in connection herewith and therewith and
to consummate the transactions contemplated hereby and thereby; this Agreement
and the Disclosure Letter, and such other instruments related hereto or thereto,
shall constitute legal, valid and binding obligations of the Sellers executing
the same, enforceable against the Sellers in accordance with their respective
terms (subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium laws insofar as they affect the
enforcement of creditors' rights generally from time to time in effect).
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3 .3 No Conflict. Except as set forth on Schedule 3.3 to the
Disclosure Letter, the execution, delivery and performance of this Agreement by
the Sellers will not (i) violate any provisions of any Law (as hereinafter
defined), judgment, decree or order applicable to any of the Sellers or the
Company, (ii) conflict with or result in any breach of any of the terms,
conditions, or provision of, or constitute an event which with notice or the
lapse of time or both would constitute a default under or violate or result in
the breach of, or create any right of termination or acceleration of any right
under the Articles of Incorporation of the Company or any agreement, lease,
instrument, arrangement, contract, obligation, commitment, or understanding to
which any of the Sellers or the Company is a party or by which any of their
properties are bound.
3.4 Taxes.
(a) "Tax" shall mean any federal, state, local, or other tax
(whether income, premium, excise (IPI tax), sales, use, payroll, employment,
estimated, franchise, real or personal property, tariff, customs duty, or other
kind of tax), assessment, levy, withholding or other governmental charge and
shall include all interest, indexation and penalties thereon. "Tax Return" shall
mean any report, return, form, statement or other document required to be filed
with any authority concerning Taxes.
(b) There have been filed all Tax Returns that are required to be
filed up to the date hereof by the Company, and such Tax Returns are true,
correct and complete in all material respects. Except as set forth on Schedule
3.4 to the Disclosure Letter all Taxes for all periods ending on or before the
date hereof for which the Company is or will be liable or that are imposed with
respect to the business of the Company (including all Taxes shown to be due on
all Tax Returns required to be filed for such periods) have been paid except for
Taxes the validity of which is being, or will be, contested in good faith by
appropriate action diligently pursued and which are not material to the Company.
All of such contested Taxes, together with a description of the action being
taken with respect thereto and the name of the party taking such action, are set
forth in Schedule 3.4 to the Disclosure Letter. The Company has withheld or paid
over to the proper taxing authorities all income or other Taxes and amounts
required to be withheld or so paid with respect to-salary and other compensation
of directors, officers and employees of the Company.
(c) Except as set forth on Schedule 3.4 to the Disclosure Letter,
no tax authority is now asserting or, to best of the Company's and the Sellers
knowledge, threatening to assert any deficiency or assessment for additional
Taxes or any interest, penalties or fines against any of the Sellers or the
Company and there is no basis for any such assertion. There are no liens for
Taxes on any of the assets of the Company.
3.5 No Subsidiaries. The Company has no subsidiaries. The Company
does not own (or have any commitment with respect to) any equity interest in any
corporation, limited
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liability company or other enterprise business, and none of the Sellers owns (or
has any commitment with respect to) any such interest in any such entity whose
business is related to the business of the Company, except as set forth in
Schedule 3.5 to the Disclosure Letter.
3.6 Certificates, etc. Complete and correct copies of the Articles of
Incorporation of the Company, as amended to the date hereof as registered with
the Board of Trade of the State of Sao Paulo have been delivered to Buyer by the
Sellers. The Company has no minute books, and the Quotas are, in pursuance of
the law, uncertified.
3.7 Due Qualification. The Company is not required to be qualified or
licensed as a foreign company authorized to do business in any jurisdictions in
which it is not so qualified or licensed, except for those jurisdictions in
which the failure to obtain such qualification or licensing would not have a
material adverse effect on the financial condition, property or operations of
the Company.
3.8 Material Adverse Change. Since September 30, 1995, there has been
no material adverse change in the financial condition, practices, business,
property, assets or liabilities of the Company. For the purposes hereof
"material adverse change" shall mean the occurrence of an event or a series of
events which reduces the total invoicing of the Company in more than 5 pct. of
the Company's average invoicing ascertained by taking into consideration the
immediately preceding 6-month period or creates a liability for the Company,
either actual or contingent, in an amount in excess of (fifty thousand US
Dollars) US$ 50,000.
3.9 Properties.
(a) The Company does not own any real property;
(b) Schedule 3.9 to the Disclosure Letter identifies the only leases,
subleases or other agreements, or written, and all amendments or modifications
thereof, under which the Company is lessee of, or holds or operates, uses or
occupies any real property (the "Leases").
(c) The Company has good and valid title to all the assets shown on
the Pro Forma Balance Sheet, except for these disposed of since that date in the
ordinary course of business, free and clear of liens, claims and encumbrances,
except for Permitted Encumbrances (as defined in Section 3.9(d) below) and
except as identified in Schdeule 3.9 to the Disclosure Letter.
(d) Permitted Encumbrances shall mean liens reflected on the Pro
Forma Balance Sheet.
(e) Except for matters that in the aggregate are not material to the
8
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Company, all the tangible property owned or operated by the Company or used in
its business is in working condition and repair, ordinary wear and tear except,
and is adequate for the conduct of the business of the Company as currently
conducted.
3.10 Inventory. Except as set forth on Schedule 3.10 to the
Disclosure Letter, the inventory of the Company was acquired from unrelated
third parties on an arm's- length basis and is valued on the books of account of
the Company at the lower of cost or market, with adequate allowance for
excessive, damaged, or obsolete inventory,
3.11 Trade Rights/Author's Rights/Producer's Rights. Except as set
forth in Schedule 3.11 to the Disclosure Letter, the Company has not infringed
or engaged in the unauthorized use or misappropriation of any material
proprietary rights, the rights of any authors, or assignees thereof, of musical
compositions or the rights of any master copy producers. The Company has never
purchased any Inventory in violation of any license or any proprietary right of
another or any inventory with respect to which any royalty due has not been
paid. The Company has examined all copyright licenses of foreign suppliers of
products and has taken the precaution set forth on Schedule 3.11 to make certain
that all material in inventory has been properly licensed for sale in Brazil,
3.12 Legal Proceedings, etc. Except as set forth in Schedule 3.12 to
the Disclosure Letter, there is no action, suit, claim, proceeding or
investigation (whether or not or on behalf of the Company) pending or, to the
best knowledge of the Company or the Sellers, threatened against the Company or
the Sellers, or any of the Company's officers, directors or partners in
connection with the business or affairs of the Company (such actions, suits,
claims, proceedings or investigations are herein referred to "Legal
Proceedings") at law, or before any court or Federal, state, county, local or
other governmental department, commission, board, agency or administrative body
(herein collectively referred to as Governmental Authorities) or in arbitration
or mediation, and other Legal Proceedings arising in the ordinary course of the
Company's business, in which the amount in dispute exceeds or might exceed ten
thousand US dollars (US$ 10,000), except as set forth in Schedule 3.12 to the
Disclosure Letter.
3. 13 Compliance with Laws. Except as set forth on Schedule 3.13
to the Disclosure Letter, the Company has complied with all statutes, laws,
ordinances, rules and regulations applicable to its operations (herein
collectively called "Laws").
3.14 Suppliers. Except as set forth on Schedule 3.14 to the
Disclosure Letter, no supplier has advised the Company or any Seller of its
intention to discontinue, materially reduce the dollar volume, materially
increase the, cost or materially change the terms and conditions of supply to
the Company.
3.15 Customers. Except as set forth on Schedule 3.15 to the
Disclosure Letter, no such customer has advised the Company or any Seller that
it intends to discontinue
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business with the Company, or to materially decrease the amount of its
purchases.
3.16 Contracts. Other than the Leases and except as set forth in
Schedule 3.16 to the Disclosure Letter, there are no written agreements,
instruments, arrangements, oral or written contracts, obligations, or commitment
involving payments by or to the Company aggregating more than ten thousand US
dollars (US $10,000) or which might, individually, be material to the Company,
to which the Company is a party or the properties or assets of the Company are
bound except those which are terminable by the Company without penalty or other
liability upon not more than 30 days' notice (herein collectively called
"Contracts"). Except as set forth on Schedule 3.16 to the Disclosure Letter, no
consent, which has not been obtained, is required respect to the transactions
contemplated hereby. True and complete copies of all written Contracts that are
listed in Schedule 3.16 to the Disclosure Letter have been delivered to Buyer,
except as indicated on such Schedule. All Contracts of the Company will remain
in full force and effect after purchase of the Quotas in accordance with the
terms hereof .
3.17 No Violation. Except as Bet forth on Schedule 3.17 to the
Disclosure Letter, the execution, delivery and performance of this Agreement by
the Sellers will not impair in any material respect any right, title or interest
of the Company or the Sellers under or in respect of any properties, licenses,
Trade Rights, or Contracts of the Company or the Sellers.
3.18 Insurance. Schedule 3.18 to the Disclosure Letter includes a
list of all insurance policies and other forms of insurance or risk financing in
force with respect to any act or omission of the Company and its directors,
agents or employees or to its business and the Leases and leasehold improvements
of the Company. All premiums under such policies have been paid as and when
payable. Except as set forth on Schedule 3.18, the Company has received no
notice that any act or failure to act has occurred which has caused or might
cause any thereof to be canceled or terminated or coverage thereunder to be
avoided and all notices and acts by company required to be given or done
thereunder have been properly given or done.
3.19 Directors, Officers and Employees. Schedule 3.19 to the
Disclosure Letter includes a true and complete list of the names of all persons
serving as directors, or officers or consultants of the Company and the family
relationships, if any, among such persons. Schedule 3.19 lists the current
salary rates and all other material compensation (including fringe benefits,
bonuses and material perquisites) of all the directors, officers and employees
of the Company receiving compensation in excess of the equivalent in Brazilian
currency of sixty thousand US dollars (US$ 60,000) per annum and identifies any
increases in such salary rates and compensation which are effective, or will
become effective after, the date hereof. No strike or work interruption by any
of the employees of the Company has occurred or, to the best knowledge of the
Company, is planned or threatened. The Company has no contract with, and has not
received notice from, any labor union or group of employees that represents any
of the employees of the Company.
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3.20 Employee Benefit Plans. The Company has no Employee Benefit
Plans except as required by Brazilian law. Sellers and the Company strictly
observe, on a consistent basis, the provision of the Brazilian labor laws in
force.
3.21 Environmental Matters. Except as set forth in Schedule 3.21
to the Disclosure Letter:
(a) Hazardous Materials have not at any time been generated, used,
treated or stored on any property or other facilities now owned, leased or
operated by the Company (or at any property, plant or other facilities ever
owned, leased or operated by a predecessor entity at such locations), in
Violation of any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit, and the Company has not received any notice of any such
violation with respect to Hazardous Materials;
(b) there has been no spill, discharge, leak, omission, injection,
escape, dumping or release of any kind onto any property now owned or leased by
the Company (or onto any other property ever owned or leased by it, or by any
entity at any such location), or into the environment surrounding any such
property, of Hazardous Materials, other than those releases permissible under
such regulations, laws or statutes or allowable under applicable permits;
(c) The Company, its operations and any property owned by the
Company, are in compliance with all applicable environmental and use of land
laws and the requirements of any permits issued under such laws;
(d) there are no past, pending or threatened Environmental Claims
against the Company or any property now previously owned or leased by the
Company;
(e) there is no condition or occurrence on any property previously
owned or leased by the Company or any property adjoining or in the vicinity of
any such property that could reasonably be anticipated (i) to form the basis of
any Environmental Claim against the Company or (ii) to cause any property of the
Company to be subject to any restrictions on the ownership, occupancy, use or,
transferability of any such property under any Environmental Law.
3.22 Bank Accounts, Currency Control, Powers of Attorney. Set forth
in Schedule 3.22 to the Disclosure Letter is a list of each bank in which the
Company maintains an account or safe deposit box, the numbers of each such
account or safe deposit box, and the names of all persons having check signing
or withdrawal powers or other authority with respect thereto. Also set forth in
Schedule 3.22 are names of all persons, if any, holding powers of attorney from
the Company and a summary of the terms thereof.
3.23 Accounts Receivable. All of the receivables of the Company
are actual
11
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and bona fide receivables representing obligations for the total Brazilian
currency amount thereof shown on the Pro Forma Balance Sheet and net of reserves
and such receivables resulted from the ordinary course of business of the
Company and are collectable to the full extent of the total amounts thereof, net
of reserves A list of all such receivables is set forth on Schedule 3.23 to the
Disclosure Letter
3.24 Affiliate Transactions. The Company does not do business
directly or indirectly with any entity controlled by or in common control with
the Sellers except as set forth in Schedule 3.24 to the Disclosure Letter.
Schedule 3.24 to the Disclosure Letter, sets forth the terms and conditions upon
which the Company has transacted business with such entities during the year
ended on December 31, 1995.
3.25 Licenses and Permits. The Company has obtain all occupancy and
operating permits relating to the real property it uses. The Company has all
licenses, approvals, certificates, permits, consents and authorizations of any
federal, state or municipal governmental or regulatory body ("Licenses"')
required to permit the Company to carry on its business as presently conducted.
There is no action pending, nor has any claim been made, seeking to revoke or
terminate any License or declare any License invalid nor is there any basis for
any such action or claim.
3.26 Guaranties. Schedule 3.26 to the Disclosure Letter contains a
list of all debts, accounts, or obligations of the Company that are personally
guaranteed by the Sellers or either of them or their spouses (the "Guaranties").
True and complete copies of all Guaranties that are listed in Schedule 3.26 have
been delivered to Buyer, except as noted thereon.
3.27 No Material Omissions. Neither this Agreement nor any of the
exhibits, Schedules, documents, certificates or other items prepared or supplied
by either of the Sellers pursuant to this Agreement taken as a whole contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to each of the Sellers as
follows, except as set forth in a letter herewith delivered by the Buyer to the
Sellers (the "Buyer's Disclosure Letter"):
4.1 Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the United States of America.
4.2 Buyer has full corporate power and authority to execute and
deliver this Agreement and any other instruments to be executed and delivered by
it in connection herewith, and to consummate the transactions contemplated
hereby.
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4.3 This Agreement, and upon due execution and delivery, such other
instruments will, constitute legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms (subject,
as, to the enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors, rights generally from time to time in effect).
4.4 Except as set forth in Schedule 4.4 to the Buyer's Disclosure
Letter, no consent, approval or agreement of any person, party, court,
government or entity is required to be obtained by the Buyer in connection with
the execution and delivery of this Agreement, or the performance by the Buyer of
its obligations hereunder.
4.5 Neither this Agreement nor any of the schedules, documents,
certificates or other items prepared or supplied by Buyer pursuant to this
Agreement taken as a whole contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained herein
or therein not misleading.
5. NON-COMPETITION.
5.1 Until five (5) years after the date hereof, Sellers shall not (a)
engage, directly or indirectly, in Brazil, alone or as a shareholder (other than
as a holder of less 5% of the common shares of any publicly traded corporation),
partner, officer, director, employee or consultant of any other organization, in
the business of the wholesale or independent distribution of prerecorded music,
music videos and accessories, (the "Business"), (b) divert to any organization
in the Business any customer of Buyer or (c) solicit or encourage any officer,
employee or consultant of Buyer or any of its subsidiaries to leave its
employment form employment by or with any organization in the Business. If at
any time the provisions of this Section 5 shall be determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration, or
scope of activity, as shall be determined to be reasonable and enforceable by
the court or other body having jurisdiction over the matter; and the Sellers
agree that this Section 5 as so amended shall be valid and binding as though any
invalid or unenforceable provision had not been included herein.
5.2 Its hereby expressly understood that the third installment of the
Purchase Price, as described in item 2.1(c) above, shall be in consideration for
the Sellers entering into the non-competition covenants mentioned in this
Section.
5.3 Notwithstanding the foregoing, the Sellers are hereby authorized
to hold the name "Canta Brasil" in the retail stores controlled by them, or any
of them, which are already in existence on the date hereof. It is irrevocable
condition for the validity of the authorization granted hereunder that such
retail stores shall never be engaged in the Business.
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6. OTHER AGREEMENTS.
6.1 No Severance. The parties agree that the consummation of the
transactions contemplated by this Agreement is not intended to constitute a
separation from service of any current or former employee or officer of the
Company.
6.2 (a) It is hereby further understood and agreed by the parties
that the completion of the transactions contemplated hereby shall not affect, in
any way whatsoever, the business relationship of the Company with any and all
other companies under any of the Seller's control, or in which any of the
Sellers have an equity interest, which are involved in the retail market of
music CDs, video laser and related products (the "Retail Companies").
(b) Therefore, the Retail Companies shall continue to be
supplied with by the Company, always at the best price and payment terms
conditions practiced by the Company at such time. Sellers, on their turn, shall
endeavor their best efforts in order to cause the Retail Companies to keep the
purchases made by them from the Company materially in the same volumes and
levels as presently made in all material respects.
6.3 General. Each of the parties will use his, her or its reasonable
efforts to take all action and to do all things necessary, proper or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement.
7. FURTHER ASSURANCES.
Each of the parties shall promptly and duly execute and deliver such
documents, instruments and other assurances as may be from time to time
reasonably necessary or desirable to carry out more effectively the provisions
of this Agreement and the transactions contemplated hereby, and to establish and
protect the rights created or intended to be created in favor the parties
hereunder.
8. SURVIVAL OF REPRESENTATIONS.
All representations and warranties of the parties contained in this
Agreement (i) shall, subject to the time limitations of Section 9 hereof,
survive the date hereof and (ii) shall be fully applicable and effective whether
or not a party relies in fact thereon or has knowledge, acquired either directly
or indirectly, of any fact at variance with, or of any breach of, any such
representations or warranties.
9. INDEMNIFICATION.
9.1 It is hereby agreed by the parties that the Buyer, upon the
acquisition of the Quotas hereunder, shall assume contingent liabilities of the
Company up to the aggregate
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<PAGE>
maximum amount in Brazilian Reais equivalent to one million US Dollars (US$
1,000,000). Upon such contingent liabilities becoming actual, Buyer shall
reflect them separately from the accounting records of the Company, and the US
Dollar value of the same shall be ascertained by using the rate by which the
Central Bank of Brazil sells US Dollars in the "commercial exchange rate market"
on the relevant day of payment, as shown in the so-called SISBACEN Data System,
transaction PTAX-800, option 5, currency 220. Upon the US$ 1,000,000 limit being
reached, the Sellers shall be, solely responsible for the payment of any and all
amounts claimed against the Company, pursuant to the rules stated below.
9.2 The provisions of Section 9.1 above being duly observed, Sellers
hereby irrevocably agree to jointly and severally indemnify and hold Buyer
and/or the Company harmless against any and all loss, cost., damage, deficiency
or expense, resulting from or in connection with:
(i) any adjustment to the Purchase Price payable pursuant
to Section 2.4 hereinabove,
(ii) any obligations or liabilities of the Company or any of
the Sellers, of any nature, including, but not limited to, tax, labor,
quasi-tax, social security, malpractice, trade or commercial nature, fixed or
contingent, known or unknown, insured or uninsured, disclosed or undisclosed by
Sellers herein, arising directly or indirectly from of any acts, facts or
omission occurring or existing prior to the date hereof, not reflected in the
Audited Financial Statements, or which have not been disclosed by Sellers to
Buyer in the Disclosure Letter; and
(iii) any investigations, actions, suits, proceedings,
demands, judgments, costs and legal and other expenses incident to any of the
foregoing matters specified in item (i) and (ii) hereinabove.
9.3 The obligation to indemnify hereby undertaken by Sellers for the
benefit of Buyer shall remain in full force and effect until such time any such
Liability ceases to exist by operation of statute of limitation, as provided in
the applicable laws ("Indemnity Period").
9.4 Should any Liabilities appear within the Indemnity Period, Buyer
may, at its option, elect:
(i) to claim from Sellers amounts to be disbursed by Buyer
and/or by the Company for settlement of any obligations in respect of any such
Liabilities, for payment by Sellers to Buyer within forty-eight (48) hours after
receipt of a notice therefor; or
(ii) to implement its rights by offset against its obligation
to make payments of installments of the Purchase Price then outstanding.
9.5 In the event that Buyer becomes aware of any such claim which
gives rise to a
15
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right of indemnity from the Sellers hereunder, Buyer shall promptly notify
Sellers, who shall have the right to defend, at their expense, all such claims.
In such case, Buyer shall cooperate with Sellers giving Sellers full access to
the documentation, files and records of the Company in the possession of Buyer.
It is expressly agreed and understood that Buyer shall in no circumstance be
obliged to defend Sellers, should Sellers fail to do so.
9.6 Defense by Sellers against any Liability shall be made through
such attorneys as Sellers may then indicate, provided that Sellers shall bear
any and all relevant attorneys' fees and all other related costs and expenses.
Any judicial deposits, bonds or other guaranties which may be necessary, or
required by the relevant court or governmental body for the implementation of
the defenses shall be provided by Sellers. Should a favorable decision be
obtained, any such guaranties shall revert to the benefit of Sellers, as well as
any amounts due by the other party to the Company, as determined by the final
decision in the defense procedures.
9.7 To the extent that Sellers' defense as per Sections 9.5 and 9. 6
proves unsuccessful and after all available rights of appeal have been
exhausted, Sellers shall, within forty-eight (48) hours from request, provide
Buyer with its indemnification for any damage in connection with the relevant
Liability, pursuant to the provisions of this Agreement.
9.8 Notwithstanding the foregoing, Buyer will be entitled to claim
settlement by Sellers in the mode provided in Section 9.4 above, of the
underlying obligation in lieu of recognizing to Sellers the right to defend,
should Buyer in good faith determine that defense by Sellers will prevent Buyer
from maintaining the good standing and will affect the normal course of conduct
of the Company and its business. In such case, Buyer shall notify Sellers in
writing indicating the disadvantageous impact of a defense over the business and
operations of the Company and of the period of time involved until a final
settlement is reached.
9.9 In addition, Fenix and Luiz, jointly and severally indemnify and
hold Buyer harmless against any and all liability, loss, damage, cost,
deficiency and expense, resulting from or in connection with any obligations or
liabilities, of any nature, actual or alleged, arising in any whatsoever, from
the relationship between Fenix, on one side, and Luiz and his spouse, Mrs.
Terezinha dos Santos Rodrigues, on the other, and related, directly or
indirectly, to acts, facts or omissions occurred on the date hereof, or even if
prior to the date hereof but related to the transactions contemplated hereby.
9.10 It is hereby expressly agreed by Buyer and Sellers that any
indemnity payments by Sellers to Buyer as per this Section 9 shall be made free
and clear of any and all taxes, costs, expenses and legal fees, which amounts
shall be borne by Sellers.
9.11 Any amounts which fail to be paid by Sellers as required by the
provisions of this Section 9 shall be subject to (i) monetary correction as per
IPC-R (in accordance with the applicable legislation then in force), (ii) a fine
of ten percent (10%) of the updated amount, and
16
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(iii) default interest of one percent (1%) per month or fraction thereof.
10. LAW AND JURISDICTION.
10.1 This Agreement shall be governed and construed in accordance
with the law of the Federative Republic of Brazil.
10.2 Any dispute under this Agreement or pertaining to any claim or
breach of, or any default under, any provision of this Agreement shall be
resolved by the exclusive jurisdiction of the Courts sitting in the City of Sao
Paulo, State of Sao Paulo, with the exclusion of any other court, no matter how
privileged it may be.
11. MISCELLANEOUS.
11.1 Entire Agreement. This Agreement (which includes the Exhibits
hereto), the Disclosure Letters, and the other documents and agreements
delivered in connection with this Agreement contain the entire agreement among
the parties hereto with respect to the transactions contemplated herein and
supersede all other prior arrangements made by any of them with respect thereto,
except for a certain Letter of Intent executed among the parties on September 1,
1995. No representation or warrant is made by any party hereto with respect to
the subject matter hereof other than as expressly set forth in any of the
aforementioned documents.
11.2 Modification and Amendment. This Agreement cannot be orally
changed, amended or terminated, and no provision or requirement hereof may be
orally waived. Any change, amendment, termination or waiver hereof shall only be
by agreement in writing signed by the party against whom enforcement of any
change, amendment termination or waiver is sought.
11.3 Binding upon Successors. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto and their respective
heirs, legal representatives, successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies under or by reason of this Agreement.
11.4 Death. In the event of death of any of the Sellers prior to the
payment of any and all installments of the Purchase Price, any installment then
due to such deceased party shall be paid to his estate until such credits are
allotted to one or more heirs by virtue of Court partition.
11.5 Notices. All notices, consents, requests, instruments, approvals
and other communications provided for herein shall be in writing and shall be
deemed validly given when delivered personally or sent by certified mail, return
receipt requested, postage prepaid, to the addresses described in the Preamble
of this Agreement or at such other address as the parties
17
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<PAGE>
shall provide by notice as herein provided. Notice of change of address shall
be effective only upon receipt.
11.6 Counterparts. This Agreement may be executed by one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.7 Section Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, each of the parties have caused this Agreement to
be duly executed all as of the day and year first above written.
/s/ Peter Kaufmann
------------------------------------
ALLIANCE AMERICAS, INC.
By: Peter Kaufmann
Title: President
/s/ Luiz Domingos Rodrigues
------------------------------------
LUIZ DOMINGOS RODRIGUES
/s/ Terezinha Dos Santos Rodrigues
------------------------------------
TEREZINHA DOS SANTOS RODRIGUES
/s/ Peter Kaufmann
------------------------------------
ALLIANCE ENTERTAINMENT CORP.
By: Peter Kaufmann
Title: Executive Vice President
/s/ Mauricio Jose Chiavatta
------------------------------------
FINANCIERA FENIX S.A.
By: Mauricio Jose Chiavatta
Title: Attorney
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF MARCH 31, 1996 AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 992
<SECURITIES> 0
<RECEIVABLES> 159,628
<ALLOWANCES> 0
<INVENTORY> 204,291
<CURRENT-ASSETS> 403,963
<PP&E> 24,942
<DEPRECIATION> 0
<TOTAL-ASSETS> 614,992
<CURRENT-LIABILITIES> 289,600
<BONDS> 232,891
0
0
<COMMON> 3
<OTHER-SE> 83,884
<TOTAL-LIABILITY-AND-EQUITY> 614,992
<SALES> 176,188
<TOTAL-REVENUES> 176,188
<CGS> 143,394
<TOTAL-COSTS> 143,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,725
<INCOME-PRETAX> (9,744)
<INCOME-TAX> (5,116)
<INCOME-CONTINUING> (4,628)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,628)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
