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 JUNE
30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
- ---------------------------------- TO ----------------------------------.
Commission File Number 1-13054
ALLIANCE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3645913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 935-6662
( Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.Yes / X / No / /
As of August 9, 1996, the number of shares outstanding of the issuer's common
stock was 38,006,094.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
PART I--FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholders' 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 15
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
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, June 30,
1995 1996
<S> <C> <C>
------------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,852 $ 5,939
Accounts receivable, less allowance for
doubtful accounts 193,785 147,117
Inventory 192,604 174,457
Advances and other prepaid expenses 24,609 28,521
Refundable income taxes 783 12,644
Deferred income taxes 9,061 11,752
--------------- ---------------
Total current assets 433,694 380,430
--------------- ---------------
INVESTMENTS, at cost 782 785
PROPERTY AND EQUIPMENT 24,826 25,131
COPYRIGHTS, less accumulated amortization 64,150 66,080
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED,
less accumulated amortization 97,262 96,015
COVENANTS NOT TO COMPETE, less accumulated
amortization 10,586 9,476
DEFERRED INCOME TAXES 1,894 2,461
OTHER ASSETS, less accumulated amortization 12,214 11,639
------------- -------------
TOTAL ASSETS $ 645,408 $ 592,017
=============== =============
CURRENT LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 73,700 $ 80,311
Current maturities of long-term debt 8,983 9,567
Current obligations under capital leases 432 447
Accounts payable and accrued expenses 229,088 193,841
Income taxes payable 434 3,820
--------------- ---------------
Total current liabilities 312,637 287,986
--------------- ---------------
LONG-TERM DEBT 234,622 231,018
OBLIGATIONS UNDER CAPITAL LEASES 367 306
DEFERRED INCOME TAXES 8,955 8,285
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 100,000,000
shares authorized, shares issued and outstanding
1995 35,638,331; 1996 37,956,094 3 3
Additional paid-in capital 71,276 74,177
Employee notes for stock purchases (67) (67)
Retained earnings (deficit) 17,369 (9,156)
Foreign currency translation adjustment 246 (535)
--------------- ---------------
Total stockholders' equity 88,827 64,422
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 645,408 $ 592,017
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- ------------------------------
1995 1996 1995 1996
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 158,768 $ 163,168 $ 309,017 $ 339,356
Cost of sales 127,846 142,072 249,420 285,466
--------------- --------------- --------------- --------------
Gross profit 30,922 21,096 59,597 53,890
Selling, general and administrative expenses 19,726 36,310 39,262 67,479
Amortization of intangible assets 2,479 2,906 4,946 5,754
--------------- --------------- --------------- --------------
22,205 39,216 44,208 73,233
--------------- --------------- --------------- --------------
8,717 (18,120) 15,389 (19,343)
--------------- --------------- --------------- --------------
Other income (expense)
Amortization of deferred financing costs (247) (467) (491) (936)
Other income (expense) - net (175) (977) (82) (773)
Interest expense (3,755) (8,585) (7,300) (16,841)
--------------- --------------- --------------- --------------
(4,177) (10,029) (7,873) (18,550)
--------------- --------------- --------------- --------------
Income (loss) before income taxes 4,540 (28,149) 7,516 (37,893)
Provision (benefit) for income taxes 1,952 (6,252) 3,232 (11,368)
--------------- --------------- --------------- --------------
Net income (loss) $ 2,588 $ (21,897) $ 4,284 $ (26,525)
=============== =============== =============== ==============
Earnings (loss) per common share and
common share equivalents $ .07 $ (.59) $ .12 $ (0.72)
=============== =============== =============== ==============
Weighted average number of shares of
common stock and equivalents outstanding 37,199,379 36,996,375 36,070,404 36,797,213
=============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(Amounts in Thousands, Except Share Data)
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 2,317,763 shares
of common stock - 2,901 - - -
Net income (loss) - - - (26,525) -
Translation adjustment - - - - (781)
=============== =============== =============== ============== ===============
Balance at June 30, 1996 $ 3 $ 74,177 $ (67) $ (9,156) $ (535)
=============== =============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Six Months Ended
June 30,
-------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 4,284 (26,525)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 7,265 9,723
Change in assets and liabilities:
Decrease in accounts receivable 4,534 47,313
(Increase) decrease in inventory (10,523) 17,791
(Increase) in prepaid expenses and other (6,419) (4,050)
(Increase) decrease in deferred income taxes 2,490 (3,927)
(Decrease) in accounts payable and
accrued expenses (26,130) (38,661)
(Decrease) in income taxes payable (5,783) (8,477)
--------------- ---------------
Net cash used in operating activities (30,282) (6,813)
--------------- ---------------
Cash Flows From Investing Activities
Purchase of property and equipment (4,856) (3,097)
(Increase) in copyrights (4,754) (4,052)
(Increase) in other assets (1,012) (417)
Purchase of businesses including costs,
net of cash acquired (155) 225
--------------- ---------------
Net cash used in investing activities (10,777) (7,341)
--------------- ---------------
Cash Flows From Financing Activities
Increase in excess of outstanding
checks over bank balance 1,699 824
Proceeds from issuance of stock 10,161 2,901
Proceeds from borrowings 122,522 145,740
Payments on borrowings (95,764) (142,195)
Payments for financing costs (43) (29)
--------------- ---------------
Net cash provided by financing activities 38,575 7,241
--------------- ---------------
Net decrease in cash and cash equivalents (2,484) (6,913)
Cash and cash equivalents
Beginning of period 8,230 12,852
--------------- ---------------
End of period $ 5,746 $ 5,939
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBISIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(Amounts in Thousands)
Six Months Ended
June 30,
-------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash payments for interest $ 8,220 $ 15,778
Cash payments for income taxes $ 5,276 $ 1,180
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.
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited balance sheet as of June 30, 1996 and the unaudited statements of
operations, cash flows and stockholders' equity for the three month and six
month periods ended June 30, 1995 and 1996 (interim financial information), are
unaudited and have generally been prepared on the same basis as the audited
financial statements. In the opinion of Alliance Entertainment Corp. (the
"Company"), the interim financial information includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair statement
of the results of the interim periods.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. The
results of operations for the three months and six months ended June 30, 1996,
may not be indicative of the operating results for the full year or any interim
period.
Certain amounts have been reclassified to conform with the presentation in the
current period.
Restructuring Charges
During the second quarter the Company recognized certain non-recurring expenses
(the "Restructuring Charges") relating to the consolidation and restructuring of
certain of the Company's distribution operations as well as charges relating to
the current industry climate which totaled $17.5 million. Approximately $11.0
million of these charges resulted in an increase to cost of goods sold, while
the remaining $6.5 million was a charge against selling, general and
administrative expenses. The Restructuring Charges relating to the Company's
distribution operations include costs relating to the closure of existing
facilities and consolidation of operations in the Coral Springs, Florida
facility including, lease termination costs, severance and other incremental
costs as well as expenses relating to the further reduction of inventory levels
once the consolidation has been completed. The Restructuring Charges relating to
the current industry environment relate to further strengthening the Company's
reserve position with regard to customer returns, return penalties to vendors,
and allowance for doubtful accounts.
$42.25 Million Issuance of Convertible Preferred Stock
On July 16, 1996, the Company entered into a Preferred Stock Purchase Agreement
with BT Capital Partners, Inc. ("BT"), an affiliate of Bankers Trust New York
Corporation, and BCI Growth IV, LP ("BCI"), (the "Preferred Stock Purchase
Agreement"), pursuant to which the Company issued a total of $42.25 million of
new preferred stock, the proceeds of which will be used to fund the purchase of
catalog and other proprietary rights and for general corporate purposes. BT
purchased $35 million and BCI purchased $7.25 million of the preferred stock.
The preferred stock has a cumulative dividend rate of 7 7/8% per annum, payable
in additional shares of preferred stock. After stockholder approval of the
preferred stock conversion right is obtained, the preferred stock will be
convertible into shares of the Company's common stock at a conversion rate equal
to $7.25 per share of common stock. In connection with the preferred stock
issuance, the Company amended and restated its term loans and revolving credit
agreements to, among other things, waive any mandatory prepayment of the term
loans with respect to this issuance.
<PAGE>
EMI Catalog Distribution Agreement
On June 21, 1996, the Company and EMI-Capitol Music Group North America entered
into an exclusive Distribution Agreement (the "Distribution Agreement") under
which Alliance will market and sell selected EMI-Capitol catalog titles in the
United States. The five year agreement (which contains Alliance annual purchase
commitments of approximately $16 million) encompasses approximately 450 deep
catalog titles by such diverse artists as Judy Garland, The Band, Willie Nelson,
Ashford & Simpson and Ten Years After.
Legal Proceedings
Six Palms Litigation Dismissed. 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 sought 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. On July 3,1996, the
United States District Court for the Central District of California granted the
respondents' motion to dismiss the Plaintiff's action for lack of jurisdiction
and proper venue.
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 a 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 earnings per share under the new method. The Company anticipates
adopting the disclosure provisions of SFAS No. 123, although the impact of such
disclosure has not yet been determined.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Alliance Entertainment Corp. ("Alliance" or the "Company") is the largest full
service distributor of pre-recorded music and music related products in the
United States and is also actively engaged in the acquisition and exploitation
of proprietary 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.
<PAGE>
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 One Stop Group consists of Bassin Distributors, CD One
Stop and Abbey Road Distributors. The Independent Distribution Group (which
consists of AEC Label Development, Independent National Distributors, Inc.
("INDI"), One Way Records, Inc. ("One Way") and Passport Music Distribution)
specializes in the domestic wholesale distribution of prerecorded music
manufactured by third party independent labels on an exclusive and regional
basis. Two of these operations, INDI and One Way, were strategic acquisitions
that were consumated in the second half of 1995. These acquired business units
have 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 outside the United States, primarily in Brazil and
Canada. The International Distribution Group consists of (i) the Company's
Brazilian operations conducted through DisqueMusic Comercial Importadora Ltda.,
Brasison Distribuidora de Discos Ltda. and Distribuidora de Discos E Fitas Canta
Brasil Ltda. (Canta Brasil was acquired by the Company in October 1995) and (ii)
the Company's Canadian operation conducted through The St. Clair Entertainment
Group Inc.("St. Clair").
The Company's proprietary products business segment is conducted through its
Proprietary Products Group. The Proprietary Products Group specializes in the
acquisition and commercial exploitation of copyrights owned by the Company. The
Company's Proprietary Products Group consists of Castle Communications PLC,
Castle Communications (U.S.), Inc., Castle Communications (Brazil) Ltda.,
Concord Jazz, Inc. and the proprietary products operations of One Way and St.
Clair.
Recent Events
Restructuring Charges
During the second quarter the Company recognized certain non-recurring expenses
(the "Restructuring Charges") relating to the consolidation and restructuring of
certain of the Company's distribution operations as well as charges relating to
the current industry climate which totaled $17.5 million. Approximately $11.0
million of these charges resulted in an increase to cost of goods sold, while
the remaining $6.5 million was a charge against selling, general and
administrative expenses. The Restructuring Charges relating to the Company's
distribution operations include costs relating to the closure of existing
facilities and consolidation of operations in the Coral Springs, Florida
facility including, lease termination costs, severance and other incremental
costs as well as expenses relating to the further reduction of inventory levels
once the consolidation has been completed. The Restructuring Charges relating to
the current industry environment relate to further strengthening the Company's
reserve position with regard to customer returns, return penalties to vendors,
and allowance for doubtful accounts.
<PAGE>
$42.25 Million Issuance of Convertible Preferred Stock
On July 16, 1996, the Company entered into a Preferred Stock Purchase Agreement
with BT Capital Partners, Inc. ("BT"), an affiliate of Bankers Trust New York
Corporation, and BCI Growth IV, LP ("BCI"), (the "Preferred Stock Purchase
Agreement"), pursuant to which the Company issued a total of $42.25 million of
new preferred stock, the proceeds of which will be used to fund the purchase of
catalog and other proprietary rights and for general corporate purposes. BT
purchased $35 million and BCI purchased $7.25 million of the preferred stock.
The preferred stock has a cumulative dividend rate of 7 7/8% per annum, payable
in additional shares of preferred stock. After stockholder approval of the
preferred stock conversion right is obtained, the preferred stock will be
convertible into shares of the Company's common stock at a conversion rate equal
to $7.25 per share of common stock. In connection with the preferred stock
issuance, the Company amended and restated its term loans and revolving credit
agreements to, among other things, waive any mandatory prepayment of the term
loans with respect to this issuance.
EMI Catalog Distribution Agreement
On June 21, 1996, the Company and EMI-Capitol Music Group North America entered
into an exclusive Distribution Agreement (the "Distribution Agreement") under
which Alliance will market and sell selected EMI-Capitol catalog titles in the
United States. The five year agreement (which contains Alliance annual purchase
commitments of approximately $16 million) encompasses approximately 450 deep
catalog titles by such diverse artists as Judy Garland, The Band, Willie Nelson,
Ashford & Simpson and Ten Years After.
Matrix Software Acquisition
On July 16, 1996, the Company entered into a letter of intent to acquire Matrix
Software ("Matrix"). Matrix is the creator of the All-Music and All-Movie
Guides, print and software encyclopedic databases widely used by music retailers
and the key element of search engines for most On-line/web sites that sell
pre-recorded music and video. The transaction is expected to close by September
15, 1996.
Industry Conditions
During the six months ended June 30, 1996, the Company's distribution segment
experienced lower than anticipated net sales to its customers as a result of the
continued weak music retail environment. This weakness has particularly impacted
the Independent Distribution Group, as continued retail store closings have
resulted in higher than expected product returns from its customers. During the
second quarter, the Company's net sales were negatively impacted by: (i) higher
than anticipated customer returns; (ii) limited customer budgets allocated to
the purchase of new release and catalog product and (iii) the lack of successful
new product released industry wide during 1996.
Results of Operations
The following discussion and analysis should be read in conjunction with the
unaudited financial statements of the Company and the notes thereto included
elsewhere in this report.
The following table sets forth, for the three months and six months ended June
30, certain operating data as a percentage of net sales.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 (1) June 30 (2)
------------------------------------ -----------------------------------------
1996 Pre- 1996 Pre-
Restructuring Restructuring
1995 1996 Charge 1995 1996 Charge
------ ------ ------------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross Profit 19.5 12.9 19.7 19.3 15.9 19.1
Selling, General & Administrative 12.4 22.2 18.3 12.7 19.9 17.1
Expenses
Amortization of Intangible Assets 1.6 1.8 1.8 1.6 1.7 1.7
Other income (expense) primarily interest (2.6) (6.1) (6.1) (2.6) (5.5) (5.5)
expense
Provision (benefit) for income taxes 1.2 (3.8) (1.4) 1.1 (3.4) (1.6)
Net Income (loss) 1.6 (13.4) (5.1) 1.4 (7.8) (3.6)
<FN>
(1) Cost of sales and selling, general & administrative expenses for the three
months ended June 30, 1996 include Restructuring Charges of $11.0 million and
$6.5 million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Events - Restructuring
Charges" and "Results of Operations-Three Months Ended June 30, 1996 vs.Three
Months Ended June 30, 1995."
(2) Cost of sales and selling, general & administrative expenses for the six
months ended June 30, 1996 include Restructuring Charges of $11.0 million and
$9.4 million ($2.9 million of which reflects non-recurring expenses related to
the termination of the proposed merger of the Company and Metromedia
International Group, Inc.), respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events
Restructuring Charges" and "Results of Operations-Six Months Ended June 30, 1996
vs. Six Months Ended June 30, 1995."
</FN>
</TABLE>
The following table sets forth, for the three months and six months ended June
30, 1996, certain operating data by business segment, excluding corporate
related expenses and assets.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------- ------------------
Proprietary Proprietary
Distribution Products Distribution Products
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $147,143 $15,881 $304,206 $34,881
Depreciation & Amortization 999 1,929 2,184 3,816
Operating Income - Pre-Restructuring 3,921 129 8,423 1,213
Charges (1)
Operating Income (loss) - Post- (13,416) (37) (8,914) 1,047
Restructuring Charges (1)
Capital Expenditures 810 705 1,387 1,053
Identifiable Assets 312,787 130,333
<PAGE>
<FN>
(1) See "Management's Discussion and Analysis of Financial Condition and Results of Operations -
Recent Events - Restructuring Charges"
</FN>
</TABLE>
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995
Net sales increased from $158.8 million for the three months ended June 30, 1995
to $163.2 million for the three months ended June 30, 1996, or 2.8%, as a result
of (i) the inclusion of three months of net sales of INDI and One Way; and (ii)
increased domestic net sales to existing as well as new customers, despite less
than anticipated sales in the industry during this period. Net sales
attributable to the Company's distribution segment for the three months ended
June 30, 1996 were approximately $147.1 million compared to $143.5 million for
the three months ended June 30, 1995. Net sales attributable to the Company's
proprietary product segment for the three months ended June 30, 1996 were
approximately $15.9 million, compared to $15.3 million for the three months
ended June 30, 1995. Net sales for the period in the proprietary products
segment were positively impacted by the continued exploitation of acquired
catalogs and the expansion of the domestic label groups. During the three months
ended June 30, 1996, the Company's distribution segment, in particular the
Independent Distribution Group, continued to experience lower than anticipated
net sales to its customers in part due to: (i) higher than expected product
returns from customers as a result of weak retail sales and store closings,
especially with respect to traditional retailers; (ii) limited budgets allocated
to the purchase of new product by certain of the Company's customers; and (iii)
the lack of successful new product released industry wide during the first and
second quarters of 1996. The Company's business is seasonal with the smallest
percentage of sales typically occurring in the first quarter and the largest
percentage of annual sales typically occurring in the fourth quarter.
The Company's gross margin decreased to 12.9% for the three months ended June
30, 1996 from 19.5% for the three months ended June 30, 1995. Excluding the
impact of the Restructuring Charges in cost of sales, the Company's gross margin
would have been 19.7% for the three months ended June 30, 1996. For the three
months ended June 30, 1996, the gross margin of the distribution segment was
9.4%, compared to 17.5% for the three months ended June 30, 1995. Prior to the
impact of the Restructuring Charges, gross margins for this segment would have
been 16.9% for the three months ended June 30, 1996. For the three months ended
June 30, 1996, the gross margin of the proprietary products segment was 44.5%
compared to 38.3% for the three months ended June 30, 1995.
Selling, general and administrative expenses increased from $19.7 million, or
12.4% of net sales, for the three months ended June 30, 1995 to $36.3 million,
or 22.2% of net sales, for the three months ended June 30, 1996. The Company's
selling, general and administrative expenses as a percentage of net sales
increased on an overall basis in the period for several reasons including: (i)
Restructuring Charges of approximately $6.5 million; (ii) the incremental costs
of processing higher than anticipated customer returns during the period; (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 the third and fourth quarter of 1996; and (iv) the inclusion of
three months results for INDI and One Way which typically carry higher expenses
as a percentage of sales.
Net income for the three months ended June 30, 1995 was $2.6 million compared to
a net loss in the three months ended June 30, 1996 of $21.9 million primarily as
a result of the results of operations and the Restructuring Charges discussed
above combined with increased interest expense of $4.8 million resulting from:
(a) higher interest rates associated with the Company's borrowings under the
<PAGE>
11 1/4% Senior Subordinated Notes, the proceeds of which were utilized to
finance strategic acquisitions; (b) increased working capital requirements
related to the increase in sales, as well as the working capital needs of
recently acquired companies; and (c) 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.
Six Months Ended June 30, 1996 vs. Six Months Ended June 30, 1995
Net sales increased from $309 million for the six months ended June 30, 1995 to
$339.4 million for the six months ended June 30, 1996, or 9.8%, as a result of
(i) the inclusion of six months of net sales of INDI and One Way; and (ii)
increased domestic net sales to existing as well as new customers, despite less
than anticipated sales in the industry during this period. Net sales
attributable to the Company's distribution segment for the six months ended June
30, 1996 were approximately $304.2 million compared to $276.8 million for the
six months ended June 30, 1995. Net sales attributable to the Company's
proprietary product segment for the six months ended June 30, 1996 were
approximately $34.9 million, compared to $32.2 million for the six months ended
June 30, 1995. Net sales for the period in the proprietary products segment were
positively impacted by the continued exploitation of acquired catalogs and the
expansion of the domestic label groups. During the six months ended June 30,
1996, the Company's distribution segment, in particular the Independent
Distribution Group, continued to experience lower than anticipated net sales to
its customers in part due to: (i) higher than expected product returns from
customers as a result of weak retail sales and store closings, especially with
respect to traditional retailers; (ii) limited budgets allocated to the purchase
of new product by certain of the Company's customers; and (iii) the lack of
successful new product released industry wide during the first and second
quarters of 1996. The Company's business is seasonal with the smallest
percentage of sales typically occurring in the first quarter and the largest
percentage of annual sales typically occurring in the fourth quarter.
The Company's gross margin decreased to 15.9% for the six months ended June 30,
1996 from 19.3% for the six months ended June 30, 1995. Excluding the impact of
the Restructuring Charges in cost of sales, the Company's gross margin would
have been 19.1% for the six months ended June 30, 1996. For the six months ended
June 30, 1996, the gross margin of the distribution segment was 12.8%, compared
to 16.6% for the six months ended June 30, 1995. Prior to the impact of the
Restructuring Charges, gross margins for this segment would have been 16.4% for
the six months ended 1996. For the six months ended June 30, 1996, the gross
margin of the proprietary products segment was 42.5% compared to 42% for the six
months ended June 30, 1995.
Selling, general and administrative expenses increased from $39.3 million, or
12.7% of net sales, for the six months ended June 30, 1995 to $67.5 million, or
19.9% of net sales, for the six months ended June 30, 1996. The Company's
selling, general and administrative expenses as a percentage of net sales
increased on an overall basis in the period for several reasons including: (i)
non-recurring charges of approximately $9.4 million associated with the
Restructuring Charges, and with expenses related to the termination of the
proposed merger of the Company and Metromedia International Group, Inc.; (ii)
the incremental costs of processing higher than anticipated customer returns
during the period; (iii) costs associated with the duplication of certain
overhead related to the consolidation of operations within the One Stop Group
which is anticipated to be completed in the third and fourth quarter of 1996;
and (iv) the inclusion of six months results for INDI and One Way which
typically carry higher expenses as a percentage of sales.
<PAGE>
Net income for the six months ended June 30, 1995 was $4.3 million compared to a
net loss in the six months ended June 30, 1996 of $26.5 million primarily as a
result of the results of operations, the Restructuring Charges discussed above,
and increased interest expense of $9.5 million resulting from: (a) higher
interest rates associated with the Company's borrowings under the 11 1/4% Senior
Subordinated Notes, the proceeds of which were utilized to finance strategic
acquisitions; (b) increased working capital requirements related to the increase
in sales, as well as the working capital needs of recently acquired companies;
and (c) 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 six months ended June 30, 1996, were
$4.6 million compared to $4.9 million for the six months ended June 30, 1995.
The Company anticipates that capital expenditures for the twelve months ended
December 31, 1996 will be approximately $11 million primarily 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 $4.1 million for the acquisition of proprietary music rights
in the six months ended June 30, 1996, compared to $4.8 million for the six
months ended June 30, 1995. The Company anticipates continued expenditures
related to the acquisition of proprietary music rights as opportunities are
presented that are consistent with the Company's long term objectives.
Cash Provided from Financing Activities
The Company anticipates that while cash flows from operations will be sufficient
to satisfy its debt service obligations, the cash flows required for the
anticipated growth of the Company and the Company's capital expenditure program
will be provided primarily by borrowings under the Company's Credit Agreement.
In addition, on July 16, 1996, the Company entered into a Preferred Stock
Purchase Agreement with BT Capital Partners, Inc. and BCI Growth IV, LP,
pursuant to which the Company issued a total of $42.25 million of new preferred
stock, the proceeds of which will be used to fund the purchase of catalog and
other proprietary rights and for general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations Recent
Events - $42.25 Million Issuance of Convertible Preferred Stock". In addition,
the Company also receives proceeds from the issuance of common stock upon the
exercise of stock options and warrants.
FORWARD-LOOKING STATEMENTS
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. In addition
to the factors discussed above, among the factors that could cause actual
results to differ materially are the following: availability of new release
product, pricing strategies of competitors, product returns from customers and
overall economic conditions.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Six Palms Litigation Dismissed
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 sought 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. On July 3, 1996, the United States District
Court for the Central District of California granted the respondents' motion to
dismiss the plaintiff's action for lack of jurisdiction and proper venue.
<PAGE>
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.*
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).)
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).)
- -------------------------
* Filed herewith
<PAGE>
4.7 Second Supplemental Indenture dated September 6, 1995, among the Company,
the Subsidiary Guarantors and Bankers Trust Company, as trustee. (Incorporated
by reference from Exhibit 4.5 filed in the Registrant's Amendment No. 1 to
Registration Statement on Form S-4 filed September 22, 1995 (Registration No.
33-95386).)
4.8 Purchase Agreement made as of May 18, 1995, between AEC Americas Inc. and
Bain Capital Fund IV L.P., Bain Capital Fund IV-B L.P., BCIP Associates and BCIP
Trust Associates, L.P. (Incorporated by reference from Exhibit 4.5 filed in the
Registrant's Form 10-Q for the period ended June 30, 1995 (File No. 1-13054).)
4.9 Parent Covenant Agreement dated as of May 18, 1995, by and between Alliance
Entertainment Corp., AEC Americas, Inc. and Bain Capital Fund IV L.P., Bain
Capital Fund IV-B L.P., BCIP Associates and BCIP Trust Associates, L.P.
(Incorporated by reference from Exhibit 4.6 filed in the Registrant's Form 10-Q
for the period ended June 30, 1995 (File No 1-13054).)
4.10 Third Supplemental Indenture dated February 26, 1996, among the Company,
the Subsidiary Guarantors and Bankers Trust Company as Trustee. (Incorporated by
reference from Exhibit 4.10 filed in the Registrant's Form 10-Q for the period
ended March 31, 1996 (File No. 1-13054).)
4.11 Preferred Stock Purchase Agreement dated July 16, 1996, between the
Company, BT Capital Partners, Inc. and BCI Growth IV, L.P. (Incorporated by
reference from Exhibit 4.11 filed in the Registrant's Form 8-K dated July 16,
1996. (File No.1-13054).)
10.1 Incentive Stock Option Plan for Executives of Jerry Bassin, Inc.
(Incorporated by reference from Exhibit 10.1 filed as a part of the Proxy and
Prospectus in connection with the Special Meeting held on November 30, 1993
(File No. 33-68816).)
10.2 1992 Non-Qualified Stock Option Plan. (Incorporated by reference from
Exhibit 10.2 filed as part of the Proxy and Prospectus in connection with the
Special Meeting held on November 30, 1993 (File No.33-68816).)
10.3 1993 Stock Option Plan. (Incorporated by reference from Exhibit10.3 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).)
<PAGE>
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 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
<PAGE>
Incorporated. (Incorporated by reference from Exhibit 10.30 filed in the
Registrant's Form 10-K for the year ended December 31, 1993 (File No. 1-13054).)
10.20 Engagement Letter dated May 27, 1993, between the Registrant and Bear,
Stearns & Co., Inc. (Incorporated by reference from Exhibit 10.31 filed in the
Registrant's Form 10-K for the year ended December 31, 1993 File No. 1-13054).)
10.21 Asset Purchase Agreement dated December 16, 1993, between the Registrant
and Nova Distributing Corp. (Incorporated by reference from Exhibit 10.32 filed
in the Registrant's Form 10-K for the year ended December 31, 1993 (File No.
1-13054).)
10.22 Merger Agreement dated as of February 4, 1994, between the Registrant and
Airlie, Inc. (Incorporated by reference from Exhibit 10.35 filed in the
Registrant's Form 8-K dated February 4, 1994 (File No. 1-13054).)
10.24 Stock Purchase Agreement dated as of April 17, 1994, by and among
Alliance, Premier Artists Services and the shareholders thereof. (Incorporated
by reference from Exhibit 10.39 filed in the Registrant's Form 8-K dated May 26,
1994 (File No. 1-13054).)
10.25 Offer Document dated July 28, 1994, from AEC Holdings (UK) Limited to the
Shareholders of Castle and press release issued in the United Kingdom in
connection therewith. (Incorporated by reference from Exhibit 10.41 filed in the
Registrant's Form 10-Q for the quarterly period ended June 30, 1994 (File No.
1-13054).)
10.26 Lease between the Registrant and The Northwestern Mutual Life Insurance
Company dated January 12, 1995, relating to the premises located at 15050
Shoemaker Avenue, Santa Fe Springs, California. (Incorporated by reference from
Exhibit 10.45 filed in the Registrant's Form 10-K for the fiscal year ended
December 31, 1994 (File No.1-13054).)
10.27 Third Amended and Restated Credit Agreement and Guaranty dated as of July
25, 1995, among the Company, the Guarantors, the Banks and The Chase Manhattan
Bank, N.A., as Agent. (Incorporated by reference from Exhibit 10.50 filed in the
Registrant's Registration Statement on Form S-4 filed August 3, 1995
(Registration No. 33-95386).)
10.28 Merger Agreement dated as of September 1, 1995, relating to One Way
Records, Inc. (Incorporated by reference from Exhibit 10.51 filed in the
Registrant's Amendment No. 1 to Registration Statement on Form S-4 filed
September 22, 1995 (Registration No. 33-95386).)
10.29 Merger Agreement dated as of September 1, 1995, relating to Deja Vu Music,
Inc. (Incorporated by reference from Exhibit 10.52 filed in the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 filed September 22, 1995
(Registration No. 33-95386).)
10.30 Management Consulting Agreement dated as of May 10, 1995, among Alliance
Entertainment Corp. and Bain Capital, Inc.(Incorporated by reference from
Exhibit 10.51 filed in the Registrant's Form 10-Q for the period ended June 30,
1995 (File No. 1-13054).)
10.31 Merger Agreement by and between the Company, INDI Acquisition Corp. and
INDI Holdings, Inc., dated July 17, 1995.(Incorporated by reference from Exhibit
2.3 filed in the Registrant's Form 10-Q for the period ended June 30, 1995.
(File No.1-13054).)
10.32 Employment Agreement dated as of July 1, 1995, between the Company and
Christopher J. Joyce.(Incorporated by reference from Exhibit 10.32 filed in the
Registrant's Form 10-Q for the Quarter ended March 31, 1996.(File No. 1-13054).)
<PAGE>
10.33 Quota Purchase Agreement dated October 11, 1995, relating to the
acquisition of Distribuidora de Discos E Fitas Canta Brasil Ltda.(Incorporated
by reference from Exhibit 10.33 filed in the Registrant's Form 10-Q for the
Quarter ended March 31, 1996. (File No. 1-13054).)
10.34 Distribution Agreement dated June 21, 1996, between the Company and
EMI-Capitol Music Group. (Incorporated by reference from Exhibit 2 filed
with the Registrant's Form 8-K dated June 21, 1996. (File No. 1-13054).)
10.35 Letter of Intent dated July 1, 1996 between the Company and Matrix
Software, Inc.*
10.36 First Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of September 30, 1995, among the Company, AEC Holdings (UK)
Limited, Castle Communication Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent.*
10.37 Second Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of December 31, 1995, among the Company, AEC Holdings (UK)
Limited, Castle Communication Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent.*
10.38 Third Amendment to Third Amended and Restated Credit Agreement and
Guaranty dated as of June 30, 1996, among the Company, AEC Holdings (UK)
Limited, Castle Communication Limited, the Guarantors, the Banks and The Chase
Manhattan Bank, N.A., as Agent.*
11.1 Statement Re: Computation of Earnings (Loss) per Share. (Incorporated
by reference from Exhibit 11.1 filed with the Registrant's Form 10-K for the
year ended December 31, 1995. (File No. 1-13054).)
27.1 Financial Data Schedule.*
(b) Reports on Form 8-K
The Company's Current Report on Form 8-K, dated July 16, 1996, related to the
issuance of $42.25 million of Preferred Stock by the Company to BT Capital and
BCI Growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Events - Preferred Stock Issuance"
The Company's Current Report on Form 8-K, dated June 21, 1996, related to the
execution of the Distributorship Agreement entered in between the Company and
EMI-Capitol Music Group North America. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Recent Events - EMI Catalog
Distribution Agreement"
- -------------------------
* Filed herewith
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Timothy Dahltorp
------------------------------------
Timothy Dahltorp
Executive Vice President,
Chief Financial Officer and Treasurer
Date: August 14, 1996
<PAGE>
Exhibit Index
Exhibit No. Exhibit Description Page No.
2.1 Merger Agreement dated *
December 20, 1995, by
and among Metromedia
International Group, Inc.,
Alliance Merger Corp.
and the Registrant.
2.2 Termination and Release *
Agreement dated April
29, 1996.
3.1 Certificate of *
Incorporation, as amended.
3.2 By-Laws, as amended. 29
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.
<PAGE>
4.6 Purchase Agreement dated *
July 18, 1995, among the
Company, the Guarantors and
the Initial Purchasers.
4.7 Supplemental Indenture *
dated September 6, 1995, among
the Company, the Subsidiary
Guarantors and Bankers Trust
Company, as trustee.
4.8 Purchase Agreement made *
as of May 18, 1995,
between AEC Americas
Inc. and Bain Capital
Fund IV L.P., Bain
Capital Fund IV-B L.P.,
BCIP Associates and
BCIP Trust Associates,L.P.
4.9 Parent Covenant Agreement *
dated as of May 18, 1995,
by and between Alliance
Entertainment Corp.,
AEC Americas, Inc. and
Bain Capital Fund IV
L.P., Bain Capital Fund
IV-B L.P., BCIP Associates
and BCIP Trust Associates, L.P.
4.10 Third Supplemental *
Indenture dated February
26, 1996, among the
Company, the Subsidiary
Guarantors and Bankers
Trust Company as Trustee.
4.11 Preferred Stock Purchase *
Agreement dated July 16,
1996, between the
Company, BT Capital
Partners, Inc. and BCI
Growth IV, L.P.
10.1 Incentive Stock Option *
Plan for Executives of
Jerry Bassin, Inc.
<PAGE>
10.2 1992 Non-Qualified Stock *
Option Plan.
10.3 1993 Stock Option Plan. *
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.
<PAGE>
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.
<PAGE>
10.19 Engagement Letter dated *
September 9, 1993, between
the Registrant and PaineWebber
Incorporated.
10.20 Engagement Letter dated *
May 27, 1993, between
the Registrant and Bear,
Stearns & Co., Inc.
10.21 Asset Purchase Agreement *
dated December 16, 1993,
between the Registrant and
Nova Distributing Corp.
10.22 Merger Agreement dated as *
of February 4, 1994,
between the Registrant and
Airlie, Inc.
10.24 Stock Purchase Agreement *
dated as of April 17, 1994,
by and among Alliance,
Premier Artists Services
and the shareholders
thereof.
10.25 Offer Document dated *
July 28, 1994, from AEC
Holdings (UK) Limited to the
Shareholders of Castle and
press release issued in the
United Kingdom in connection
therewith.
10.26 Lease between the Registrant *
and The Northwestern Mutual
Life Insurance Company
dated January 12, 1995,
relating to the premises
located at 15050 Shoemaker
Avenue, Santa Fe Springs,
California.
10.27 Third Amended and Restated *
Credit Agreement and
Guaranty dated as of
July 25, 1995, among the
Company, the Guarantors,
the Banks and The Chase Manhattan
Bank, N.A., as Agent.
<PAGE>
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 and
Christopher J. Joyce.
10.33 Quota Purchase Agreement *
dated October 11, 1995,
relating to the acquisition
of Distribuidora de Discos E
Fitas Canta Brasil Ltda.
10.34 Distribution Agreement *
dated June 21, 1996,
between the Company and
EMI-Capital Music
Group.
10.35 Letter of Intent dated July 54
1, 1996 between the
Company and Matrix
Software, Inc.
10.36 First Amendment to 59
Third Amended and Restated
Credit Agreement and Guaranty
dated as of September 30,
1995, among the Company,
AEC Holdings (UK) Limited,
Castle Communication Limited,
the Guarantors, the Banks
and The Chase Manhattan Bank,
N.A., as Agent.
<PAGE>
10.37 Second Amendment to Third 69
Amended and Restated Credit
Agreement and Guaranty
dated as of December 31, 1995,
among the Company,
AEC Holdings (UK) Limited,
Castle Communication Limited,
the Guarantors, the Banks
and The Chase Manhattan Bank,
N.A., as Agent.
10.38 Third Amendment to Third 84
Amended and Restated Credit
Agreement and Guaranty
dated as of June 30, 1996,
among the Company, AEC
Holdings (UK) Limited,
Castle Communication Limited,
the Guarantors, the Banks
and The Chase Manhattan Bank,
N.A., as Agent.
11.1 Statement Re: *
Computation of Earnings
(Loss) per Share.
27.1 Financial Data Schedule.
- --------------------------
*Incorporated by Reference
REVISED & RESTATED
BY-LAWS
OF
ALLIANCE ENTERTAINMENT CORP.
June 1996
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TABLE OF CONTENTS
Page
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office.................. 1
SECTION 2. Other Offices............................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting.............................. 1
SECTION 2. Special Meetings............................ 1
SECTION 3. Notice of Meetings.......................... 1
SECTION 4. Quorum and Adjournments..................... 2
SECTION 5. Organization................................ 2
SECTION 6. Proxies and Voting of Shares................ 2
SECTION 7. Voting List of Stockholders................. 3
SECTION 8. Notice of Stockholder Business and
Nominations ................................ 3
SECTION 9. No Stockholder Action by Written
Consent..................................... 6
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of
Directors................................... 6
SECTION 2. Number, Tenure and Qualifications........... 6
SECTION 3. Vacancies................................... 7
SECTION 4. Removal..................................... 7
SECTION 5. Regular Meetings; Notice.................... 7
SECTION 6. Special Meetings............................ 8
SECTION 7. Notice of Special Meetings.................. 8
SECTION 8. Quorum...................................... 8
SECTION 9. Organization................................ 9
SECTION 10. Compensation of Directors................... 9
SECTION 11. Committees.................................. 9
SECTION 12. Written Consents............................ 10
SECTION 13. Conference Telephone Meetings............... 10
ARTICLE IV
OFFICERS
SECTION 1. Number and Election......................... 10
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SECTION 2. Term of Office and Qualification............ 10
SECTION 3. Other Officers.............................. 11
SECTION 4. The Chairman of the Board................... 11
SECTION 5. The Vice Chairman........................... 11
SECTION 6. The President............................... 11
SECTION 7. Vice Presidents............................. 12
SECTION 8. The Comptrollers............................ 12
SECTION 9. Assistant Comptrollers...................... 12
SECTION 10. The Secretary............................... 12
SECTION 11. Assistant Secretaries....................... 13
SECTION 12. The Treasurer............................... 13
SECTION 13. Assistant Treasurers........................ 13
SECTION 14. Compensation................................ 13
SECTION 15. Bonds....................................... 14
SECTION 16. Removal..................................... 14
SECTION 17. Vacancies................................... 14
ARTICLE V
NOTICES
SECTION 1. Manner of Giving............................ 14
SECTION 2. Waiver of Notice............................ 14
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance........................... 15
SECTION 2. Transfers of Stock.......................... 15
SECTION 3. Lost, Stolen and Destroyed
Certificates................................ 15
SECTION 4. Fixing of Record Date....................... 16
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc................... 16
SECTION 2. Execution of Contracts, Deeds, Etc.......... 17
SECTION 3. Loans....................................... 17
SECTION 4. Fixing of Record Date....................... 17
ARTICLE VIII
CORPORATE SEAL
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ARTICLE IX
FISCAL YEAR
ARTICLE X
VOTING OF STOCK HELD
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
SECTION 1. Indemnification............................. 18
SECTION 2. Insurance................................... 20
ARTICLE XII
AMENDMENTS
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BY-LAWS OF
ALLIANCE ENTERTAINMENT CORP.
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office. The
registered office of the Corporation in the State of Delaware
shall be located at 32 Loockerman Square, Suite L-100, Dover,
Delaware 19904.
SECTION 2. Other Offices. The Corporation may have an office or
offices at such other places in the United States or elsewhere as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before said meeting shall be held on such date and
at such hour and place, within or without the State of Delaware, as shall be
fixed by the Board of Directors with respect to each such meeting and as shall
be stated in the notice thereof.
SECTION 2. Special Meetings. Special meetings of stockholders, for
any purpose or purposes may, except as otherwise prescribed by law or in the
Certificate of Incorporation, be called at any time by the President or by the
Board of Directors to be held on such date and at such hour and such place,
within or without the State of Delaware, as shall be stated in the notice
thereof.
SECTION 3. Notice of Meetings. Except as otherwise provided or
permitted by law or in the Certificate of Incorporation or in these By-laws,
written notice of all meetings of stockholders stating the place, date and hour
of the meeting, and in the case of a special meeting, the purpose or purposes
thereof, shall be given by the Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, the Secretary or an Assistant Secretary
to each stockholder of record having voting power in respect of the business to
be transacted thereat, either by serving such notice upon him personally or by
mailing or telegraphing or
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telecopying the same to him at his address as it appears on the records of the
Corporation, at least ten days but not more than sixty days before the date of
the meeting, and the Secretary or an Assistant Secretary or the transfer agent
or agents of the Corporation shall make affidavit as to the giving of such
notice.
SECTION 4. Quorum and Adjournments. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
by proxy, shall be required to and shall constitute a quorum at all meetings of
the stockholders for the transaction of business, except as otherwise provided
by law, by the Certificate of Incorporation or by these By-laws. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting of the time and place of the adjourned
meeting, until a quorum shall be present or represented. At such adjourned
meeting any business may be transacted which might have been transacted at the
original meeting. If a quorum be present at any meeting of stockholders and the
meeting is adjourned to reconvene either at a later time on the same date or at
a later date, no notice need be given other than announcement at the meeting,
provided that if any adjournment, whether a quorum is present or not, is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock
having voting power present in person or by proxy shall decide any question
brought before such meeting unless the question is one upon which by express
provision of law or of the Certificate of Incorporation or of these By-laws a
larger or different vote is required, in which case such express provision shall
govern and control the decision of such question. The stockholders present or
represented at any duly called and held meeting at which a quorum is present or
represented may continue to do business until adjournment, notwithstanding the
withdrawal of such number as to leave less than a quorum.
SECTION 5. Organization. Each meeting of stockholders shall be presided
over by the Chairman or, in his absence, by the Vice Chairman, or in the absence
of the Chairman and the Vice Chairman so designated, by any other person
selected to preside by a majority of the Board of Directors. The Secretary, or
in his absence an Assistant Secretary, or in the absence of both the Secretary
and an
<PAGE>
Assistant Secretary any person designated by the person presiding at the
meeting, shall act as secretary of the meeting.
SECTION 6. Proxies and Voting of Shares. At any meeting of
stockholders, each stockholder entitled to vote any shares on any matter to be
voted upon at such meeting may exercise such voting right either in person or by
proxy appointed by an instrument in writing, which shall be filed with the
secretary of the meeting before being voted. Such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting (unless a new record
date is set by the Board of Directors), but shall not be valid after the final
adjournment thereof. All questions regarding the qualification of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by two inspectors of election who shall be appointed by the Board of Directors
or if not so appointed, then by the presiding officer of the meeting. No proxy
shall be voted on after three years from its date unless said proxy provides for
a longer period. Except as otherwise expressly required by statute, the vote on
any question need not be by written ballot.
SECTION 7. Voting List of Stockholders. The officer who shall have
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order
and showing the address and the number of shares registered in the name of each
such stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where said meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders referred to above or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
SECTION 8. Notice of Stockholder Business and
Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by
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the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 3 of these
By-laws, (b) by or at the direction of the Chairman or the Board of Directors or
(c) by any stockholder of the Corporation who is entitled to vote at the
meeting, who complied with the notice procedures set forth in clauses (2) and
(3) of this paragraph (A) and this By-law and who was a stockholder of record at
the time such notice was delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than seventy days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting commencing with the 1995
annual meeting, provided however, that in the event that the date of an annual
meeting is advanced by more than thirty days, or delayed by more than seventy
days, from the first anniversary date of the previous year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares
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of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least eighty
days prior to the first anniversary of the preceding year's annual meeting (or,
in the event of the Corporation's first annual meeting in 1995, not later than
the close of business on the tenth day following the day on which public
announcement is made of the meeting and of the nominees proposed to be
nominated), a stockholder's notice required by this By-law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
3 of these By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this By-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance with
the procedures set forth in this By-law shall
<PAGE>
be eligible to serve as director and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this By-law. Except as otherwise
provided by law, the Certificate of Incorporation or these By-laws, the Chairman
of the Board, or any other person properly presiding over the meeting, shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-law and, if any proposed nomination or business
is not in compliance with this By-law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 9. No Stockholder Action by Written Consent. Subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specific circumstances, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of Directors. The business
and affairs of the Corporation shall be managed by or under the direction of the
Board of Directors. The Board may adopt such rules and regulations for that
purpose and for the conduct of its meetings as it may deem proper. The Board
shall exercise and shall be vested with the powers of the Corporation insofar as
not inconsistent with law, the Certificate of Incorporation or these By-laws.
<PAGE>
SECTION 2. Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the whole
Board but shall consist of not more than [fifteen] nor less than three
directors. The directors, other than those who may be elected by the holders of
any series of Preferred Stock, shall be divided, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, with the term of office of the first class to expire at the 1996
annual meeting of stockholders, the term of office of the second class to expire
at the 1997 annual meeting of stockholders and the term of office of the third
class to expire at the 1998 annual meeting of stockholders. Each director shall
hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of stockholders, commencing with the 1996
annual meeting, (i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
SECTION 3. Vacancies. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, even though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the whole Board shall shorten
the term of any incumbent director.
SECTION 4. Removal. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of
<PAGE>
the holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class.
SECTION 5. Regular Meetings; Notice. Regular meetings of the Board
of Directors shall be held at such time and place either within or outside of
the State of Delaware, as may be determined by resolution of the Board. No
notice of a regular meeting need by given (any practice or custom to the
contrary notwithstanding) and any business may be transacted at a regular
meeting, held as aforesaid, subject only to the requirements of Section 2 of
this Article III.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may, unless otherwise expressly provided by law, be called from time
to time by the Chairman, the Vice Chairman, the President or by a written call
signed by a majority of the whole Board of Directors and filed with the
Secretary. Each special meeting of the Board shall be held at such time and
place, either within or outside of the State of Delaware, as shall be designated
in the notice of such meeting.
SECTION 7. Notice of Special Meetings. Notice of a special meeting
of the Board of Directors, stating the place, date and hour thereof, shall,
except as otherwise expressly provided by law or as provided in Section 2 of
Article VII hereof, be given by mailing or telegraphing or telecopying the same
to each director at his residence or business address at any time on or before
the second day before the day of the meeting or by delivering the same to him
personally or telephoning the same to him personally at his residence or
business address not later than the day before the day of the meeting, unless,
in case of exigency, the Chairman, or in his absence a Vice Chairman or the
Secretary, shall prescribe a shorter notice to each director at his residence or
business address. Except as otherwise required by statute or these By-laws, no
notice or waiver of notice of a special meeting of the Board need state the
purpose or purposes of such meeting, and any business may be transacted thereat,
any practice or custom to the contrary notwithstanding.
SECTION 8. Quorum. A majority of the total number of directors at
the time in office but in no event less than one-third of that total number or
less than two directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, except that when a Board of
one director is authorized pursuant to the Certificate of Incorporation or these
By-laws, then one director shall constitute a quorum. If less than quorum be
present at the meeting, the directors present may adjourn the meeting and the
<PAGE>
meeting may be held as adjourned without further notice. If a quorum be present
at a meeting and the meeting is adjourned to reconvene either at a later time on
the same date or at a later date, no notice need be given other than
announcement at the meeting. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws, when a quorum is present at
any meeting of the Board of Directors, a majority of the directors present at
such meeting shall decide any question brought before such meeting and the
action of such majority shall be deemed to be the action of the Board.
SECTION 9. Organization. Each meeting of the Board of Directors
shall be presided over by the Chairman, or in his absence, by the Vice Chairman,
or in the absence of both, by any director selected to preside by vote of a
majority of the directors present. The Secretary, or in his absence, an
Assistant Secretary, or in the absence of both the Secretary and an Assistant
Secretary, any person designated by the person presiding over the meeting, shall
act as secretary of the meeting.
SECTION 10. Compensation of Directors. The Board may, from time to
time in its discretion, by resolution or resolutions passed by a majority of the
whole Board, fix the amounts which shall be payable to the members thereof for
their services in such capacity and provide for the reimbursement of the
reasonable expenses of such members, all of which shall be in addition to any
fees, salaries or other compensation which may be paid or payable to such
members in any other capacity. Members of special or standing committees may be
allowed like reimbursement and compensation for attending committee meetings.
SECTION 11. Committees. The Board of Directors may, by resolution or
resolutions adopted by a majority of the whole Board, designate an Executive
Committee and one or more other committees. Except as otherwise provided by
these By-laws each committee shall consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in said resolution or resolutions, shall have
and may exercise the powers and authority of the Board in the management of the
business and affairs of the Corporation, and
<PAGE>
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation. Unless expressly
authorized by resolution or resolutions adopted by a majority of the whole
Board, no such committee shall have the power or authority to declare a dividend
or to authorize the issuance of stock. Such other committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required.
SECTION 12. Written Consents. Any action required or permitted to be
taken at any meeting of the Board of Directors or by any committee thereof may
be taken without a meeting, if all members of the Board or of such committee, as
the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
SECTION 13. Conference Telephone Meetings. Members of the Board of
Directors or any committee designated by such Board may participate in a meeting
of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall
constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. Number and Election. The officers of the Corporation
shall be elected by the Board of Directors and shall be a Chairman of the Board,
a Vice Chairman of the Board, President and a Secretary. The Board of Directors
may also elect one or more Vice Presidents, a Treasurer, a Comptroller and one
or more Assistance Comptrollers, Assistant Secretaries and Assistant Treasurers.
The Chairman of the Board and the Vice Chairman of the Board shall be chosen
from the directors. All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV.
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SECTION 2. Term of Office and Qualification. The officers shall be
elected annually by the Board of Directors at the first meeting thereof after
each annual meeting of stockholders. A meeting of the directors may be held
without notice for this purpose, as well as for the transaction of any other
business, immediately after the annual meeting of stockholders of the
Corporation and at the same place. In the event of the failure so to elect any
such officer, such officer may be elected at any subsequent meeting (regular or
special) of the Board. Each officer, except such officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV, shall holder
office until the next annual election of officers and until his successor shall
have been duly elected and qualified, subject, however, to the provisions of
Article IV hereof. None of the officers of the Corporation except the Chairman
of the Board and the Vice Chairman of the Board need be directors.
SECTION 3. Other Officers. The Board of Directors may also appoint
such other officers and agents as it may deem necessary for the transaction of
the business of the Corporation. Such officers and agents shall hold office for
such period, have such authority and perform such duties as shall be determined
from time to time by the Board.
SECTION 4. The Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation, shall have general and
active management of the business and affairs of the Corporation, and preside at
all meetings of the stockholders and of the Board of Directors. He shall make
reports to the Board of Directors and the Stockholders, and shall perform all
such other duties as are properly required of him by the Board of Directors. He
shall see that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
SECTION 5. The Vice Chairman. The Vice Chairman shall, in the
absence of the Chairman, act as chairman of meetings of the Board of Directors.
The Vice Chairman shall have such other powers and duties as may be conferred
upon him by the Chairman of the Board or the Board of Directors.
SECTION 6. The President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board and the Vice
Chairman in the administration and operation of the Corporation's business and
general supervision of its policies and affairs. The President shall, in the
absence of or because of the inability to act of the Chairman of the Board or
the Vice Chairman, perform all duties of the Chairman of the Board or the Vice
Chairman and preside at all
<PAGE>
meetings of stockholders and of the Board of Directors. The President may sign,
alone or with the Secretary, or an Assistant Secretary, or any other proper
officer of the Corporation authorized by the Board of Directors, certificates,
contracts, and other instruments of the Corporation as authorized by the Board
of Directors.
SECTION 7. Vice Presidents. In the absence or inability to act of
the Chairman, the Vice Chairman or the President, any Vice President designated
by the Board of Directors shall perform all the duties and may exercise all the
powers of the President. Each Vice President shall perform such other duties as
from time to time may be assigned to him by the Board of Directors or the
President or as may be prescribed by these By-laws.
SECTION 8. The Comptroller. The Comptroller shall have
responsibility for the accounting procedures and practices of the Corporation
and shall keep or cause to be kept at the principal office of the corporation,
and shall be responsible for the keeping of, correct financial records of the
business and transactions of the Corporation and at all reasonable times shall
exhibit such record to any of the directors of the Corporation upon application
at the office of the Corporation where such records are kept. He shall also
perform all the duties incident to the office of Comptroller and such other
duties as from time to time may be assigned to him by the Board of Directors,
the Chairman, the Vice Chairman, the President or the Vice President.
SECTION 9. Assistant Comptrollers. In the absence of the
Comptroller, or in case of his inability to act, an Assistant Comptroller
designated by the President or by the Board of Directors shall perform all the
duties of the Comptroller and, when so acting, shall have all the powers of the
Comptroller. The Assistant Comptrollers shall perform such other duties as from
time to time shall be assigned to them by the Board of Directors, the Chairman,
the Vice Chairman, the President or the Comptroller.
SECTION 10. The Secretary. The Secretary shall have the duty to
record or cause to be recorded in books kept for that purpose the proceedings of
the meetings of the Corporation including those of the stockholders, the Board
of Directors and all committees designated by the Board of Directors; shall see
that all notices are duly given in accordance with the provisions of these
By-laws and as required by law; shall be custodian of the records (other than
those financial records kept by the Comptroller) and of the seal of the
Corporation and see that the seal is affixed to all documents the execution of
<PAGE>
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-laws and when so affixed may attest
the same; shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed; and in
general, the Secretary shall perform all duties incident to the office of the
Secretary and such other duties as may, from time to time, be assigned to him by
the Board of Directors, the Chairman, the Vice Chairman or the President.
SECTION 11. Assistant Secretaries. In the absence of the Secretary,
or in case of his inability to act, an Assistant Secretary designated by the
President or the Board of Directors shall perform all the duties of the
Secretary and, when so acting, shall have all the powers of the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time shall
be assigned to them by the Board of Directors, the Chairman, the Vice Chairman,
the President or the Secretary.
SECTION 12. The Treasurer. The Treasurer shall give such bond with
such surety or sureties for the faithful performance of his duties as the Board
of Directors may require. He shall have charge and custody of and be responsible
for all funds and securities of the Corporation, deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with the provisions of these By-laws and have
supervision over all receipts and disbursements of the Corporation and, in the
absence of a Comptroller, have general responsibility for its accounting
procedures and practices; at all reasonable times exhibit his books of account
and records to any of the directors of the Corporation upon application during
business hours at the place where such books and records are kept; receive, and
give receipts for, monies due and payable to the Corporation from any source
whatsoever; and in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors, the Chairman, the Vice Chairman or the President.
SECTION 13. Assistant Treasurers. Each of the Assistant Treasurers shall
give such bond for the faithful performance of his duties as the Board of
Directors may require. In the absence of the Treasurer, or in case of his
inability to act, an Assistant Treasurer designated by the President or the
Board of Directors shall perform all the duties of the Treasurer and, when so
acting, shall have all the powers of the Treasurer. The Assistant Treasurers
shall perform such other duties as from time to time may be assignedto them by
the Board of Directors, the Chairman, the Vice Chairman, the President or the
Treasurer.
<PAGE>
SECTION 14. Compensation. The compensation of all officers, agents
and employees of the Corporation shall be fixed from time to time by the Board
of Directors, or pursuant to authority of general or special resolutions of the
Board. No officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the Corporation or a member of any committee.
SECTION 15. Bonds. The Board of Directors shall have the power to
require any officer or agent of the Corporation to give a bond for the faithful
discharge of his duties in such form and in such amount and with such surety or
sureties as the Board may deem advisable.
SECTION 16. Removal. Any officer elected by the Board of Directors
may be removed by a majority of the members of the whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.
No elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or an
employee plan.
SECTION 17. Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
NOTICES
SECTION 1. Manner of Giving. Whenever under the provisions of the
laws of the State of Delaware, the Certificate of Incorporation or these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given by
mailing or telegraphing (including telex or cable or other similar means) the
same to each such director or stockholder at such address as appears on the
books or in the records of the Corporation, and such notice shall be deemed to
be given at the time when the same is thus mailed or telegraphed.
<PAGE>
SECTION 2. Waiver of Notice. Whenever under the provisions of these
By-laws, or of the Certificate of Incorporation, or of any of the laws of the
State of Delaware, the stockholders, directors or members of a committee of
directors are authorized to hold any meeting or take any action after notice or
after the lapse of any prescribed period of time, a waiver thereof, in writing,
signed by the person or persons entitled to such notice or lapse of time,
whether before or after the time of meeting or action stated therein, shall be
deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of any committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or these By-laws.
The presence at any meeting of a person or persons entitled to notice thereof
shall be deemed a waiver of such notice as to such person or persons, except
when such person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transactions of any business because the
meeting is not lawfully called or convened.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance. Certificates of stock shall be issued
in such form as may be approved by the Board of Directors and shall be signed,
countersigned and registered by, or in the name of the Corporation in such
manner as the Board of Directors may by resolution prescribe. Any of or all the
signatures on such a certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue unless determined otherwise by the Board
generally or in particular instances.
SECTION 2. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. The Board of Directors shall have power and
authority to make such other rules and regulations or amendments thereto as they
may deem expedient
<PAGE>
concerning the issue, registration and transfer of certificates of stock and may
appoint transfer agents and registrars thereof.
SECTION 3. Lost, Stolen and Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon satisfactory proof of that fact by the
person claiming the certificate or certificates for shares to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, at its discretion, and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to publicize the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as the Board of Directors may direct as indemnity against any claim that may
be made against the Corporation with respect to the certificate or certificates
alleged to have been lost, stolen or destroyed, or the issuance of the new
certificate or certificates.
SECTION 4. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to such notice of, and to vote at, such meeting
and any adjournment thereof, or to receive payment of such dividend or other
distribution, or to receive such allotment of rights, or to exercise such rights
in respect of any such change, conversion or exchange of stock, or to
participate in such other action, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid. If no record date is fixed by the Board of Directors, the
record date shall be determined as provided by the laws of the State of
Delaware. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
<PAGE>
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc. All checks, drafts, bills of
exchange, notes or other instruments or orders for the payment of money or
evidences of indebtedness shall be signed for or in the name of the Corporation
by such officer or officers, person or persons, as the Board of Directors may
from time to time designate by resolution.
SECTION 2. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name of
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 3. Loans. No loan shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized or ratified by a resolution of the Board or Directors. Such
authorization or ratification may be general or confined to specific instances.
ARTICLE VIII
CORPORATE SEAL
The seal of the Corporation shall have inscribed thereon the name of
the Corporation, the year of its organization and the word "Delaware". Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced in any manner whatsoever.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board
of Directors.
ARTICLE X
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board of Directors,
the Chairman of the Board, the Vice Chairman of the Board, the President or any
Vice President may from time to time appoint an attorney or attorneys or agent
or agents of the
<PAGE>
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporations or associations, or to consent in writing
to any action by any such other corporation or association, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
consents, waivers or other instruments as he may deemed necessary or proper in
the premises; or any such officer may himself attend any meeting of the holders
of stock or other securities of any such other corporation or association and
thereat vote or exercise any or all other powers of the Corporation as the
holder of such stock or other securities of such other corporation or
association, or may consent in writing to any action by any such other
corporation or association.
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
SECTION 1. Indemnification. (a) Any person made a party or
threatened to be made a party to a threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action or suit by or in the right of the Corporation to procure a
judgment in its favor) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan, shall be indemnified by the
Corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
<PAGE>
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, or, with respect
to any criminal action or proceeding, that the person had reasonable cause to
believe that his conduct was unlawful.
(b) Any person made a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall be indemnified by the Corporation against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit to the fullest extent authorized by
the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), except that no indemnification shall be made hereunder in respect of
any claim, issue or matter as to which the person shall be adjudged liable to
the Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which said Court of Chancery or such
other court shall deem proper.
(c) To the extent that any person referred to above has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b) above, or in defense of any
claim, issue or matter therein, he shall be indemnified by the Corporation
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) No indemnification shall be granted under paragraph (a) or (b)
above unless ordered by a court or unless it shall be specifically determined
that indemnification of the person is proper in the circumstances because he has
met the applicable standard of conduct set forth in the applicable paragraph,
which determination shall be made (i) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there
<PAGE>
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (iii) by the stockholders.
(e) Expenses incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding by a person who may
be entitled to indemnity under the above provisions shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding if authorized under paragraph (d) above within twenty days following
receipt by the Corporation of a written request for such advance, accompanied by
a written undertaking by or on behalf of the person to whom payment is to be
made that he will repay the amounts advanced if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation in
accordance with the above provisions.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the above provisions shall not be deemed exclusive of any
other rights to which those indemnified or advancement expenses may be entitled
under any provision of the Certificate of Incorporation, By-law, agreement, vote
of stockholders or disinterested directors, insurance agreement, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The indemnification and advancement of expenses, provided by, or
granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Any amendment or repeal of this Article XI shall not adversely
affect any right or protection existing hereunder in respect of any act or
omission occurring prior to such amendment or repeal.
SECTION 2. Insurance. The Board of Directors of the Corporation may,
in its discretion, authorize the Corporation to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the
<PAGE>
power to indemnify him against such liability under the provisions of Section 1
of this Article XI.
ARTICLE XII
AMENDMENTS
All By-laws of the Corporation shall be subject to amendment or
repeal, and new By-laws may be adopted, either (a) by the affirmative vote of
the holders of record of at least eighty percent (80%) of the outstanding stock
of the Corporation entitled to vote for the election of directors, voting
together as a single class, given at an annual meeting or at any special meeting
of such stockholders, or (b) by the affirmative vote of a majority of the whole
Board of Directors of the Corporation.
July 1, 1996
Matrix Software, Inc.
315 Marion Avenue
Big Rapids, MI 49307
Attn: Michael Erlewine, President
Dear Mr. Erlewine:
The following will set forth the intent of Alliance Entertainment Corp.
("AEC") to acquire Matrix Software, Inc. ("Matrix") (the "Purchase"):
1. The Purchase is intended to qualify as a tax-free reorganization under
the Internal Revenue Code. The precise form of the transaction will be
determined mutually in conjunction with the preparation of a definitive
agreement and plan of reorganization ("Purchase Agreement") which will include
terms and conditions substantially as described below. Subject to the foregoing,
AEC will, at its option, (i) purchase all the issued and outstanding stock of
Matrix; (ii) form a new Delaware subsidiary, Matrix Acquisition Corp. ("MAC"),
which shall merge with and into Matrix; or (iii) merge Matrix into MAC. The AEC
subsidiary resulting from the Purchase is herein referred to as "AEC-Matrix".
2. At the Closing (as defined below), the stockholders of Matrix will
receive consideration in the amount of $3.5 million (the "Purchase Price"),
comprised of: AEC common stock ("AEC stock") in an amount equal to no less than
50% of the Purchase Price, a promissory note of AEC (the "Note") payable in the
amount of $500 thousand and cash. A portion of the Purchase Price shall be in
consideration of a covenant not to compete.
3. The AEC Stock shall be valued at the average closing price of such
common stock on the New York Stock Exchange for the forty-five (45) days prior
to the Closing. AEC shall register the AEC Stock on the next S-3 registration
statement filed by AEC after the Closing.
4. The Note shall be payable on the second anniversary of the Closing,
shall bear interest at no less than the federal funds rate plus 75 basis points
at Closing (with all accrued
<PAGE>
interest payable quarterly) and shall be subject to set-off in the event
that AEC has any indemnification claims pursuant to the Purchase Agreement.
5. The parties agree that the total liability of the Matrix shareholders
and Matrix (such shareholders and Matrix are collectively referred to in this
paragraph 5 as "Seller") for the existing dispute between Matrix and Trade
Service Corporation (the "Trade Service Claim") shall not exceed $300 thousand
(excluding any insurance proceeds received by Seller on such claim), which
liability, if any, shall be set-off against the Note. On and after the Closing,
AEC shall be solely responsible for paying the first $100 thousand in
liabilities arising under the Trade Service Claim. As used in this paragraph 5,
(i) "Trade Service Claim" shall include any claims of Matrix's insurance carrier
against Matrix for amounts actually paid to or on behalf of Matrix by such
insurer in connection with the dispute between Matrix and Trade Service
Corporation; and (ii) "liability" or "liabilities" shall include settlements,
judgments, legal costs and attorneys fees.
6. Michael Erlewine ("Erlewine") shall be employed by AEC as President of
AEC- Matrix pursuant to a written agreement ("Employment Agreement"): (a) having
a term of not less than five (5) years; (b) providing for a base salary of not
less than $175,000 per annum; providing that Erlewine's principal place of
employment shall be in Michigan; (d) containing other terms at least comparable
to those provided to similarly situated executives of AEC operating units; and
(e) providing that, in addition to the compensation set forth in (b) above, AEC
shall pay Erlewine (and those employees designated by him) the following
percentage of net on-line revenues (gross revenues less returns) earned by
AEC-Matrix from each of the indicated databases:
Percentage Payable
to Erlewine and
Database AEC Net On-Line Revenues Employee Designees
All Music Guide and ........... $0-$5,000,000 1%
All Movie Guide $5,000,001-$10,000,000 1/2%
over $10,000,000 1/4%
Astrology Database All 2%
7. AEC shall also enter into employment agreements, each for a term of
three (3) years, with the following Matrix employees, for the salary set forth
opposite each employee's name and containing such other terms and conditions
(including noncompetition provisions) that shall be mutually agreed upon by AEC
and each such employee:
<PAGE>
Matrix Software, Inc.
July 1, 1996
Page 3
Employee ............................................... Salary
Vladimir Bogdanov ...................................... $110,000
Chris Woodstra ......................................... $55,000
Mary King ............................................. $65,000
Stephen Erlewine ........................................ $75,000
8. This letter of intent shall create a binding obligation of Matrix and
its shareholders to sell to AEC on the terms set forth herein. In the event of
the breach of such obligation solely as a result of a violation of the
provisions of Paragraph 12, Matrix shall pay to AEC an amount equal to $1
million plus the reimbursement of all of AEC's fees and expenses incurred in
connection with this transaction including all of its legal and accounting
expenses. The parties shall proceed in good faith to negotiate and execute
definitive documents setting forth the terms of this letter of intent and
containing representations, warranties and indemnification provisions
substantially similar to those contained in other AEC acquisition agreements.
AEC's obligations hereunder are contingent upon execution of the Purchase
Agreement and other ancillary Agreements and AEC not discovering any material
adverse information in the course of its due diligence investigation of Matrix.
As used herein, "material adverse information" excludes information relating to
the Trade Services Claim unless such information reveals that (i) Matrix's
representations to AEC about the Trade Services Claim were, at the time they
were made, false or misleading or, (ii) a significant number of titles contained
in the AEC database are not excluded from the injunctive relief granted by the
court to Trade Services and such titles cannot be recreated by Matrix (at its
sole cost and expense) in a manner that Matrix can prove to AEC is
noninfringing. In the event Matrix recreates such titles in its database, AEC
shall use commercially reasonable efforts to assist Matrix in recreating such
titles. AEC hereby confirms that no information has been disclosed to AEC as of
the date hereof which would cause AEC to be unable or willing to complete the
transactions on the terms set forth herein. Consummation of the Purchase will be
subject to customary conditions.
9. Matrix and AEC shall use their respective best efforts to prepare and
execute the Purchase Agreement within sixty (60) days of the date of this
letter. Should the Purchase Agreement not be executed by the parties within such
60-day period, any party may declare this letter of intent to be null and void
without any further liability or obligation to pursue negotiations further,
except for the liquidated damages obligations set forth in paragraph 8 hereof
and the confidentiality obligations set forth in paragraph 10 hereof. It is
understood, however, that the parties may, at any time prior to the expiration
of the 60-day period, mutually agree in writing to an extension or extensions
<PAGE>
Matrix Software, Inc.
July 1, 1996
Page 4
of the period in which the Purchase Agreement must be executed. In such
event, all terms and conditions of this letter shall continue in full force and
effect, except as may be modified in writing by the parties in connection with
any such extension or extensions. The parties intend to close the Purchase on or
before ninety (90) days from the date hereof (the "Closing"). Neither party
shall be under an obligation to consummate this transaction if the Closing does
not take place on or before December 31, 1996.
10. AEC and its authorized employees, agents and representatives ("AEC
Agents") shall be afforded the opportunity to conduct a full review of all
financial information and corporate and accounting records of Matrix and its
subsidiaries and all other matters deemed necessary or appropriate by AEC in
such depth as may be deemed by AEC to be necessary or appropriate. Such reviews
shall be completed prior to the execution of the Purchase Agreement. During all
periods prior to Closing, AEC and the AEC Agents shall be afforded the
opportunity at reasonable times to review all of the aforementioned files,
reports and records in such a manner as will not unreasonably interfere with the
conduct of business operations of Matrix. AEC agrees that AEC and the AEC Agents
will hold in strictest confidence and shall not divulge to any other persons nor
shall it use for its own benefit any nonpublic information concerning Matrix or
its subsidiaries or business or operations, except as may be necessary to obtain
any required consents of government or regulatory authorities or as required by
law.
11. You acknowledge that AEC is a public company and may report the
existence of this letter of intent concurrent with its execution. AEC will not
make any public announcement concerning the existence of this letter of intent
or the terms hereof without (i) offering Matrix the opportunity to review and
comment on the press release or other form of public disclosure and (ii)
receiving Matrix's approval with respect to such announcement, which approval
will not be unreasonably withheld or delayed.
12. From the date hereof until consummation of the transactions
contemplated by the Purchase Agreement, neither Matrix, nor any of its
directors, officers, employees, agents or representatives shall, directly or
indirectly, solicit, induce or otherwise engage in discussions or negotiations
relating to or proposed to lead to the acquisition or merger of Matrix or the
sale of substantially all of its assets or shares by or with any person other
than AEC. Matrix further agrees to advise AEC promptly of any inquiry or offer
by any third party.
<PAGE>
Matrix Software, Inc.
July 1, 1996
Page 5
If the foregoing correctly sets forth our understanding, please sign the
enclosed copy of this letter of intent and return it to my attention.
Sincerely,
Alliance Entertainment Corp.
By: /s/ Joseph Bianco
--------------------------- --------
Joseph Bianco
Chairman of the Board
Accepted and Agreed:
Matrix Software Inc.
By: /s/ Michael Erlewine
------------------------------------
Michael Erlewine
President
/s/ Michael Erlewine
- -------------------
Michael Erlewine
/s/ Margaret Erlewine
- ---------------------
Margaret Erlewine
FIRST AMENDMENT TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT AND GUARANTY
FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
dated as of September 30, 1995 among Alliance Entertainment Corp. ("Alliance"),
AEC Holdings (UK) Limited ("AEC(UK)"), Castle Communications Limited ("Castle"),
each of the BANKS as specified in the Credit Agreement referred to below, each
of the GUARANTORS as specified in the Credit Agreement referred to below, and
THE CHASE MANHATTAN BANK, N.A., as agent for the Banks (in such capacity,
together with its successors, the "Agent"). Alliance, AEC(UK), and Castle are
referred to herein individually as a "Borrower" and collectively as the
"Borrowers".
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Banks and the
Agent have entered into a Third Amended and Restated Credit Agreement and
Guaranty dated as of July 25, 1995 (as modified, amended or supplemented from
time to time, the "Credit Agreement"). Any term used herein and not otherwise
defined herein shall have the meaning assigned to such term in the Credit
Agreement.
Each of the parties hereto have agreed to amend the Credit Agreement as
hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(1) The following definition is added in its proper alphabetical order:
"High Inflation Adjustments" means all noncash gains or losses incurred by
Alliance and its Consolidated Subsidiaries, on a consolidated basis, all as
determined in accordance with Adjusted GAAP pursuant to the terms and provisions
of the Foreign Currency Translation Accounting Standards as set forth in FASB
Statements 52, 95, 104 and 109, FASB Interpretation 37.
(2) The definition of "Consolidated Cumulative Extraordinary Non-Cash
Charges Plus Charges Associated with Refinancings of Obligations" is amended by
adding after "Worth" in the last line thereof the following:
", plus (3) (without duplication) all non-cash losses of Alliance and its
Consolidated Subsidiaries due to High Inflation Adjustments, minus (4) (without
duplication) all non-cash gains of Alliance and its Consolidated Subsidiaries
due to High Inflation Adjustments, plus (5) the noncash accretion of the 8.75%
cumulative preferred stock of AEC Americas, Inc. owned by Bain which was not
included in the Projections, plus (6) Two Million Four Hundred Thousand Dollars
($2,400,000) to reflect the adjustments made to the purchase price and structure
of the One-Way Acquisition which occurred after the Third Closing Date and which
were not included in the Projections.
(3) The definition of "Consolidated Earnings Before Interest, Taxes, and
Amortization" is amended in its entirety to read as follows:
"Consolidated Earnings Before Interest, Taxes, and Amortization" means, for
any period, Consolidated Net Income, plus Consolidated Extraordinary Charges (to
the extent and only to the extent deducted in determining Consolidated Net
Income), plus Consolidated Interest Expense, plus Consolidated Taxes, plus
Consolidated Amortization, all for such period.
(4) The definition of "Consolidated Extraordinary Charges" is amended in
its entirety to read as follows:
"Consolidated Extraordinary Charges" means all extraordinary charges of
Alliance and its Consolidated Subsidiaries, on a consolidated basis, all as
determined in accordance with Adjusted GAAP, other than all non-cash gains or
losses of Alliance and its Consolidated Subsidiaries due to High Inflation
Adjustments.
<PAGE>
(5) The definition of "Consolidated Net Income" is amended in its entirety
to read as follows:
"Consolidated Net Income" means, for any period, the total of (1) the net
income of Alliance and its Consolidated Subsidiaries, on a consolidated basis,
all as determined in accordance with Adjusted GAAP, plus (2) for the period from
September 30, 1995 through September 30, 1996, One Million Dollars ($1,000,000),
plus (3) to the extent used to determine net income of Alliance and its
Consolidated Subsidiaries, on a consolidated basis, all non-cash losses of
Alliance and its Consolidated Subsidiaries due to High inflation Adjustments,
minus (4) to the extent used to determine net income of Alliance and its
Consolidated Subsidiaries, on a consolidated basis, all non-cash gains of
Alliance and its Consolidated Subsidiaries due to High Inflation Adjustments.
(6) Section 9.02. Guaranties, is amended by (i) deleting "and" before
clause "(6)" and adding after "Indenture)" in the last line thereof the
following;
"and, (7) the guaranty by each of Alliance, Jerry Bassin, Inc., Premier
Artists Services, Inc. and Execusoft, Inc. of A.E. Land Corp.'s obligations with
respect to the Florida Facility (Bonds)."
(7) Section 10.04. Consolidated Minimum Net Worth, is amended by adding
after "Worth" in the third line thereof the following: "plus Consolidated
Cumulative Extraordinary Non-Cash Charges Plus Charges Associated with
Refinancings of obligations, plus One Million Dollars ($1, 000,000)".
SECTION 2. Condition of Effectiveness. This First Amendment shall become
effective as of the date on which each of the following conditions has been
fulfilled: (1) This First Amendment. The Borrowers, the Guarantors, the Banks
and the Agent shall each have executed and delivered this First Amendment;
(2) Officer's Certificate. The following statements shall be true and the
Agent shall have received a certificate signed by a duly authorized officer of
Alliance dated the date hereof stating that, after giving effect to this First
Amendment and the transactions contemplated hereby:
(a) The representations and warranties contained in the Credit Agreement
and in each of the other Loan Documents are correct on and as of the date hereof
as though made on and as of such date in all material respects if such
representation and warranty is not subject to a Material Adverse Change
exception, and if such representation and warranty is subject to such an
exception, is correct; and
(b) No Default or Event of Default has occurred and is continuing.
(3) The Agent and each Bank shall have received such other approvals,
opinions or documents as the Agent or such Bank may reasonably request.
SECTION 3. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of Section 1 hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and each reference in the other Loan Documents to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) Except as specifically amended above, the Credit Agreement and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this First Amendment shall
not operate as a waiver of any right, power or remedy of the Agent or any Bank
under any of the Loan Documents, nor constitute a waiver of any provision of any
of the Loan Documents, and, except as specifically provided herein, the Credit
Agreement and each other Loan Document shall remain in full force and effect and
are hereby ratified and confirmed.
SECTION 4. Costs, Expenses and Taxes. Alliance agrees to reimburse the
Agent and each Bank on demand for all out-of-pocket costs, expenses and charges
(including, without limitation, all fees and charges of external legal counsel
for the Agent and each Bank) incurred by the Agent and each Bank in connection
with the preparation,
<PAGE>
reproduction, execution and delivery of this First Amendment and any other
instruments and documents to be delivered hereunder. In addition, Alliance shall
pay any and all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery, filing or recording of
this First Amendment and the other instruments and documents to be delivered
hereunder, and agrees to save the Agent and each Bank harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes or fees.
SECTION 5. Governing Law. This First Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Headings. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.
SECTION 7. Counterparts. This First Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this First Amendment by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the day and year first above written.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Senior Executive Vice President
JERRY BASSIN, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Senior Executive Vice President
PASSPORT DISTRIBUTION, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
TITUS OAKS RECORDS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
AIRLIE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (U.S.), INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
Execusoft, Inc.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CONCORD JAZZ, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive President
THE JAZZ ALLIANCE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
PASSPORT MUSIC WORLDWIDE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive President
AEC ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC AMERICAS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
ALLIANCE VENTURES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER ARTISTS SERVICES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER SIGNATURES, INC.
By: /s/ Elliot B. Newman
- --------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
AEC MUSIC DISTRIBUTION, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
FL ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DISQUEMUSIC COMERCIAL IMPORTADORA
LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
BRASISON DISTRIBUIDORA DE DISCOS LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC HOLDINGS (UK) LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (DEUTSCHLAND)
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
THE ST. CLAIR ENTERTAINMENT GROUP INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
A.E. LAND CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DOJO LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
HENDRING LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EASTERN LIGHT PRODUCTIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
WHITE METAL MUSIC LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
CASTLE COPYRIGHTS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
KAZ RECORDS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
INDI HOLDINGS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
INDEPENDENT NATIONAL DISTRIBUTORS INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE CHASE MANHATTAN BANK, N.A.
as Bank
By: /s/Maria B. Florez
- ---------------------------------------------------------
Name: Maria B. Florez
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
(London Branch) as Bank
By: /s/Maria B. Florez
- ---------------------------------------------------------
Name: Maria B. Florez
Title: Vice President
<PAGE>
CREDITANSTALT CORPORATE FINANCE, INC.
as Bank
By: /s/Gregory F. Mathis
- ---------------------------------------------------------
Name: Gregory F. Mathis
Title: Vice President
By: /s/Geoffrey D. Spillane
- ---------------------------------------------------------
Name: Geoffrey D. Spillane
Title: Senior Associate
CREDITANSTALT - BANKVEREIN,
(London Branch)
By: /s/M. Bowles
- ---------------------------------------------------------
Name: M. Bowles
Title: Senior Manager
By: /s/D. Gayler
- --------------------------------------------------------
Name: D. Gayler
Title: Manager
THE FIRST NATIONAL BANK OF CHICAGO
as Bank
By: /s/Julia F. Maslanka
- ---------------------------------------------------------
Name: Julia F. Maslanka
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF CHICAGO
(London Branch)
By: /s/Julia F. Maslanka
- ---------------------------------------------------------
Name: Julia F. Maslanka
Title: Assistant Vice President
IBJ SCHRODER BANK & TRUST COMPANY
(London Branch)
By: /s/Charles B. Fears
- ---------------------------------------------------------
Name: Charles B. Fears
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/Gaeton R. Frosina
- ---------------------------------------------------------
Name: Gaeton R. Frosina
Title: Vice President
By: /s/Joseph M. Triscoli
- ---------------------------------------------------------
Name: Joseph M. Triscoli
Title: Assistant Vice President
EUROPEAN AMERICAN BANK
By: /s/Robert G. Maichin
- ---------------------------------------------------------
Name: Robert G. Maichin
Title: Assistant Vice President
ABN AMRO BANK N.V.
By:
- ---------------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: /s/Amy S. Trapp
- ---------------------------------------------------------
Name: Amy S. Trapp
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(London Branch)
By: /s/Amy S. Trapp
- ---------------------------------------------------------
Name: Amy S. Trapp
Title: Vice President
GIROCREDIT BANK
AKTIENGELSELLSCHAFT der
SPARKASSEN, Grand Cayman Island Branch
By:
- ---------------------------------------------------------
Name:
Title:
By:
- ---------------------------------------------------------
Name:
Title:
NATIONAL CITY BANK
By: /s/Lisa Beth Lisi
- ---------------------------------------------------------
Name: Lisa Beth Lisi
Title: Account Officer
FIRST SOURCE FINANCIAL, LLP.
By: /s/Gary L. Francis
- ---------------------------------------------------------
Name: Gary L. Francis
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/Stephen Lockhart
- ---------------------------------------------------------
Name: Stephen Lockhart
Title: Senior Relationship Manager
SCOTIABANK (U.K.) LTD.
By: /s/Barry Hodges
- ---------------------------------------------------------
Name: Barry Hodges
Title: Relationship Manager
THE CHASE MANHATTAN BANK, N.A.
as Agent
By: /s/ Marie J. Toulantis
- ---------------------------------------------------------
Name: Marie J. Toulantis
Title: Vice President
ONE WAY RECORDS, INC.
By: /s/ Anil K. Narang
- ---------------------------------------------------------
Name: Anil K. Narang
Title: Executive Vice President
DEJA VU MUSIC, INC.
By: /s/Anil K. Narang
- ---------------------------------------------------------
Name: Anil K. Narang
Title: Executive Vice President
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT AND GUARANTY
SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND
GUARANTY dated as of December 31, 1995 ("Second Amendment") among Alliance
Entertainment Corp. ("Alliance"), AEC Holdings (UK) Limited ("AEC(UK)"), Castle
Communications Limited ("Castle"), each of the BANKS as specified in the Credit
Agreement referred to below, each of the GUARANTORS as specified in the Credit
Agreement referred to below, and THE CHASE MANHATTAN BANK, N.A., as agent for
the Banks (in such capacity, together with its successors, the "Agent").
Alliance, AEC(UK), and Castle are referred to herein individually as a
"Borrower" and collectively as the "Borrowers".
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Banks and the Agent
have entered into a Third Amended and Restated Credit Agreement and Guaranty
dated as of July 25, 1995, as amended by a First Amendment to Third Amended and
Restated Credit Agreement and Guaranty dated as of September 30, 1995 (as
further modified, amended or supplemented from time to time, the "Credit
Agreement"). Any term used herein and not otherwise defined herein shall have
the meaning assigned to such term in the Credit Agreement.
Each of the parties hereto have agreed to amend the Credit Agreement as
hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. Upon the execution of this Second
amendment by all of the Banks, the Credit Agreement is, effective as of the date
hereof and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof, hereby amended as follows:
(1) The definition of "Active Castle Subsidiaries" is amended by (i) adding
"and" before "KAZ" in the fourth line thereof and by (ii) deleting the following
in the fourth and fifth lines thereof: ", and Movie Gems (UK) Distribution
Limited".
(2) The definition of "Alliance Guarantors" is amended by deleting the
following: ", Movie Gems (UK) Distribution Limited" in the eighteenth and
nineteenth lines thereof.
(3) The definition of "Castle Subsidiary Guaranty" is amended by deleting the
following: "(other than Movie Gems (UK) Distribution Limited)" in the third and
fourth lines thereof.
Upon the execution of this Second Amendment by the Required Banks, the Credit
Agreement is, effective as of the date hereof and subject to the satisfaction of
the conditions precedent set forth in Section 2 hereof, hereby amended as
follows:
(4) Section 8.08. Reporting Requirements, is amended by deleting clause "(18)"
in its entirety and inserting in its place the following:
"(18) No Return Agreements. Promptly after the execution thereof, notice of any
arrangement or agreement covered by and subject to Section 9.09 which grants to
Alliance or any of its Restricted Subsidiaries exclusive distribution rights for
any music products.
As soon as possible and in any event within (a) sixty (60) days after the end of
each of the first three quarters of each Fiscal Year, and (b) ninety (90) days
after the end of each Fiscal Year, a report in a form acceptable to the
<PAGE>
Required Banks indicating the status of all agreements covered by and subject to
Section 9.09, together with a statement indicating both (i) the aggregate
purchase price of all inventory purchased by Alliance and its Restricted
Subsidiaries under such agreements and not yet sold and (ii) the percentage
(based on cost of inventory purchased) of the entire inventory of Alliance and
its Restricted Subsidiaries which constitutes inventory purchased under
agreements subject to Section 9.09."
(5) Section 9.09. No Return Agreements, is amended in its entirety to read as
follows:
"Section 9.09, No Return Agreements. Enter into any agreements to purchase goods
where Alliance or a Restricted Subsidiary agrees to purchase a minimum amount of
goods and Alliance or the applicable Restricted subsidiary does not have the
right to return such goods, except Alliance and the Restricted Subsidiaries may
enter into such agreements if the aggregate purchase price of all goods already
purchased under all such agreements and not yet sold by Alliance and the
applicable Restricted Subsidiaries is equal to the lesser of (a) twenty percent
(20%) of the aggregate purchase price of all inventory held by Alliance and its
Restricted Subsidiaries, or (b) Thirty Million Dollars ($30,000,000)."
(6) Section 10.02., Consolidated Leverage Ratio, is amended by deleting each
"Date" and its corresponding "Ratio" and inserting their place the following:
"Date Ratio
September 30, 1995 5.00 to 1.00
December 31, 1995 5.25 to 1.00
March 31, 1996 5.25 to 1.00
June 30, 1996 5.25 to 1.00
September 30, 1996 5.25 to 1.00
December 31, 1996 5.00 to 1.00
March 31, 1997 5.00 to 1.00
June 30, 1997 5.00 to 1.00
September 30, 1997 5.00 to 1.00
December 31, 1997 4.50 to 1.00
March 31, 1998 4.50 to 1.00
June 30, 1998 4.50 to 1.00
September 30, 1998 4.50 to 1.00
December 31, 1998 4.25 to 1.00
March 31, 1999 4.25 to 1.00
June 30, 1999 4.25 to 1.00
September 30, 1999 4.25 to 1.00
December 31, 1999 4.00 to 1.00
March 31, 2000 4.00 to 1.00
June 30, 2000 4.00 to 1.00
September 30, 2000 4.00 to 1.00
December 31, 2000 3.75 to 1.00
March 31, 2001 3.75 to 1.00
June 30, 2001 3.75 to 1.00"
(7) Section 10.03., Consolidated Cash Flow Ratio, is amended by deleting each
"Period" and its corresponding "Ratio" and inserting in their place the
following:
"Period Ratio
For the four quarters 1.00 to 1.00
(taken as a whole) ended on
<PAGE>
September 30, 1994
For the four quarters 1.05 to 1.00
(taken as a whole) ended on
each Quarterly Date from
December 31, 1994 through
September 30, 1995
For the four quarters 1.025 to 1.00
(taken as a whole) ended on
December 31, 1995
For the four quarters 0.75 to 1.00
(taken as a whole) ended on
each Quarterly Date from
March 31, 1996 through
June 30, 1996
For the four quarters 0.80 to 1.00
(taken as a whole) ended on
September 30, 1996
For the four quarters 1.05 to 1.00
(taken as a whole) ended on
each Quarterly Date from
December 31, 1996 through
December 31, 1997
For the four quarters 1.10 to 1.00"
(taken as a whole) ended on
March 31, 1998 and on each
Quarterly Date thereafter
(8) Section 10. 04., Consolidated Minimum Net Worth, is amended by deleting
each "Period" and its corresponding "Amount" and inserting in their place the
following:
"Period Amount
June 30, 1995 to and $ 90,000,000
including September 29, 1995
September 30, 1995 to and $ 95,000,000
including December 30, 1995
December 31, 1995 to and $103,000,000
including March 30, 1996
March 31, 1996 to and $ 99,000,000
including June 29, 1996
June 30, 1996 to and $ 99,700,000
including September 29, 1996
<PAGE>
September 30, 1996 to and $101,700,000
including December 30, 1996
December 31, 1996 to and $109,000,000
including December 30, 1997
December 31, 1997 to and $119,000,000
including December 30, 1998
December 31, 1998 to and $129,000,000
including December 30, 1999
December 31, 1999 to and $139,000,000
including December 30, 2000
December 31, 2000 to and $149,000,000
including December 30, 2001
On December 31, 2001 and $159,000,000"
at all times thereafter
(9) Section 10.05., Consolidated Minimum Interest Coverage Ratio, is amended by
(i) deleting each "Period" and its corresponding "Ratio" and inserting in their
place the following:
"Period Ratio
For the four quarters 2.50 to 1.00
(taken as a whole) ended on each
from January 1, 1995 through
September 30, 1995
For the four quarters 2.00 to 1.00
(taken as a whole) ended on
December 31, 1995
For the four quarters 1.25 to 1.00
(taken as a whole) ended on
March 31, 1996
For the four quarters 1.35 to 1.00
(taken as a whole) ended on each
Quarterly Date during the period
from June 30, 1996 through September
30, 1996
For the four quarters 1.75 to 1.00
(taken as a whole) ended on
December 31, 1996
For the four quarters 2.00 to 1.00
(taken as a whole) ended on
each Quarterly Date during
the period from January 1, 1997
<PAGE>
through December 31, 1997
For the four quarters 2.25 to 1.00
(taken as a whole) ended on
each Quarterly Date during
the period from January 1, 1998
through December 31, 1998
For the four quarters 2.50 to 1.00
(taken as a whole) ended on
each Quarterly Date during
the period from January 1, 1999
through December 31, 1999
For the four quarters 2.75 to 1.00
(taken as a whole) ended on
each Quarterly Date during
the period from January 1, 2000
through December 31, 2000
For the four quarters 3.00 to 1.00"
(taken as a whole) ended on
March 31, 2001 and on each
Quarterly Date thereafter
and by (ii) deleting "3.50" in the eighth line of the last paragraph thereof
and inserting in its place the following: "3.00".
SECTION 2. Condition of Effectiveness. This Second Amendment shall become
effective with respect to Section 1(4) through Section 1(9) as of the date on
which each of the following conditions has been fulfilled:
(1) This Second Amendment. The Borrowers, the Guarantors, the Required Banks
and the Agent shall each have executed and delivered this Second Amendment.
(2) Amendment Fee. Alliance shall have paid to the Agent an amendment fee in the
amount of Two Hundred Fifty Thousand Dollars ($250,000) for the account of the
Banks, in proportion to each Bank's Pro Rata Share.
(3) Officer's Certificate. The following statements shall be true and the Agent
shall have received a certificate signed by a duly authorized officer of
Alliance dated the date hereof stating that, after giving effect to this Second
Amendment and the transactions contemplated hereby:
(a) The representations and warranties contained in the Credit Agreement and in
each of the other Loan Documents are correct on and as of the date hereof as
though made on and as of such date in all material respects if such
representation and warranty is not subject to a Material Adverse Change
exception, and if such representation and warranty is subject to such an
exception, is correct; and
(b) No Default or Event of Default has occurred and is continuing.
(4) Additional Documentation. The Agent and each Bank shall have received such
other approvals, opinions or documents as the Agent or such Bank may reasonably
request.
The Second Amendment shall become effective with respect to Sections 1(1), (2)
and (3) as of the date on which each of the following conditions has been
fulfilled:
<PAGE>
(1) Conditions Above. The satisfaction of all the conditions set forth in the
paragraph above.
(2) Execution by All the Banks. All of the Banks shall have executed and
delivered this Second Amendment.
Section 3. Reference to and Effect on the Loan Documents (a) Upon the
effectiveness of Section I hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import, and each reference in the other Loan Documents to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) The execution, delivery and effectiveness of this Second Amendment shall not
operate as a waiver of any right, power or remedy of the Agent or any Bank under
any of the Loan Documents, nor constitute a waiver of any provision of any of
the Loan Documents, and, except as specifically provided herein, the Credit
Agreement and each other Loan Document shall remain in full force and effect and
are hereby ratified and confirmed.
Section 4. Costs, Expenses and Taxes. Alliance agrees to reimburse the Agent and
each Bank on demand for all out-of-pocket costs, expenses and charges
(including, without limitation, all fees and charges of external legal counsel
for the Agent and each Bank) incurred by the Agent and each Bank in connection
with the preparation, reproduction, execution and delivery of this Second
Amendment and any other instruments and documents to be delivered hereunder. in
addition, Alliance shall pay any and all stamp and other taxes and fees payable
or determined to be payable in connection with the execution and delivery,
filing or recording of this Second Amendment and the other instruments and
documents to be delivered hereunder, and agrees to save the Agent and each Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes or fees.
SECTION 5. Governing Law. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. Headings. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of
this Second Amendment for any other purpose.
SECTION 7. Counterparts. This Second Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Second Amendment by signing
any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be
duly executed as of the day and year first above written.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Elliot B. Newman
- ----------------------------------------------------
Name: Elliot B. Newman
Title: Senior Executive Vice President
AEC ONE STOP GROUP, INC.
By: /s/ Anil K. Narang
- ---------------------------------------------------------
Name: Anil K. Narang
Title: Vice Chairman, President and
Chief Financial Officer
<PAGE>
PASSPORT DISTRIBUTION, INC..
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (U.S.), INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EXECUSOFT, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CONCORD JAZZ, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE JAZZ ALLIANCE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PASSPORT MUSIC WORLDWIDE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
AEC AMERICAS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Anil K. Narang
Title: Executive Vice President
ALLIANCE VENTURES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER ARTISTS SERVICES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER SIGNATURES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
FL ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
DISQUEMUSIC COMERCIAL IMPORTADORA
LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
BRASISON DISTRIBUIDORA DE DISCOS LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC HOLDINGS (UK) LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (DEUTSCHLAND)
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE ST. CLAIR ENTERTAINMENT GROUP INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
A.E. LAND CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
DOJO LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
HENDRING LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EASTERN LIGHT PRODUCTIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
WHITE METAL MUSIC LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COPYRIGHTS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
KAZ RECORDS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
INDEPENDENT NATIONAL DISTRIBUTORS INC.
By:
- ---------------------------------------------------------
Name: Christopher J. Joyce
Title: Executive Vice President
ONE WAY RECORDS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DEJA VU MUSIC,
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE CHASE MANHATTAN BANK, N.A.,
as Bank
By:
- ---------------------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
(London Branch) as Bank
By:
- ---------------------------------------------------------
Name:
Title:
<PAGE>
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/Gregory F. Mathis
- ---------------------------------------------------------
Name: Gregory F. Mathis
Title: Vice President
By: /s/Christina T. Schoen
- ---------------------------------------------------------
Name: Christina T. Schoen
Title: Vice President
CREDITANSTALT - BANKVEREIN,
(London Branch)
By:
- --------------------------------------------------------
Name:
Title:
By:
- ---------------------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/John D. Runger
- ---------------------------------------------------------
Name: John D. Runger
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
(London Branch)
By: /s/John D. Runger
- ---------------------------------------------------------
Name: John D. Runger
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
(London Branch)
By: /s/Charles B. Fears
- ---------------------------------------------------------
Name: Charles B. Fears
Title: Vice President
<PAGE>
NATIONAL BANK OF CANADA
By: /s/Gaetan R. Frosina
- ---------------------------------------------------------
Name: Gaetan R. Frosina
Title: Vice President
By: /s/Joseph A. Klapkowski
- ---------------------------------------------------------
Name: Joseph A. Klapkowski
Title: Assistant Vice President
EUROPEAN AMERICAN BANK
By:
- ---------------------------------------------------------
Name:
Title:
ABN AMRO BANK N.V.
By:
- ---------------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
- ---------------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (London Branch)
By:
- ---------------------------------------------------------
Name:
Title:
GIROCREDIT BANK
AKTIENGESELLSCHAFT der
SPARKASSEN, Grand Cayman Island Branch
By: /s/Anca Trifan
- ---------------------------------------------------------
Name: Anca Trifan
Title: Vice President
By:
- ---------------------------------------------------------
Name:
Title:
<PAGE>
NATIONAL CITY BANK
By: /s/Lisa Beth Lisi
- ---------------------------------------------------------
Name: Lisa Beth Lisi
Title: Account Officer
FIRST SOURCE FINANCIAL, LLP.
By: /s/Gary L. Francis
- ---------------------------------------------------------
Name: Gary L. Francis
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/Stephen E. Lockhart
- ---------------------------------------------------------
Name: Stephen E. Lockhart
Title: Vice President
SCOTIABANK (U.K.) LTD.
By:
- ---------------------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By: /s/ Marie J. Toulantis
- ---------------------------------------------------------
Name: Marie J. Toulantis
Title: Vice President
THIRD AMENDMENT TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT AND GUARANTY
THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY
dated as of June 30, 1996 ("Third Amendment") among Alliance Entertainment Corp.
("Alliance"), AEC Holdings (UK) Limited ("AEC(UK)"), Castle Communications
Limited ("Castle"), each of the BANKS as specified in the Credit Agreement
referred to below, each of the GUARANTORS as specified in the Credit Agreement
referred to below, and THE CHASE MANHATTAN BANK (successor by merger to the
Chase Manhattan Bank, N.A.), as agent for the Banks (in such capacity, together
with its successors, the "Agent"). Alliance, AEC(UK), and Castle are referred to
herein individually as a "Borrower" and collectively as the "Borrowers".
PRELIMINARY STATEMENT. The Borrowers, the Guarantors, the Banks and
the Agent have entered into a Third Amended and Restated Credit Agreement and
Guaranty dated as of July 25, 1995, as amended by a First Amendment to Third
Amended and Restated Credit Agreement and Guaranty dated as of September 30,
1995, and as further amended by a Second Amendment to Third Amended and Restated
Credit Agreement and Guaranty dated as of December 31, 1995 (as further
modified, amended or supplemented from time to time, the "Credit Agreement").
Any term used herein and not otherwise defined herein shall have the meaning
assigned to such term in the Credit Agreement.
Each of the parties hereto have agreed to amend the Credit Agreement
as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. Upon the execution of this
Third Amendment by all of the Banks, the Credit Agreement is, effective as of
the date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 4 hereof, hereby amended as follows:
(1) The definitions of "Available Proceeds from Subordinated Debt",
"Permitted Catalog Acquisition" and "Permitted Catalog Acquisition Amount" are
deleted.
(2) The definition of "Alliance Major Equity Event Proceeds" is
amended in its entirety to read as follows:
"'Alliance Major Equity Event Proceeds' means any and
all cash proceeds from an Alliance Major Equity Event received
by Alliance."
(3) The definition of "Cash Consideration" is amended by adding after
"notes" in the second line thereof the following: ", and any other assumed
liabilities or obligations (other than trade obligations)".
<PAGE>
(4) The definition of "Consolidated Cumulative Extraordinary Non-Cash
Charges Plus Charges Associated with Refinancings of Obligations" is amended by
adding after "Projections" at the end thereof the following:
", plus (7) Seventeen Million Nine Hundred Thousand Dollars
($17,900,000) to reflect non-recurring charges taken on March 31, 1996 and
June 30, 1996.
(5) The definition of "Consolidated Net Income" is amended in its entirety
to read as follows:
"'Consolidated Net Income' means, for any period, the total of (1) the net
income of Alliance and its Consolidated Subsidiaries, on a consolidated basis,
all as determined in accordance with Adjusted GAAP, plus (2) for the period from
September 30, 1995 through September 30, 1996, One Million Dollars ($1,000,000),
plus (3) for the period from June 30, 1996 through March 31, 1997, Two Million
Nine Hundred Thousand Dollars (2,900,000), plus (4) for the period from June 30,
1996 through June 30, 1997, Fifteen Million Dollars ($15,000,000), plus (5) to
the extent used to determine net income of Alliance and its Consolidated
Subsidiaries, on a consolidated basis, all non-cash losses of Alliance and its
Consolidated Subsidiaries, on a consolidated basis, all non-cash losses of
Alliance and its Consolidated Subsidiaries due to High Inflation Adjustments,
minus (6) to the extent used to determine net income of Alliance and its
Consolidated Subsidiaries, on a consolidated basis, all non-cash gains of
Alliance and its Consolidated Subsidiaries due to High Inflation Adjustments,
provided, that, to the extent the periods specified under (2), (3) or (4) above
overlap then all such amounts specified for the overlapping periods are added to
net income of Alliance and its Consolidated Subsidiaries during such periods."
(6) The definition of "Permitted Acquisition" is amended by deleting
"(other than a Permitted Catalog Acquisition)" in the fourth line thereof.
(7) The definition of "Permitted Acquisition Amount" is amended in its
entirety to read as follows:
"'Permitted Acquisition Amount' means (1) during the period from July 1,
1996 to and including December 31, 1996, Twelve Million Dollars ($12,000,000);
(2) during the period from January 1, 1997 to and including December 31, 1997,
Fifteen Million Dollars ($15,000,000); and (3) for the Fiscal Year from January
1, 1998 to December 31, 1998, and for each Fiscal Year thereafter, Seventeen
Million Dollars ($17,000,000), provided, however, any Permitted Acquisition
Amount not used during any of the time periods set forth above may be carried
forward to the next succeeding period."
(8) The definition of "'Unrestricted Subsidiary Major Equity Event
Proceeds'" is amended in its entirety to read as follows:
"'Unrestricted Subsidiary Major Equity Event Proceeds' means any and all
cashproceeds from an Unrestricted Subsidiary Major Equity Event received by any
such Unrestricted Subsidiary."
<PAGE>
(9) The definition of "Permitted Investment Affiliate Advance" is amended
by deleting "Fifteen Million Dollars ($15,000,000)" in the last line thereof and
inserting in its place the following: "Twelve Million Five Hundred Thousand
Dollars ($12,500,000)".
(10) Section 2.14., Mandatory Prepayment, is amended by deleting the second
paragraph thereof in its entirety and inserting in its place the following:
"Upon Alliance's receipt of Alliance Major Equity Event Proceeds received
on or after July 1, 1996 such Proceeds received on or after July 1, 1996 such
Proceeds will be applied as follows: (1) the first Fifty Million Dollars
($50,000,000) to the Revolving Credit Loans, (2) fifty percent (50%) of all
Proceeds in excess of the first Fifty Million Dollars ($50,000,000), will be
used to prepay the Term Loans on a proportionate basis and such payments will be
applied to the scheduled installments of principal on such Term Loans in the
inverse order of maturity. Each such prepayment shall be required to be made at
the time of receipt of such Proceeds, provided, however, if less than Five
Million Dollars ($5,000,000) increments of such Proceeds are received on or
about the same time then a prepayment shall not be required to be made until the
aggregate of al such unapplied Proceeds equals or exceeds Five Million Dollars
($5,000,000)."
(11) Section 8.08., Reporting Requirements, is amended by renumbering clause
"(20)" to be clause "(22)" and inserting after clause "(19)" the following:
"(20) July 31, 1996 Financial Statements. As soon as available and in any
event by August 15, 1996, the consolidated and consolidating balance sheets of
Alliance and its Consolidated Subsidiaries as of July 31, 1996, consolidated and
consolidating statements of income, statements of stockholders' equity and cash
flow statements of Alliance and its consolidated Subsidiaries both for the four
month period ending on July 31, 1996 and for the period ending on July 31, 1996
and for the period commencing at the end of the previous Fiscal Year and ending
with July 31, 1996, all in reasonable detail and stating in comparative form
corresponding unaudited consolidated and consolidating figures for the
corresponding date and period in the previous Fiscal Year and all prepared in
accordance with then effective generally accepted accounting principles
consistently applied and certified by the chief financial officer of Alliance.
As soon as available and in any event by August 15, 1996, the consolidated
and consolidating balance sheets of Alliance and its Consolidated Subsidiaries
as of July 31, 1996, consolidated and consolidating statements of income,
statements of stockholders' equity and cash flow statements of Alliance and its
Consolidated Subsidiaries both for the four month period ending on July 31,
1996, and for the period commencing at the end of the previous Fiscal Year and
ending with July 31, 1996, all in reasonable detail and stating in comparative
form corresponding unaudited consolidated and consolidating figures for the
corresponding date and period in the previous Fiscal year and all prepared in
accordance with GAAP consistently applied and certified by the chief financial
officer of Alliance.
<PAGE>
As soon as available and in any event by August 15, 1996, the consolidated
and consolidating balance sheets of Alliance and its Consolidated Subsidiaries
as of July 31, 1996, consolidated and consolidating statements of income,
statements of stockholders' equity and cash flow statements of Alliance and its
Consolidated Subsidiaries both for the four month period ending on July 31, 1996
and for the period commencing at the end of the previous Fiscal Year and ending
with July 31, 1996, all in reasonable detail and all prepared in accordance with
Adjusted GAAP consistently applied and certified by the chief financial officer
of Alliance.
(21) July 31, 1996 Certificate of No Default. Simultaneously with the
delivery of the financial statements referred to in clause (20) above, a
certificated of the chief financial officer of Alliance (a) certifying that to
the best of his knowledge no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action which is proposed to be
taken with respect thereto, (b) with computations demonstrating compliance with
the covenants contained in Article X, (c) with all information required to
determine compliance with Section 9.09, and (d) with all information required to
determine the amount of each of the following to determine compliance with each
of the following to determine compliance with each of the following Sections:
the exception under (3) to 9.02, the exception under (2) to 9.06, the exceptions
under (3) to 9.08, and the exceptions under (5), (6), (7) and (8) to 9.12."
(12) Section 10.02., Consolidated leverage Ratio, is amended by (i)
deleting "exceed Twenty Million Dollars ($20,000,000)" in the third and fourth
lines thereof and inserting in its place the following: "received on or after
July 1, 1996 equals or exceeds Forty-Two Million Dollars ($42,000,000)", and
(ii) deleting the second and third paragraphs thereof and inserting in their
place the following:
"After the receipt by Alliance or any Subsidiary of Alliance on or after
July 1, 1996 of Major Equity Event Proceeds where the aggregate of all such
Proceeds equals or exceeds Forty-Two Million Dollars ($42,000,000), Alliance and
its Consolidated Subsidiaries shall have as of each Quarterly Date a ratio of
(1) Consolidated Total Liabilities to (2) the sum of (a) Consolidated Net Worth
plus (b) Consolidated Cumulative Extraordinary Non-Cash Charges and Charges
Associated with Refinancing of Obligations of not greater than the ratio
specified below for such date:
Date Ratio
September 30, 1996 3.95 to 1.00
December 31, 1996 3.75 to 1.00
March 31, 1997 3.80 to 1.00
June 30, 1997 3.80 to 1.00
<PAGE>
September 30, 1996 3.80 to 1.00
December 31, 1997 3.80 to 1.00
March 31, 1998 3.65 to 1.00
June 30, 1998 3.65 to 1.00
September 30, 1998 3.65 to 1.00
December 31, 1998 3.65 to 1.00
March 31, 1999 3.60 to 1.00
June 30, 1999 3.60 to 1.00
September 30, 1999 3.60 to 1.00
December 31, 1999 3.60 to 1.00
March 31, 2000 3.45 to 1.00
June 30, 2000 3.45 to 1.00
September 30, 2000 3.45 to 1.00
December 31, 2000 3.45 to 1.00
March 31, 2001 3.45 to 1.00
June 30, 2001 3.45 to 1.00
(7) Section 10.03., Consolidated Cash Flow Coverage Ratio, is amended
by (i) deleting "Twenty Million Dollars ($20,000,000) or more" in the third line
thereof and inserting in its place the following: "on or after July 1, 1996
Forty-Two Million Dollars ($42,000,000)", and (ii) deleting the second paragraph
thereof and inserting in its place the following:
"After the receipt by Alliance or any Subsidiary of Alliance on or after
July 1, 1996 of Major Equity Event Proceeds where the aggregate of all such
Proceeds equals or exceeds Forty-Two Million Dollars ($42,000,000), Alliance and
its Consolidated Subsidiaries shall have for each period specified below a
Consolidated Cash Flow Coverage Ratio of not less than the ratio specified below
for such period:
Period Ratio
For the four quarters 1.00 to 1.00
(taken as a whole) ended on
September 30, 1996
For the four quarters 1.15 to 1.00
(Taken as a whole) ended on
December 31, 1996
For the four quarters 1.05 to 1.00
(Taken as a whole) ended on Each
Quarterly Date from March 31, 1997
through December 31, 1997
For the four quarters 1.10 to 1.00
<PAGE>
(taken as a whole) ended on
March 31, 1998 and on each
Quarterly Date thereafter
(8) Section 10.04., Consolidated Minimum Net Worth, is amended by
adding at the end thereof the following:
"After the receipt by Alliance or any Subsidiary of Alliance on or
after July 1, 1996 of Major Equity Event Proceeds where the aggregate of all
such Proceeds equals or exceeds FortyTwo Million Dollars ($42,000,000), Alliance
and its Consolidated Subsidiaries shall have for each period specified below
Consolidated Net Worth of not less than the amount specified below for such
period:
"Period" Amount
September 30, 1996 to and $149,000,000
including December 30, 1996
December 31, 1996 to and $157,000,000
including December 30, 1997
December 31, 1997 to and $167,000,000
including December 30, 1998
December 31, 1998 to and $176,000,000
including December 30, 1999
December 31, 1999 to and $186,000,000
including December 30, 2000
December 31, 2000 and $207,000,000
at all times thereafter
(9) Section 10.05., Consolidated Minimum Interest Coverage Ratio, is
amended by (i) deleting "Twenty Million Dollars ($20,000,000) or more" in the
third and fourth lines thereof and inserting in its place the following: "on or
after July 1, 1996 Forty-Two Million Dollars ($42,000,000)", and (ii) deleting
the second paragraph thereof and inserting in its place the following:
"After the receipt by Alliance or any Subsidiary of Alliance on or after
July 1, 1996 of Major Equity Event Proceeds where the aggregate of all such
Proceeds equals or exceeds Forty-Two Million Dollars ($42,000,000), Alliance and
its Consolidated Subsidiaries shall have for each period specified below a ratio
of (1) Consolidated Earnings Before Interest, Taxes and Amortization, to (2)
Adjusted Consolidated Interest Expense, of not less than the ratio specified
below for such period:
<PAGE>
"Period Ratio
For the four quarters 1.125 to 1.00
(Taken as a whole) ended on
September 30, 1996
For the four quarters 1.70 to 1.00
(taken as a whole) ended on
December 31, 1996
For the four quarters 2.10 to 1.00
(taken as a whole) ended on
each Quarterly Date during
the period from January 1, 1997
through December 31, 1997
For the four quarters 2.30 to 1.00
(taken as a whole)ended on each
Quarterly Date during the period
from January 1, 1998 through
December 31, 1998
For the four quarters 2.60 to 1.00
(Taken as a whole)ended on each
Quarterly Date during the period
from January 1, 1999 through
December 31, 1999
For the four quarters 3.00 to 1.00"
(taken as a whole) ended on
January 1, 2000 and on
each Quarterly Date thereafter
SECTION 2. Deferral of Financial Covenant Measurement. Alliance and
its Consolidated Subsidiaries have requested that the Banks (1) defer measuring
compliance by Alliance and its Consolidated Subsidiaries with each of the
financial covenants set forth in Article X, Financial Covenants, of the Credit
Agreement (other than Sections 10.01 and 10.06) to be measured on June 30, 1996
until July 31, 1996 so that the standards for financial performance for Alliance
and its Consolidated Subsidiaries would be measured on July 31, 1996 based upon
the requirements set forth in the Credit Agreement for June 30, 1996 ("Deferred
Financial Covenants"), and (2) waive both compliance with each of the Deferred
Financial Covenants as of July 31, 1996 and compliance with Sections 8.08(20),
"July 31, 1996 Financial Statements", and 8.08(21), "July 31, 1996 Certificate
of No Default", if Alliance or any Subsidiary of Alliance receives Major Equity
Event Proceeds after July 1, 1996 but before July 31, 1996 where the aggregate
of all such Proceeds equals or exceeds Forty-Two Million Dollars
<PAGE>
($42,000,000) ("Financial Covenant Noncompliance").
Each of the Banks agree to the foregoing Deferred Financial Covenants
and Financial Covenant Noncompliance.
SECTION 3. Additional Amendments to Financial Covenants. Promptly, and
in any event not later than five (5) Banking Days after (1) the initial receipt
by Alliance or any Subsidiary of Alliance of Major Equity Event Proceeds on or
after July 1, 1996 where the aggregate of all such Proceeds exceeds Forty-Two
Million Dollars ($42,000,000), and (2) the subsequent receipt by Alliance or any
Subsidiary of Alliance of Major Equity Event Proceeds where the aggregate of all
such Proceeds exceeds a multiple of Five Million Dollars ($5,000,000), Alliance
agrees to submit revised projections to each of the Banks reflecting the receipt
and use of such Proceeds. The revised projections will be prepared using the
same assumptions and methodology as those used to prepare the projections
submitted to the Banks on June 18, 1996 ("Revised Projections"). All parties to
the Credit Agreement agree to enter, promptly after receipt of Revised
Projections, into an amendment to the Credit Agreement, in form and substance
satisfactory to the Banks and the Agent, which will amend the existing financial
covenants set forth in Sections 10.02, 10.03, 10.04 and 10.05 so that each such
covenant will be equal to the amount or ratio specified in the Revised
Projections multiplied by the percentage set forth in Exhibit A hereto;
provided, however, no Bank will be required to enter into such an amendment
which could result in a change to any financial covenant such that such
financial covenant is less restrictive than the existing financial covenant.
Notwithstanding the foregoing, after the receipt by Alliance or any
Subsidiary of Alliance on or after July 1, 1996 of Major Equity Event Proceeds
where the aggregate of all such Proceeds exceeds Fifty Million Dollars
($50,000,000), the aforesaid amendment to the Credit Agreement shall provide for
such existing financial covenants will be amended so that each such covenant to
be equal to the amount or ratio specified in the Revised Projections submitted
in connection with such Proceeds multiplied by a percentage (up to a maximum of
one hundred percent (100%) which shall be determined by the Banks in their sole
discretion.
SECTION 4. Condition of Effectiveness. This Third Amendment shall become
effective as of the date on which each of the following conditions has been
fulfilled:
(1) This Third Amendment. The Borrowers, the Guarantors, the Required Banks
and the Agent shall each have executed and delivered this Third Amendment.
(2) Inventory and Accounts Receivable Analysis. An analysis of the
inventory and accounts receivable of each of Jerry Bassin, Inc. and CD One Stop
shall have been completed by M.R. Weiser & Co. and the results of such analysis
shall be acceptable to the Banks in their sole discretion.
(3) Amendment Fee. Alliance shall have paid to the Agent an amendment fee
in the amount of Four Hundred Eighty-Five Thousand Dollars ($485,000) for the
account of the Banks, and the Agent will deliver to each Bank its Pro Rata Share
of such fee.
<PAGE>
(4) Officer's Certificate. The following statements shall be true and the
Agent shall have received a certificate signed by a duly authorized officer of
Alliance dated the date hereof stating that, after giving effect to this Third
Amendment and the transactions contemplated hereby:
(a) The representations and warranties contained in the Credit Agreement
and in each of the other Loan Documents are correct on and as of the date hereof
as though made on and as of such date in all material respects if such
representation and warranty is not subject to a Material Adverse Change
exception, and if such representation and warranty is subject to such an
exception, is correct; and
(b) No Default or Event of Default has occurred and is continuing.
(5) Additional Documentation. The Agent and each Bank shall have received
such other approvals, opinions or documents as the Agent or such Bank may
reasonably request.
SECTION 5. Reference to and Effect on the Loan Documents. (a) Upon
the effectiveness of Section 1 hereof, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in the other Loan Documents
to the Credit Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
(b) The execution, delivery and effectiveness of this Third
Amendment shall not operate as a waiver of any right, power or remedy of the
Agent or any Bank under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents, and, except as specifically provided
herein, the Credit Agreement and each other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed.
SECTION 6. Costs, Expenses and Taxes. Alliance agrees to reimburse
the Agent and each Bank on demand for all out-of-pocket costs, expenses and
charges (including, without limitation, all fees and charges of external legal
counsel for the Agent and each Bank) incurred by the Agent and each Bank in
connection with the preparation, reproduction, execution and delivery of this
Third Amendment and any other instruments and documents to be delivered
hereunder. In addition, Alliance shall pay any and all stamp and other taxes and
fees payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Third Amendment and the other instruments
and documents to be delivered hereunder, and agrees to save the Agent and each
Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes or fees.
SECTION 7. Governing Law. This Third Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8. Headings. Section headings in this Third Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Third Amendment for any other purpose.
<PAGE>
SECTION 9. Counterparts. This Third Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Third Amendment by signing any
such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above written.
ALLIANCE ENTERTAINMENT CORP.
By /s/ Elliot B. Newman
- ------------------------------------------
Name: Elliot B. Newman
Title: Senior Executive Vice President
AEC ONE STOP GROUP, INC.
By
- -----------------------------------------
Name: Anil K. Narang
Title: Vice Chairman, President and
Chief Financial Officer
PASSPORT DISTRIBUTION, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (U.S.), INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EXECUSOFT, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CONCORD JAZZ, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
THE JAZZ ALLIANCE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PASSPORT MUSIC WORLDWIDE, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC AMERICAS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
ALLIANCE VENTURES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER ARTISTS SERVICES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
PREMIER SIGNATURES, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
FL ACQUISITION CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
DISQUEMUSIC COMERCIAL IMPORTADORA
LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
BRASISON DISTRIBUIDORA DE DISCOS LTDA.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
AEC HOLDINGS (UK) LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COMMUNICATIONS (DEUTSCHLAND)
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE ST. CLAIR ENTERTAINMENT GROUP INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
A.E. LAND CORP.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
DOJO LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
HENDRING LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
EASTERN LIGHT PRODUCTIONS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
WHITE METAL MUSIC LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
CASTLE COPYRIGHTS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
KAZ RECORDS LIMITED
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
<PAGE>
INDEPENDENT NATIONAL DISTRIBUTORS INC.
By:
- ---------------------------------------------------------
Name: Christopher J. Joyce
Title: Executive Vice President
ONE WAY RECORDS, INC.
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
DEJA VU MUSIC,
By: /s/ Elliot B. Newman
- ---------------------------------------------------------
Name: Elliot B. Newman
Title: Executive Vice President
THE CHASE MANHATTAN BANK, N.A.,
as Bank
By: /s/Maria B. Florez
- ---------------------------------------------------------
Name: Maria B. Florez
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.,
(London Branch) as Bank
By: /s/Maria B. Florez
- ---------------------------------------------------------
Name: Maria B. Florez
Title: Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/Gregory F. Mathis
- ---------------------------------------------------------
Name: Gregory F. Mathis
Title: Vice President
By: /s/Geoffrey D. Spillano
- ---------------------------------------------------------
Name: Geoffrey D. Spillano
Title: Senior Associate
<PAGE>
CREDITANSTALT - BANKVEREIN,
(London Branch)
By: /s/M.A. Bowles
- --------------------------------------------------------
Name: M.A. Bowles
Title: Senior Manager
By: /s/D. Gayler
- ---------------------------------------------------------
Name: D Gaylor
Title: Senior Manager
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/John Runger
- ---------------------------------------------------------
Name: John Runger
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
(London Branch)
By:
- ---------------------------------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
(London Branch)
By: /s/Charles B. Fears
- ---------------------------------------------------------
Name: Charles B. Fears
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/J. Michael Smith
- ---------------------------------------------------------
Name: J. Michael Smith
Title: Vice President
By: /s/Jerry Salos
- ---------------------------------------------------------
Name: Jerry Salos
Title: Vice President
<PAGE>
EUROPEAN AMERICAN BANK
By: /s/Robert G. Maichin
- ---------------------------------------------------------
Name: Robert G. Maichin
Title: Assistant Vice President
ABN AMRO BANK N.V.
By:
- ---------------------------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/Russell D. Solomon
- ---------------------------------------------------------
Name: Russell D. Solomon
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (London Branch)
By: /s/Russell D. Solomon
- ---------------------------------------------------------
Name: Russell D. Solomon
Title: Vice President
GIROCREDIT BANK
AKTIENGESELLSCHAFT der
SPARKASSEN, Grand Cayman Island Branch
By: /s/Anca Trifan
- ---------------------------------------------------------
Name: Anca Trifan
Title: Vice President
By:
- ---------------------------------------------------------
Name:
Title:
<PAGE>
NATIONAL CITY BANK
By: /s/Lisa Beth Lisi
- ---------------------------------------------------------
Name: Lisa Beth Lisi
Title: Account Officer
FIRST SOURCE FINANCIAL, LLP.
By: /s/James W. Wilson
- ---------------------------------------------------------
Name: James W. Wilson
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/Brian Allen
- ---------------------------------------------------------
Name: Brian Allen
Title: Senior Relationship Manager
SCOTIABANK (U.K.) LTD.
By: /s/ Barry Hodges
- ---------------------------------------------------------
Name: Barry Hodges
Title: Relationship Manager
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By: /s/ Marie B. Florez
- ---------------------------------------------------------
Name: Marie B. Florez
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from consolidated
Balance Sheets as of June 30, 1996 and Consolidated Statements of Operations for
the Six Months Ended June 30, 1996 and is qualiied in its entirety by reference
to such financial statement. </LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 5,939
<SECURITIES> 0
<RECEIVABLES> 147,117
<ALLOWANCES> 0
<INVENTORY> 174,457
<CURRENT-ASSETS> 380,430
<PP&E> 25,131
<DEPRECIATION> 0
<TOTAL-ASSETS> 592,017
<CURRENT-LIABILITIES> 287,986
<BONDS> 231,324
0
0
<COMMON> 3
<OTHER-SE> 64,419
<TOTAL-LIABILITY-AND-EQUITY> 592,017
<SALES> 339,356
<TOTAL-REVENUES> 339,356
<CGS> 285,466
<TOTAL-COSTS> 285,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,777
<INCOME-PRETAX> (37,893)
<INCOME-TAX> (11,368)
<INCOME-CONTINUING> (26,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,525)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
