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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 3 )
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Alliance Entertainment Corp.
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(Name of Issuer)
Common Stock, $.0001 par value
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(Title of Class of Securities)
018593103
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(CUSIP Number)
Mr. James T. Byrne, Jr.
Office of the Secretary
Bankers Trust New York Corporation
280 Park Avenue, New York, NY 10017
Tel. (212) 250-1869
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
December 20, 1996
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with this statement [ ]. (A
fee is required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
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SCHEDULE 13D
CUSIP NO. 018593103
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
BT Capital Partners, Inc.
EIN No. 13-2725387
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
-
(b) [X]
- --------------------------------------------------------------------------------
3. 3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS
WC, BK (See Item 3)
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [X]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBERS OF 7. SOLE VOTING POWER
SHARES 15,772,642
BENEFICIALLY _______________________________________________________
OWNED BY EACH
REPORTING 8. SHARED VOTING POWER
PERSON WITH 0
_______________________________________________________
9. SOLE DISPOSITIVE POWER
15,772,642
_______________________________________________________
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
15,772,642
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
-
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
19.88%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
CO
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SCHEDULE 13D
CUSIP NO. 018593103
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Bankers Trust Company
EIN No. 13-4941247
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
-
(b) [ ]
-
- --------------------------------------------------------------------------------
3. 3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS
OO (See Item 3)
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [X]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
- --------------------------------------------------------------------------------
NUMBERS OF 7. SOLE VOTING POWER
SHARES 97,150
BENEFICIALLY _______________________________________________________
OWNED BY EACH
REPORTING 8. SHARED VOTING POWER
PERSON WITH 0
_______________________________________________________
9. SOLE DISPOSITIVE POWER
97,150
_______________________________________________________
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
97,150
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
-
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
.12%
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14. TYPE OF REPORTING PERSON
BK, IA
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SCHEDULE 13D
CUSIP NO. 018593103
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Bankers Trust New York Corporation
EIN No. 13-6180473
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
-
(b) [X]
- --------------------------------------------------------------------------------
3. 3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS n/a
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [X]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
NUMBERS OF 7. SOLE VOTING POWER
SHARES 0*
BENEFICIALLY _______________________________________________________
OWNED BY EACH
REPORTING 8. SHARED VOTING POWER
PERSON WITH 0
_______________________________________________________
9. SOLE DISPOSITIVE POWER
0*
_______________________________________________________
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0*
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
-
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0*
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
CO
- --------------------------------------------------------------------------------
- ----------
*BT Capital Partners, Inc. is an indirect wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust Company is a direct wholly-
owned subsidiary of Bankers Trust New York Corporation. As a result, Bankers
Trust New York Corporation may be deemed to be the indirect beneficial owner of
the shares of Common Stock owned or deemed to be owned by BT Capital Partners,
Inc. and Bankers Trust Company.
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ITEM 1. SECURITY AND ISSUER.
This Amendment No. 3 amends a Statement on Schedule 13D relating to
the Common Stock, par value $.0001 per share ("Common Stock"), of Alliance
------------
Entertainment Corp. (the "Issuer"), filed with the Securities and Exchange
------
Commission on June 14, 1996, which was amended by Amendment No. 1 filed with
the SEC on June 18, 1996, and which was further amended by Amendment No. 2
filed with the SEC on July 23, 1996 ("Amendment No. 2", and, Schedule 13D, as
---------------
so amended, the "Current 13D") by the filing persons described in Item 2 in
-----------
the Current 13D. The Common Stock is traded on the New York Stock Exchange
under the ticker CDS.
The events requiring filing of this Amendment No. 3 are, among
other things, the changes in material facts set forth in the Current 13D,
including the acquisition of a beneficial interest in additional Common Stock
and, due to the contemporaneous acquisitions by other persons, the decrease
of approximately 1% in the percentage of Common Stock beneficially owned by
one of the reporting persons in the Current 13D, BT Capital Partners, Inc.
("BT Capital Partners"). On December 20, 1996, BT Capital Partners acquired
-------------------
$7,500,000 principal amount of the Issuer's 6% Exchangeable Notes
(the "Exchangeable Notes") which are exchangeable for shares of the Issuer's
------------------
Series B Convertible Preferred Stock (the "Series B Preferred Stock")
------------------------
under certain terms and conditions, as described in Item 5. The Series B
Preferred Stock is convertible at the option of the holder into shares of
Common Stock, under certain terms and conditions, as described in Item 5.
Except as set forth herein, no other change is made to the response
to Item 1 in the Current 13D.
ITEM 2. IDENTITY AND BACKGROUND.
Item 2(a) through (c), Item 2(f).
--------------------------------
No change is made to such items other than to the schedule of the
name, citizenship, business or residence address, principal occupation or
employment, and name, principal business and address of any corporation or
organization in which such employment is conducted of each director and
executive officer of BT Capital Partners, BTCo. and BTNY. An amended
schedule with respect to BTCo. and BTNY is set forth in Annex A attached
hereto and incorporated into this Item 2 by reference. Except as modified by
Annex A attached hereto, no other change is made to Item 2(a) through (c) and
Item 2(f).
Items 2(d) and (e).
------------------
No change.
Except for the addition of an amended Annex A relating to BTCo and
BTNY, no other change is made to the response to Item 2 in the Current 13D.
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
BT Capital Partners purchased the $7,500,000 Exchangeable Notes, at
par. Funds used in such acquisition came from a line of credit provided by
BTNY.
The Exchangeable Notes were purchased by BT Capital Partners and
another purchaser pursuant to a Purchase Agreement, dated December 20, 1996
(the December Purchase Agreement"), certain terms of which are more
---------------------------
particularly described under Items 4 and 6 below. The Exchangeable Notes
are exchangeable, at the option of the holders, and under certain conditions,
at the demand of the Issuer into 75,000 shares of Series B Preferred Stock of
the Issuer (the "Series B Preferred Stock"). The Series B Preferred Stock of
------------------------
the Issuer held by BT Capital Partners is convertible, upon certain
conditions the satisfaction of which is probable, at a price of $1.25 per
share into approximately 6,000,000 shares of Common Stock.
BTCo., in its capacity as fiduciary has acquired, since the date of
the filing of Amendment No. 2 but more than 60 days prior to the date hereof,
25,850 additional shares of Common Stock on behalf of its customers, using
customer funds.
ITEM 4. PURPOSE OF TRANSACTION.
The principal purpose for the acquisitions described in Item 3 to
this Amendment No. 3 was for investment. BT Capital Partners is currently
considering an increase in its investment in the Issuer by participating in a
proposed rights offering and may in its sole discretion do so.
In addition, BT Capital Partners, BTCo. and their affiliates may
generally from time to time and in their sole discretion acquire or dispose
of shares of Common Stock and other securities of the Issuer convertible or
exchangeable for Common Stock, either through negotiated transactions or
through transactions in the open market. Each of the persons listed on Annex
A to this Schedule 13D may make the determination with respect to acquisition
or disposition of shares of Common Stock.
As of the date of this Amendment to statement on Schedule 13D,
neither BT Capital Partners nor BTCo. has any present plans or proposals
which relate to or would result in the events described in parts (a) through
(j) of Item 4 of Schedule 13D, except the following:
1. In connection with the closing of the purchase of the Exchangeable
Notes, (a) two persons designated by BT Capital Partners and serving on the
Board of Directors of the Issuer remained as current members of the board,
and BT Capital Partners obtained the right to designate two additional
members of the Board; (b)
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other members of the board resigned; (c) similar rights were granted to
other holders of Exchangeable Notes and Series B Preferred Stock; and (d) the
Issuer agreed to provide standard notice, reimbursement and other benefits to
the directors so designated.
2. The December Purchase Agreement requires the Issuer to exert its
best efforts as promptly as practicable to satisfy the requirements of Rule
312.03 of the New York Stock Exchange Listed Company Manual by obtaining the
approval and authorization of its stockholders for the issuance of Common
Stock upon conversion of the Series B Preferred Stock, issuable upon the
exchange of the Exchangeable Notes.
3. Pursuant to the December Purchase Agreement, BT Capital Partners
has the right to elect to purchase 50% of the unsubscribed for shares of a
proposed rights offering for approximately 3,500,000 shares of Series C
Convertible Preferred Stock to be made to the holders of the Common Stock of
the Issuer. An affiliate of the other purchaser of the Exchangeable Notes
has agreed to act as lead manager on a best efforts basis in such rights
offering, subject to the terms and conditions contained in the December
Purchase Agreement including further amendments to the Issuer's credit
facilities.
4. BT Capital Partners and the other purchaser of Exchangeable Notes,
so long as either holds at least 50% of the Notes issued to it (or the Series
B Preferred Stock for which such Notes may be exchanged), shall have the
power to nominate candidates to be considered for positions of Executive Vice
President-Finance and Senior Vice President in charge of distribution,
subject to the consent of the CEO of the Issuer.
The foregoing description of the December Purchase Agreement is
qualified in its entirety by reference to the December Purchase Agreement, a
copy of which is attached hereto as Exhibit 7.2, and is specifically
incorporated in this Item 4 by reference.
Except for the changes made herein, no other change is made to the
response to Item 4 in the Current 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As a result of acquiring the Exchangeable Notes, BT Capital
Partners may be deemed to have acquired, on the date of acquisition thereof,
the Series B Preferred Stock for which such Notes may be exchanged, and
beneficial ownership of the shares of Common Stock into which such Series B
Preferred Stock may be converted.
The Exchangeable Notes may be exchanged at any time prior to
December 1, 2001 for shares of the Series B Preferred Stock at a price of
$100 per share. The number of shares issuable upon exchange of the
Exchangeable Notes shall be that number obtained by
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dividing the principal amount outstanding plus accrued and unpaid interest on
the date of exchange by $100, rounded to the nearest 1/100th share. The
Exchangeable Notes contain events of default typical in notes of this type,
which will permit the holder to accelerate the maturity of the Exchangeable
Notes. Under certain circumstances the Issuer can cause exchange of the
Exchangeable Notes for shares of Series B Preferred Stock.
Under the terms of the Series B Preferred Stock, such Preferred
Stock may be converted only after the issuance of Common Stock issuable upon
such conversion has been approved by the holders of the Common Stock. The
number of shares of Common Stock into which the Series B Preferred Stock is
convertible is obtained by multiplying the number of shares of Series B
Preferred Stock to be converted by the Liquidation Value thereof and dividing
the result by the Conversion Price then in effect. The "Liquidation Value"
-----------------
of any share of Series B Preferred Stock as of any particular date means an
amount equal to the sum of $100.00 plus any accrued and unpaid dividends on
such share of Preferred Stock. "Conversion Price" means one dollar and
----------------
twenty-five cents ($1.25), subject to adjustment from time to time in order
to prevent dilution. Until conversion of the Series B Preferred Stock into
Common Stock, the dividend rate on the Preferred Stock is 6% (six percent)
per annum; dividends are not payable in cash but in additional shares of
Series B Preferred Stock.
Prior to the issuance of the Exchangeable Notes, the Series B
Preferred Stock for which the Notes are exchangeable and the Common Stock
into which the Series B Preferred Stock is convertible, BT Capital Partners
beneficially owned (i) 3,974,937 shares of Common Stock (of which 407,903
shares are the subject of warrants), (ii) 350,000 shares of Series A
Preferred Stock which, assuming BT Capital Partners has met all other
requirements for conversion, BT Capital Partners could convert into 4,827,586
additional shares of Common Stock; and (iii) pursuant to an agreement with
Douglas Brent and Robert Marakovits, employees of Bankers Trust Company and
two of the members of the board of directors of the Issuer, options for
60,000 shares of Common Stock, which were granted to Messrs. Brent and
Marakovits, who received such options as directors of the Issuer. One-third
of the options are exercisable from the date of the grant with the balance
vesting ratably over a two-year period.
After the issuance of the Exchangeable Notes to BT Capital Partners
pursuant to the December Purchase Agreement, assuming the exchange thereof
for Series B Preferred Stock and the conversion of such Preferred Stock into
shares of Common Stock which at the current conversion rate would aggregate
6,000,000 shares, BT Capital Partners holds a total of 15,772,642 shares of
Common Stock (including the shares of Common Stock which are the
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subject of warrants), which would constitute an aggregate of 19.88% of the
issued and outstanding shares of Common Stock of the Issuer/1/;
The foregoing description of the Exchangeable Notes and the Series
B Preferred Stock is qualified in its entirety by reference to the
Exchangeable Notes and Designations of the Series B Preferred Stock, a copy
of each of which is attached hereto as Exhibit 7.3 and 7.4, respectively, and
each of which is specifically incorporated in this Item 5 by reference.
BTCo. beneficially owns 97,150 shares of Common Stock as fiduciary
on behalf of its customers, constituting 0.12% of the issued and outstanding
shares of Common Stock of the Issuer.
As a parent of each, Bankers Trust New York Corporation may be
deemed to be the indirect beneficial owner of the shares of Common Stock
owned by BT Capital Partners and BTCo.
To the best knowledge and belief of BT Capital Partners, BTCo. and
BTNY, none of the persons listed on Annex A to the Current 13D beneficially
owns any shares of Common Stock as of the date of this Amendment No. 3.
(b) Each of BT Capital Partners and BTCo. has sole power to vote
and dispose of the shares of Common Stock beneficially owned by it, including
the shares that would be acquired upon conversion of the Series B Preferred
Stock, assuming exchange of the Exchangeable Notes therefor.
BT Capital Partners entered into a Voting Agreement dated December
20, 1996, with the Issuer and certain other holders of Common Stock (the
"Voting Agreement"); this agreement, among other things, terminated the
-----------------
Voting Agreement which was entered into on July 16, 1996. Under the Voting
Agreement, each holder of Common Stock has agreed to vote for (a) the
approval of the conversion rights of the Series B Preferred Stock, as set
forth in the Issuer's Certificate of Designations governing the Series B
Preferred Stock, and (b) the approval of the Issuer's issuance of Common
Stock pursuant to any exercise of any of such conversion rights. Because of
such voting arrangements, BT Capital Partners might be considered to be a
member of a group together with the other parties to the Voting Agreement for
purposes of Rule 16a-1(a)(1). However, BT Capital Partners disclaims
membership in any such group and further disclaims beneficial ownership of
the shares of Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Exchangeable Notes owned by the other parties to the Voting
Agreement.
BT Capital Partners terminated Section 3(b) of the Inducement
Agreement with Joseph J. Bianco, the chairman and chief executive officer of
the Issuer (the "Management Stockholder"), pursuant to which section BT
----------------------
Capital Partners had granted the Management Stockholder a proxy to vote for
certain matters.
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/2/After giving effect to the exercise of the warrants. Percentages
used in this Item 5 are based on the number of securities outstanding as
contained in the most recently available filing by the Issuer with the
Securities and Exchange Commission.
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The foregoing description of the Voting Agreement is qualified in
its entirety by reference to the Voting Agreement, a copy of which is
attached hereto as Exhibit 7.5, and such agreement is specifically
incorporated in this Item 5 by reference.
(c) Other than as described herein, none of the persons referred to
in paragraph (a) have engaged in any transactions in shares of Common Stock
since October 15, 1996, sixty days prior to the date hereof.
(d) No change.
(e) Not applicable.
Except for the changes set forth herein, no change is made to the
response to Item 5 in the Current 13D.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
In addition to the contracts, arrangements, understandings or
relationships described in Item 6 to the Current 13D, certain persons named
in Item 2 are parties to the following agreements:
1. December Purchase Agreement and Registration Rights. BT
---------------------------------------------------
Capital Partners acquired the Exchangeable Notes under the December Purchase
Agreement. In addition to the provisions governing the acquisition of the
Exchangeable Notes, the December Purchase Agreement contains provisions
relating to the Board of Directors and the voting of shares, as more
particularly described under Item 4(d) above. The December Purchase
Agreement also contains standard representations and warranties and covenants
by the Issuer.
The December Purchase Agreement contains standard investment
representations by the purchasers of the Exchangeable Notes. In addition, the
holders agree not to transfer the Exchangeable Notes or the Series B
Preferred Stock except in a transaction exempt from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act"), or
--------
except to affiliates, or except pursuant to an effective registration
statement under the 1933 Act. Further, the Exchangeable Notes, and the
Series B Preferred Stock, may not be transferred to a competitor except for
sales on the NYSE or otherwise in the open market or pursuant to a public
offering.
Under the December Purchase Agreement, the Issuer is under an
obligation to maintain an effective registration statement under the
Securities Act of 1933, as amended, with respect to all shares of Common
Stock which BT Capital Partners may acquire through conversion of the
Preferred Stock and all other shares previously acquired by BT Capital
Partners. If such registration is not maintained, BT Capital Partners will
have certain
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registration rights which are set forth in the Terms of Registration Rights
which are attached as Exhibit 7.6 hereto and is incorporated by reference.
Because BT Capital Partners has entered into the December Purchase
Agreement together with certain other purchasers of Exchangeable Notes and
Series B Preferred Stock, it might be considered to be a member of a group
together with the other parties to the December Purchase Agreement. However,
BT Capital Partners disclaims membership in any such group and disclaims
beneficial ownership of the shares of Common Stock or Preferred Stock owned
by the other purchasers under the December Purchase Agreement.
The foregoing description of the December Purchase Agreement is
qualified in its entirety by reference to the December Purchase Agreement
(Exhibit 7.2), and such agreement is specifically incorporated in this Item
6 by reference.
2. Certificate of Designations. The terms of the Series B
---------------------------
Preferred Stock are set forth in the Issuer's Certificate of Designations,
certain terms of which are described in Item 5(a). A copy of the Certificate
of Designations is attached hereto as Exhibit 7.4, and such Certificate is
specifically incorporated in this Item 6 by reference.
3. Voting Agreement. In connection with the purchase of the
----------------
Preferred Stock, BT Capital Partners has entered into the Voting Agreement,
certain terms of which are described under Item 5(b). A copy of the Voting
Agreement attached hereto as Exhibit 7.5 is specifically incorporated in this
Item 6 by reference.
Except as set forth herein, no other change is made to the response
to Item 6 in the Current 13D.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
7.1. Joint filing statement pursuant to Rule 13d-1(f)(1).
7.2 Purchase Agreement dated December 20, 1996.
7.3 6% Exchangeable Note due December 31, 2001.
7.4 Certificate of Designations relating to the Series B Preferred
Stock.
7.5 Voting Agreement dated December 20, 1996.
7.6 Terms of Registration Rights.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: December 24, 1996
Signature: BANKERS TRUST NEW YORK CORPORATION
By: /s/ James T. Byrne
------------------------------
Name: James T. Byrne
Title: Senior Vice President
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ANNEX A
BANKERS TRUST NEW YORK CORPORATION
BANKERS TRUST COMPANY
The following sets forth the name, mailing address, occupation or
principal business affiliation and citizenship of each director and executive
officer of BTNY. Unless otherwise indicated, each individual listed below is
also a director or executive officer of BTCo. To the best knowledge and
belief of BTNY and BTCo., none of the following persons beneficially owns any
shares of Common Stock.
Occupation or Principal
Name and Mail Address Business Affiliation Citizenship
- --------------------- -------------------- -----------
DIRECTORS
---------
George B. Beitzel Retired Senior Vice President and U.S.
29 King Street Director
Chappaqua, NY 10514-3432 International Business Machines
Corporation
Phillip A. Griffiths Chairman U.S.
Institute for Advanced Institute for Advanced Study
Study
Olden Lane
Princeton, NJ 08540
William R. Howell Chairman of the Board U.S.
J.C. Penney Company, Inc. J.C. Penney Company, Inc.
P.O. Box 10001
Dallas, TX 75301-0001
Jon M. Huntsman Chairman and Chief Executive Officer U.S.
Huntsman Corporation Huntsman Chemical Corporation
500 Huntsman Way
Salt Lake City, UT 84108
Vernon E. Jordan, Jr. Senior Partner U.S.
Akin, Gump, Strauss, Akin, Gump, Strauss, Hauer & Feld,
Hauer & Feld, LLP
LLP
1333 New Hampshire
Avenue, N.W.
Suite 400
Washington D.C. 20036
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Hamish Maxwell Retired Chairman and Chief U.S.
Philip Morris Companies, Executive Officer
Inc. Philip Morris Companies Inc.
100 Park Avenue
New York, NY 10017
Frank N. Newman Chairman of the Board and Chief U.S.
Bankers Trust Company Executive Officer and President
130 Liberty Street Bankers Trust Company;
New York, NY 10006 Chairman of the Board and Chief
Executive Officer and President
Bankers Trust New York Corporation
N.J. Nicholas Jr. Investor U.S.
15 West 53rd Street, #34F
New York, NY 10019
Russell E. Palmer Chairman and Chief Executive Officer U.S.
The Palmer Group The Palmer Group
3600 Market Street
Suite 530
Philadelphia, PA 19104
Donald L. Staheli Chairman and Chief Executive Officer U.S.
Continental Grain Company United States Continental Grain
277 Park Avenue, Company
50th Floor
New York, NY 10172
Patricia Carry Stewart Former Vice President U.S.
Bankers Trust Company The Edna McConnell Clark Foundation
c/o Office of the
Secretary
130 Liberty Street
New York, NY 10006
George J. Vojta Vice Chairman U.S.
Bankers Trust Company Bankers Trust Company and
130 Liberty Street Bankers Trust New York Corporation
New York, NY 10006
Paul A. Volcker Former Chairman U.S.
599 Lexington Avenue, Wolfensohn & Co., Inc.
40th Floor
New York, New York 10022
EXECUTIVE OFFICERS
------------------
Geoffrey M. Fletcher Managing Director and Principal U.S.
Bankers Trust Company Accounting Officer
130 Liberty Street Bankers Trust Company;
New York, NY 10006 Senior Vice President and Principal
Accounting Officer
Bankers Trust New York Corporation
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Joseph A. Manganello, Jr. Managing Director and Chief Credit U.S.
Bankers Trust Company Officer
130 Liberty Street Bankers Trust Company;
New York, NY 10006 Executive Vice President and Chief
Credit Officer
Bankers Trust New York Corporation
Richard H. Daniel Managing Director, Chief Financial U.S.
Bankers Trust Company Officer and Controller
130 Liberty Street Bankers Trust Company;
New York, NY 10006 Executive Vice President, Chief
Financial
Officer and Controller
Bankers Trust New York Corporation
Melvin A. Yellin Managing Director and General U.S.
Bankers Trust Company Counsel
130 Liberty Street Bankers Trust Company;
New York, NY 10006 Executive Vice President and General
Counsel
Bankers Trust New York Corporation
Mark Bieler Managing Director U.S.
Bankers Trust Company Bankers Trust Company;
130 Liberty Street Executive Vice President
New York, NY 10006 Bankers Trust New York Corporation
Christian Marie Yves Chairman U.S., France
De Balmann Bankers Trust International PLC;
Bankers Trust Company Managing Director
1 Appold Street Bankers Trust Company;
Broadgate, 4th Floor Senior Vice President
London, EC2A 2HE Bankers Trust New York Corporation
R. Kelly Doherty Managing Director U.S.
Bankers Trust Company Bankers Trust Company;
130 Liberty Street Senior Vice President
New York, NY 10006 Bankers Trust New York Corporation
Robert A. Ferguson Executive Vice President Australia
Bankers Trust Australia Bankers Trust Australia Limited;
Limited Managing Director
Level 15, The Chifley Bankers Trust Company;
Tower Senior Vice President
2 Chifley Square Bankers Trust New York Corporation
Sydney, N.S.W. 2000
Australia
Alexander P. Frick Managing Director U.S.
Bankers Trust Company Bankers Trust Company;
130 Liberty Street Senior Vice President
New York, NY 10006 Bankers Trust New York Corporation
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B.J. Kingdon Managing Director U.S.
Bankers Trust Company Bankers Trust Company;
130 Liberty Street Senior Vice President
New York, NY 10006 Bankers Trust New York Corporation
Ian Martin Executive Vice President Australia
Bankers Trust Australia Bankers Trust Australia Limited;
Limited Senior Vice President
Level 15, The Chifley Tower Bankers Trust New York Corporation
2 Chifley Square
Sydney, N.S.W. 2000
Australia
Rodney A. McLauchlan Managing Director U.S.
BT Securities Corporation BT Securities Corporation;
130 Liberty Street Senior Vice President
New York, NY 10006 Bankers Trust New York Corporation
Timothy S. Rattray Managing Director U.S.
Bankers Trust Company Bankers Trust Company;
Two Pacific Place Senior Vice President
36th Floor Bankers Trust New York Corporation
88 Queensway
Hong Kong
J. Edward Virtue Managing Director U.S.
BT Securities Corporation BT Securities Corporation;
130 Liberty Street Senior Vice President
New York, NY 10006 Bankers Trust New York Corporation
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JOINT FILING STATEMENT
Pursuant to Rule 13d-1(f)(1), each of the undersigned hereby consents to the
joint filing of Amendment No. 3 to a statement on Schedule 13D with respect
to shares of Common Stock, $0.0001 par value, of Alliance Entertainment
Corp., on behalf of each of them.
Date: December 24, 1996
Signature: BANKERS TRUST NEW YORK CORPORATION
By: /s/ James T. Byrne
----------------------------------
Name: James T. Byrne
Title: Senior Vice President
Signature: BANKERS TRUST COMPANY
By: /s/ James T. Byrne
----------------------------------
Name: James T. Byrne
Title: Senior Vice President
Signature: BT CAPITAL PARTNERS, INC.
By: /s/ Heide Silverstein
----------------------------------
Name: Heide Silverstein
Title: Secretary/Treasurer
Page 17
<PAGE>
EXHIBIT 7.2
ALLIANCE ENTERTAINMENT CORP.
PURCHASE AGREEMENT
December 20, 1996
To the Purchasers (the "Purchasers")
----------
named in Section 1 below
Dear Sirs:
The undersigned, ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"Company"), proposes to issue and sell to the Purchasers for cash (i) 57,500
-------
shares (the "Series B Shares") of its Series B Convertible Preferred Stock, par
---------------
value $0.01 per share ("Series B Preferred Stock"), and (ii) notes in the
------------------------
aggregate principal amount of $10,000,000 exchangeable into shares of Series B
Preferred Stock (the "Convertible Notes"), subject to the terms and conditions
-----------------
set forth herein. In addition, pursuant to Section 1.4 herein, WCI will be
required to provide a standby purchase commitment in connection with a rights
offering (the "Rights Offering") to the holders of Common Stock of the Company
---------------
to subscribe for an aggregate of approximately 3,500,000 shares (the "Series C
--------
Shares," and collectively with the Series B Shares, the "Shares") of its Series
- ------ ------
C Convertible Preferred Stock, par value $0.01 per share (the "Series C
--------
Preferred Stock," and collectively with the Series B Preferred Stock, the
- ---------------
"Preferred Stock," and together with the Convertible Notes, the "Securities"),
- ---------------- ----------
subject to the terms and conditions set forth herein.
The Securities will be issued pursuant to, and subject to, the terms and
conditions of this Agreement (the terms "this Agreement" or "Purchase Agreement"
-------------- ------------------
as used herein or in any Exhibit hereto shall mean this Agreement and the
Exhibits hereto individually and collectively as they may from time to time be
modified or amended).
As used in this Agreement, the following terms shall have the following
meanings:
"Bank Agreement" shall mean the Third Amended and Restated Credit Agreement
--------------
dated as of July 25, 1995 among the Company, certain Subsidiaries of the Company
and the lenders named therein, as amended from time to time.
"BTC" shall mean BT Capital Partners, Inc.
---
<PAGE>
"Business Day" shall mean a day other than a Saturday, Sunday or other day
------------
on which commercial banks in New York City are authorized or required by law to
close.
"Closing Dates" shall mean the Series B Closing Date, the Convertible Note
-------------
Closing Date and the Series C Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Common Stock" shall mean the Company's Common Stock, par value $0.0001 per
------------
share.
"Contingent Stock" shall mean the Tranche 1 Contingent Stock and the
----------------
Tranche 2 Contingent Stock as such terms are defined in the Stock Acquisition
and Merger Agreement.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
-----------------
upon conversion of Preferred Stock.
"Convertible Note Closing Date" shall mean the date of the Convertible Note
-----------------------------
Closing.
"CVI" shall mean Cypress Ventures, Inc., a wholly owned subsidiary of WCI.
---
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"fully diluted" shall mean taking into account all outstanding warrants and
-------------
options to acquire Common Stock as though exercised, and all outstanding
securities convertible into Common Stock (including without limitation the
Preferred Stock) as though converted on the date of determination, but not
taking into account any Contingent Stock.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976 or any successor law, together with the regulations and rules issued
thereunder.
"NYSE" shall mean the New York Stock Exchange.
----
"Public Debt Indenture" shall mean the Indenture dated as of July 25, 1995
---------------------
among the Company, certain Subsidiaries of the Company and Bankers Trust
Company, as trustee, as amended from time to time.
-2-
<PAGE>
"Public Offering" shall mean any time a registration statement filed under
---------------
the Securities Act respecting a primary offering of Common Stock (or securities
convertible into, or exchangeable for, Common Stock or rights to acquire Common
Stock or such securities), which is underwritten on a firmly committed basis, is
declared effective and the securities so registered are issued and sold.
"Rights" shall have the meaning set forth in Section 4.8.
------
"Rights Offering" shall have the meaning set forth in the preamble of this
---------------
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities" shall have the meaning set forth in the preamble of this
----------
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series B and Convertible Notes Closing Date" shall mean the date of the
-------------------------------------------
closing of the purchase and sale of the Series B Shares and the Convertible
Notes.
"Series B Certificate of Designations" shall mean the certificate of
------------------------------------
designations establishing the terms of the Series B Preferred Stock.
"Series B Preferred Stock" shall have the meaning set forth in the preamble
------------------------
of this Agreement.
"Series B Shares" shall have the meaning set forth in the preamble of this
---------------
Agreement.
"Series C Certificate of Designations" shall mean the certificate of
------------------------------------
designations establishing the terms of the Series C Preferred Stock.
"Series C Closing" shall mean the closing of the purchase and sale of the
----------------
Series C Shares.
"Series C Closing Date" shall mean the date of the closing of the purchase
---------------------
and sale of Series C Shares pursuant to the terms and conditions of this
Agreement.
"Series C Preferred Stock" shall have the meaning set forth in the preamble
------------------------
of this Agreement.
"Series C Preferred Stock Notice" shall mean a written notice delivered by
-------------------------------
the Company to the Purchasers in which the
-3-
<PAGE>
Company elects to sell the Series C Shares to the Purchasers pursuant to Section
1.2(a) hereof.
"Series C Shares" shall have the meaning set forth in the preamble of this
---------------
Agreement.
"Stock Acquisition and Merger Agreement" shall mean the Stock Acquisition
--------------------------------------
and Merger Agreement, dated as of August 15, 1996 by and among Alvin N. Teller,
WCI, U.S. Equity Partners, L.P., U.S. Equity Partners (Offshore), L.P., Red Ant
Box, Inc., the Company and Alliance Acquisition Co. Inc.
"Subsidiary" shall mean each corporation or other entity, if any, of which
----------
the Company or another Subsidiary shall own at least fifty percent (50%) of (x)
the stock of any class having power under ordinary circumstances to vote for the
election of directors or (y) the capital or equity, however named.
"WCI" shall mean Wasserstein & Co., Inc.
---
In connection with the issuance of the Securities, the Company agrees with
each of the Purchasers and the Purchasers severally agree with the Company as
follows:
Section 01. Purchase and Sale of Securities.
-------------------------------
01.1 Series B Preferred Stock. (a) Subject to the terms and conditions
------------------------
of this Agreement, the Company agrees to issue and sell to each Purchaser named
below, and such Purchaser agrees to purchase from the Company, on the Series B
and Convertible Notes Closing Date, at an aggregate price of $5,000,000, the
number of shares of Series B Preferred Stock set forth opposite such Purchaser's
name below:
Name and Address
of Purchaser Number of Shares
- ---------------- ----------------
Cypress Ventures, Inc. 57,500
31 West 52nd Street
New York, New York 10019
(b) Certificate of Designation. The Series B Preferred Stock shall be
--------------------------
issued pursuant to a certificate of designations substantially in the form of
Exhibit A hereto (the "Series B Certificate of Designations"), which shall be in
- --------- ------------------------------------
effect on the Series B and Convertible Notes Closing Date.
(c) Payment of Purchase Price. The purchase price for the Series B Shares
-------------------------
shall be payable on the Series B and Convertible Notes Closing Date, in cash by
wire transfer of immediately available funds pursuant to the Company's written
-4-
<PAGE>
instructions. The Series B and Convertible Notes Closing Date shall be December
20, 1996 or such later date as the parties mutually agree.
01.2 Convertible Notes. (a) Subject to the terms and conditions of this
-----------------
Agreement, the Company agrees to issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, at a price of 100% of
the principal amount thereof on the Series B and Convertible Notes Closing Date,
the principal amount of Convertible Notes set forth opposite such Purchaser's
name below:
Name and Address Principal Amount of
of Purchasers Convertible Notes
----------------- -------------------
Cypress Ventures, Inc. $2,500,000
31 West 52nd Street
New York, New York 10019
BT Capital Partners, Inc. $7,500,000
130 Liberty Street - 34th Floor
New York, New York 10006
(b) Form of Convertible Notes. The Convertible Notes shall be issued in
-------------------------
the form annexed hereto as Exhibit C.
(c) Payment of Purchase Price. The purchase price for the Convertible
-------------------------
Notes shall be payable on the Series B and Convertible Notes Closing Date, in
cash by wire transfer of immediately available funds pursuant to the Company's
written instructions. The Series B and Convertible Notes Closing Date shall be
the date that the conditions specified in Section 3.1 have been satisfied, or
such later date as may be mutually agreed upon by the parties hereto.
1.3 Financing Fee. The Company agrees to pay on the Series B and
-------------
Convertible Notes Closing Date a financing fee of (i) $225,000 to WCI and (ii)
$225,000 to BTC.
1.4 Series C Preferred Stock. (a) Subject to the terms and conditions
------------------------
of this Agreement, WCI agrees to act as lead manager of the Rights Offering on a
best efforts basis and shall purchase up to 1,750,000 shares of Series C Stock
at a price of $10.00 per Share, in the event the Rights Offering is not fully
subscribed. WCI's obligation to purchase Series C Shares is subject to the
conditions set forth in Section 3.2. BTC shall have the right, and WCI agrees
to cooperate with BTC in the event BTC elects prior to the commencement of the
Rights Offering, to purchase the sum of (i) 50% of the Series C Shares that are
not subscribed for in the Rights Offering, and (ii) 50% of the aggregate number
of shares subscribed for by BTC and WCI.
-5-
<PAGE>
The subscription price and other material terms of the Rights Offering
shall be substantially as set forth in the Summary of Terms attached as Schedule
--------
1.4 hereto.
- ---
(b) Certificate of Designations. The Series C Preferred Stock shall be
---------------------------
issued pursuant to a certificate of designations substantially in the form of
Exhibit B hereto (the "Series C Certificate of Designations"), which shall be in
- --------- ------------------------------------
effect on the Series C Closing Date.
(c) Payment of Purchase Price. The purchase price for the Series C Shares
-------------------------
shall be payable on the Series C Closing Date, in cash by wire transfer of
immediately available funds pursuant to the Company's written instructions. The
Series C Closing Date shall be the date on which all the conditions to closing
set forth in Section 3.2 have been satisfied or waived.
(d) Financing Fee. The Company agrees to pay on the Series C Closing Date
-------------
a financing fee in the aggregate amount of $1,050,000 to be allocated among WCI
and BTC pro rata based upon the commitment to purchase Series C Shares not
subscribed for in the Rights Offering and the number of shares purchased at the
Series C Closing.
(e) Syndication. The Purchasers shall have the right to assign their
-----------
rights and obligations under this Agreement with respect to the purchase of the
Series C Shares, provided that (i) the assignees ("Substituted Purchasers")
----------------------
agree to be bound by the terms and conditions contained in this Agreement,
including, without limitation, the representations and covenants contained in
Sections 6 and 7 herein, in form and substance reasonably satisfactory to the
Company and its counsel, and (ii) no such assignment shall cause the Series C
Preferred Stock to be subject to the registration requirements of the Securities
Act, and provided further that the Purchasers shall not be relieved of their
obligations to purchase the Series C Shares if they assign their rights and
obligations hereunder.
01.5 Registration Rights. (a) The Company agrees to use best efforts to
-------------------
maintain with respect to the Conversion Shares and all other shares of Common
Stock held by the Purchasers on the Closing Date an effective registration
statement under the Securities Act and a current prospectus relating thereto,
and effective registration statements or qualifications under the securities
laws of each holder's state of residence, for a period of five (5) years after
the date hereof or, if later, until the Purchaser is no longer an affiliate (as
defined in the Exchange Act) of the Company. To the extent such registration
statements or qualifications are not maintained in effect, the Purchasers and
the Company shall have the rights and obligations set forth in Exhibit D
---------
attached hereto with respect to registrations of the Company's securities under
the Securities Act.
-6-
<PAGE>
(b) The rights of a Purchaser under Sections 2 and 3 of Exhibit D shall
---------
cease to be exercisable after the later of (a) the fifth anniversary of the date
of this Agreement, and (b) any date as of which the Purchasers have disposed of
shares of Common Stock constituting 90% of the Common Stock held by them
(including Conversion Shares issuable upon conversion of the Shares held by
them) on the date hereof, in either case provided that the Company shall
continue to comply with the public information requirements for the availability
of Rule 144 under the Securities Act with respect to subsequent sales by the
Purchaser.
Section 2. Representations of the Company.
------------------------------
In order to induce the Purchasers to purchase the Securities, the Company
hereby represents and warrants to, and agrees with, the Purchasers and their
respective successors, endorsees and assigns that:
2.1 Certificate of Designations. The Company has filed the Series B
---------------------------
Certificate of Designations and the Series C Certificate of Designations with
the Secretary of State of the State of Delaware. The Series B Certificate of
Designations and the Series C Certificate of Designations and the resolutions of
the Company's Board of Directors contained therein are in full force and effect.
2.2 Organizational Documents. The Company has delivered to the
------------------------
Purchasers an accurate and complete copy of (a) its Certificate of Incorporation
and all amendments thereto, certified by the Secretary of State of the State of
Delaware, and (b) its By-laws and all amendments thereto, certified by its
Secretary or Assistant Secretary.
2.3 Existence and Qualification. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business and in good standing as
a foreign corporation in each jurisdiction where failure to so qualify or be in
good standing as a foreign corporation could reasonably be expected to have a
material adverse effect on its business, operations, prospects, properties or
condition (financial or otherwise), or its ability to perform its obligations
hereunder.
2.4 Power and Authority. The Company has all corporate power and
-------------------
authority necessary to own, operate or lease its properties and assets and to
conduct its business as now conducted by it. The Company has all corporate
power and authority necessary to issue the Securities, and to execute, deliver,
and perform its obligations under this Agreement (including without limitation
Exhibit D hereto) and the Securities (collectively, the "Transaction
- --------- -----------
Documents").
-7-
<PAGE>
2.5 Corporate Action. The Company has taken all corporate action
----------------
required to authorize the issuance of the Securities and the execution, delivery
and performance of the Transaction Documents.
2.6 Due Execution and Delivery. The Company has duly executed and
--------------------------
delivered each of the Transaction Documents, except that the Convertible Notes,
the Series B Shares and the Series C Shares shall not be executed and delivered
until their respective Closing Dates.
2.7 Consents; Governmental Approvals. No consent or approval of any
--------------------------------
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority is
required to be obtained or made by or on behalf of the Company in connection
with the offer, issuance and sale of the Securities, the execution, delivery or
performance of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for (a) filings with the SEC, the NYSE
and under state securities laws that may be required, (b) filings under the HSR
Act contemplated by Section 4.5, (c) consent of the banks under the Bank
Agreement to permit the issuance of the Convertible Notes and (d) approval of
the stockholders of the Company contemplated by Section 4.6.
2.8 Binding Effect. Each of the Transaction Documents is a legal, valid
--------------
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or limitations on the availability of
equitable remedies. The terms of the Series B Certificate of Designations and
the Series C Certificate of Designations applicable to the Series B Shares and
Series C Shares, respectively, and the Convertible Notes are legal, valid and
binding obligations of the Company, enforceable against it in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally or limitations on the availability of equitable
remedies.
2.9 Absence of Conflicts. The issuance of the Securities and the
--------------------
execution, delivery and performance of the Transaction Documents by the Company
do not and will not (a) conflict with or violate any provision of the
Certificate of Incorporation, as amended, or By-laws of the Company, (b)
conflict with or result in a violation, breach or default by the Company under
(i) any provision of any existing statute, law, rule or regulation binding on it
or any order, judgment, award, decree, license or authorization of any court or
governmental instrumentality, authority, bureau or agency binding on it, or (ii)
-8-
<PAGE>
any material provision of any mortgage, indenture, lease or other contract,
agreement, instrument or undertaking to which it is a party or will be a party
immediately after the Series B and Convertible Notes Closing and the Series C
Closing, or by which or to which it or any of its property or assets is now or
immediately after such Closings will be bound or subject, or (c) result in the
creation or imposition of any lien, encumbrance or other charge on any of its
properties or assets.
2.10 No Defaults. None of the Company or its Subsidiaries is in default
-----------
under or in violation of (a) its Certificate of Incorporation, as amended, or
By-laws, (b) any agreement or instrument to which it is a party relating to its
indebtedness for borrowed money, (c) any other agreement or instrument to which
it is a party, (d) any statute, rule, writ, injunction, judgment, decree, order
or regulation of any court or governmental authority having jurisdiction over
it, or (e) any license, permit, certification or approval requirement of any
customer, supplier, governmental authority or other person, in the case of (c),
(d) or (e) above, in any way that could reasonably be expected to have a
material adverse effect on the present or prospective business, operations,
prospects, properties, assets or condition (financial or otherwise) of such
corporation, or the Company's ability to perform its obligations under any of
the Transaction Documents.
2.11 Capitalization and Stockholders. As of November 30, 1996, the
-------------------------------
authorized capital stock of the Company consisted of: (i) 100,000,000 shares of
Common Stock, of which (A) 44,764,853 shares are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights, (B) no shares are held in the treasury of the
Company, (C) 13,966,551 shares are reserved for future issuance for the exercise
of outstanding stock options and (D) 1,670,773 shares are reserved for future
issuance for the exercise of warrants, and (ii) 10,000,000 shares of preferred
stock, of which 422,500 shares of Series A Convertible Preferred Stock
(initially convertible into 5,827,586 shares of Common Stock) are issued and
outstanding. Except for the Contingent Stock and as described in Schedule 2.11,
no shares of the capital stock or other equity securities of the Company are
authorized, issued or outstanding, or reserved for any other purpose, and there
are no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character (including, without
limitation, obligations to issue shares as the deferred purchase price for
acquisitions of stock or assets of third parties) to which the Company or any of
its Subsidiaries is a party relating to the issued or unissued capital stock or
other equity securities or ownership interests of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
issue or sell any shares of capital stock or other equity securities or
ownership interests of the Company or
-9-
<PAGE>
any of its Subsidiaries, by sale, lease, license or otherwise. The Company has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote or which are convertible into or exercisable for
securities having the right to vote with the stockholders of the Company on any
matter. There are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire or make any payment in respect of any
shares of capital stock or other equity securities or ownership interests of the
Company or any of its Subsidiaries. There are no preemptive or similar rights
to purchase or otherwise acquire shares of capital stock of the Company.
Immediately after the Series B and Convertible Notes Closing and the Series C
Closing, all outstanding shares will be duly and validly issued and outstanding
and fully paid and nonassessable.
2.12 SEC Documents. (a) The Common Stock of the Company is registered
-------------
pursuant to Section 12(g) of the Exchange Act and the Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), in addition to one
or more registration statements and amendments thereto heretofore filed by the
Company with the SEC. The Company has delivered or made available to the
Purchasers true and complete copies of (i) its annual reports on Form 10-K and
quarterly reports on Form 10-Q for its 1994 and 1995 fiscal years, (ii) proxy
statements, information and solicitation materials filed by the Company with the
SEC since January 1, 1994, and (iii) each other report, registration statement,
proxy statement and other document filed with the SEC since the filing of its
most recent Form 10-K (all of the foregoing, collectively, the "SEC Documents").
-------------
(b) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
2.13 Financial Statements. The financial statements of the Company
--------------------
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such
-10-
<PAGE>
financial statements or the notes thereto or (b) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which adjustments
could not reasonably be expected, individually or in the aggregate, to have a
material adverse effect on the financial condition of the Company and subject to
adjustments as previously disclosed to the Purchasers).
2.14 No Material Adverse Change. Since September 30, 1996, the date
--------------------------
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or reflected in other SEC Documents,
or otherwise disclosed to the Purchasers on or before the Series B and
Convertible Notes Closing Date with respect to facts existing prior to the
Series B and Convertible Notes Closing Date.
2.15 No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its Subsidiaries, or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company and which has not been so publicly disclosed or
announced, or otherwise disclosed to the Purchasers on or before the Series B
and Convertible Notes Closing Date with respect to facts existing prior to the
Series B and Convertible Notes Closing Date.
2.16 No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Securities.
2.17 No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Securities under the Securities Act.
2.18 Brokers. The Company represents and warrants that it has employed
-------
no brokers, agents or finders in carrying on the
-11-
<PAGE>
negotiations relating to this Agreement or to the transactions herein
contemplated.
2.19 Untrue or Misleading Statements. Neither this Agreement nor any
-------------------------------
other Transaction Document or other agreement, certificate, instrument or
written statement furnished by or on behalf of the Company or, to the best of
the Company's knowledge, by any other person, firm or corporation, to the
Purchasers in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which such statements were made.
2.20 Receivables. Except to the extent, if any, reserved for on the
-----------
September 30, 1996 balance sheet (after giving effect to the previously
disclosed restructuring or other charges to be effected in the fourth quarter of
1996 and except with respect to transactions not material, singly or in the
aggregate, to the Company as a whole) all Receivables reflected on such balance
sheet:
(a) arose from the sale of inventory or services to persons not affiliated
with the Company and in the ordinary course of business; and
(b) constitute or will constitute, as the case may be, valid and
collectible claims of the Company not subject to valid claims of set-off or
other defenses or counterclaims other than normal cash discounts and product
returns in the ordinary course of business.
2.21 Inventories. Subject to amounts reserved therefor on the September
-----------
30, 1996 balance sheet (after giving effect to the previously disclosed
restructuring and other charges to be effected in the fourth quarter of 1996 and
except for amounts which are not, singly or in the aggregate, material to the
Company as a whole):
(a) the values at which all inventories are carried on the September 30,
1996 balance sheet reflect the historical inventory valuation policy of the
Company and comply with generally accepted accounting principles;
(b) the Company has good and marketable title to the inventories included
on the balance sheet;
(c) the Company is not under any obligation or liability with respect to
accepting returns of items of inventory or merchandise in the possession of its
customers other than in the ordinary course of business; and
-12-
<PAGE>
(d) the inventories are in good and merchantable condition in all material
respects, are suitable and usable for the purposes for which they are intended
and are in a condition such that they can be sold in the ordinary course of
business.
2.22 Fairness Opinion. The Company has received the opinion of Tucker
----------------
Anthony Incorporated as to the fairness to the Company, as of the date of this
Agreement, of the issuance of the Securities and the other transactions
contemplated hereby, from a financial point of view.
2.23 Customers. As of the date hereof, the Company has not received any
---------
oral or written notice and has no reason to believe that any of the Company's
top ten customers in terms of gross revenues for the twelve months ending
December 31, 1996 has ceased, or will cease, to use the products, equipment,
goods or services of the Company or has substantially reduced, or will
substantially reduce, the use of such products, equipment, goods or services at
any time; provided, however, that in the event the Company shall have received
-------- -------
notice or have any reason to believe that such circumstances exist on or after
the Series B Closing Date but prior to the Series C Closing, it shall promptly
so inform the Purchasers in writing.
Section 03. Conditions Precedent.
--------------------
3.1 Conditions Precedent for Series B and Convertible Notes Closing. The
---------------------------------------------------------------
obligation of WCI to purchase Series B Shares and WCI and BT Capital Partners to
purchase Convertible Notes hereunder on the Series B and Convertible Notes
Closing Date shall be subject to the satisfaction of each of the following
conditions precedent on or prior to such Series B and Convertible Notes Closing
Date:
(a) Representations. All representations and warranties made in this
---------------
Agreement and in any other agreement, certificate or instrument furnished to the
Purchasers in connection herewith shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made at the time of, and immediately after giving effect to,
the sale of Series B Shares.
(b) Officer's Certificate. The Company shall deliver to the Purchasers a
---------------------
certificate of its President, Senior Executive Vice President or Executive Vice
President dated the Series B and Convertible Notes Closing Date, in form and
substance reasonably satisfactory to the Purchasers and their counsel,
certifying the satisfaction of the conditions in Section 3.1(a).
(c) No Material Adverse Change. The Purchasers shall be satisfied that no
--------------------------
event, circumstance or condition shall have
-13-
<PAGE>
occurred and be continuing that could reasonably be expected to have a material
adverse effect on the Company's business, operations, prospects, properties or
condition (financial or otherwise), or its ability to perform its obligations
hereunder.
(d) Suspension of Trading. Trading in the Company's Common Stock shall not
---------------------
have been suspended by the SEC or any exchange on which it is listed for trading
(except for any suspension of trading of limited duration agreed to by the
Company solely to permit dissemination of material information regarding the
Company), and trading in securities generally as reported by such exchange(s)
shall not have been suspended or limited, other than a temporary suspension in
trading to provide for an orderly market.
(e) Voting Agreement. The parties thereto shall have executed and
----------------
delivered to the Purchasers a Voting Agreement substantially in the forms of
Exhibit E attached hereto.
- ---------
(f) Legal Opinion. The Company shall have delivered to the Purchasers the
-------------
executed legal opinions of Christopher J. Joyce and Messrs. Cahill Gordon &
Reindel, counsel to the Company, dated the Series B and Convertible Notes
Closing Date in form and substance reasonably satisfactory to the Purchasers and
their counsel.
(g) Bank Agreement. The Bank Agreement shall have been amended in form
--------------
satisfactory to the Purchasers to permit the issuance of the Convertible Notes.
(h) Fees. The Purchasers (or their agents) shall have received the fees
----
and other amounts payable on the Series B and Convertible Notes Closing Date
referred to in Section 9.5 and in Section 1.3.
(i) Board of Directors Representation. On or before the Series B and
---------------------------------
Convertible Notes Closing Date, Messrs. Bassin, Hochman, Marx, Newman, Narang
and Shand shall have resigned (effective upon the designation of their
successors) from the Board of Directors of the Company, and there shall have
been elected and qualified pursuant to the By-laws of the Company as successor
directors to such resigning directors on the Board of Directors of the Company
four persons designated by WCI and two persons designated by BTC, such persons
to be in addition to existing designees of BTC and WCI serving on the Board of
Directors.
(j) AT Employment Agreement. The Company and Alvin Teller shall have
-----------------------
executed an amendment to the AT Employment Agreement (as such term is defined in
the Stock Acquisition and Merger Agreement) in the form attached as Exhibit F
hereto.
-14-
<PAGE>
(k) Restated By-laws. The By-laws of the Company shall have been amended
----------------
to read as set forth in Exhibit G hereto.
(l) Stock Acquisition and Merger Agreement. The Company, WCI and Alvin
--------------------------------------
Teller shall have executed a waiver with respect to the Stock Acquisition and
Merger Agreement in the form attached as Exhibit H hereto.
(m) Additional Documents. Each Purchaser shall have received all such
--------------------
agreements, documents, instruments, approvals, certificates, legal opinions and
information as such Purchaser shall reasonably request in connection with this
Agreement, the Shares and the transactions herein and therein contemplated, all
of which shall be in form and substance reasonably satisfactory to the
Purchasers and their counsel.
(n) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Purchasers.
3.2 Conditions for Series C Closing. The obligation of WCI and BTC to
-------------------------------
purchase Series C Shares hereunder on the Series C Closing Date shall be subject
to the satisfaction of each of the following conditions precedent on, or prior
to, the Series C Closing Date:
(a) Series B and Convertible Notes Closing. The Series B and Convertible
--------------------------------------
Notes Closing shall have occurred.
(b) Rights Offering. The Rights Offering shall have expired in accordance
---------------
with its terms and all Series C Shares subscribed for shall have been purchased.
The registration statement and any prospectus (and all amendments thereto)
relating to the Rights Offering shall not contain any untrue statement of fact
which, in the Purchaser's opinion, is material, or omit to state any fact which,
in the Purchaser's opinion, is material and is required to be stated therein or
is necessary to make the statements therein not misleading.
(c) Subscriptions. Persons other than WCI shall have purchased or shall
-------------
purchase simultaneously with the Series C Shares at least 1,750,000 shares of
the Series C Shares.
(d) Representations. All representations and warranties made in this
---------------
Agreement and in any other agreement, certificate or instrument furnished to the
Purchasers in connection herewith (except that representations and warranties
given as of a specific date need only be true and correct as of the date
specified) shall be true and correct in all material respects with the same
force and effect as though such representations and warranties had been made at
the time of, and immediately after giving effect to, the sale of the Series C
Shares on the Series C Closing Date.
-15-
<PAGE>
(e) No Defaults Under Indebtedness. The Company shall not be in default
------------------------------
under the Bank Agreement or the Public Debt Indenture on the Series C Closing
Date after giving effect to the Series C Closing.
(f) Additional Officer's Certificate. The Company shall deliver to the
--------------------------------
Purchasers a certificate of its President, Senior Executive Vice President or
Executive Vice President dated the Series C Closing Date, in form and substance
reasonably satisfactory to the Purchasers and their counsel, certifying the
satisfaction of the condition in Section 3.3(c).
(g) Legal Opinion. The Company shall have delivered to the Purchasers the
-------------
executed legal opinion of Messrs. Cahill Gordon & Reindel, counsel to the
Company, dated the Series C Closing Date, in form and substance reasonably
satisfactory to the Purchasers and their counsel.
(h) Fees. The Purchasers (or their agents) shall have received the fees
----
and other amounts payable on the Series C Closing Date referred to in Section
9.5 and in Section 1.3(d).
(i) Bank Agreement. The Bank Agreement shall have been amended in a manner
--------------
reasonably satisfactory to the Purchasers.
(j) No Material Adverse Change. On or after the date hereof, the
--------------------------
Purchasers shall be satisfied, in the exercise of their reasonable business
judgment, that no event, circumstance or condition has had, or shall have
occurred and be continuing that could reasonably be expected to have, a material
adverse effect on the Company's business, operations, properties or condition
(financial or otherwise) taken as a whole, or its ability to substantially
perform its obligations hereunder, under the Notes or with respect to the
Preferred Stock.
(k) Restructuring Plan. WCI shall be afforded an opportunity to review and
------------------
to have access to the Company's third party consultants involved in the
Company's restructuring plans. As promptly as practicable, WCI shall (i) suggest
any modifications to the Company's restructuring plans they feel are advisable
and (ii) in good faith notify the Company if the Purchasers do not reasonably
believe that the savings reflected in such restructuring plan are reasonably
achievable. The Company agrees to consider in good faith any suggestions
presented by WCI with respect to the restructuring plan.
(l) Market Conditions. Trading in the Company's securities or in
-----------------
securities generally on the New York Stock Exchange or in the over-the-counter
market shall not have been suspended, other than a temporary suspension of
trading to provide for an orderly market, or a general banking moratorium shall
not have been declared by Federal or state authorities.
-16-
<PAGE>
(m) No Bankruptcy Proceeding. There shall not be pending against the
------------------------
Company or a substantial part of its property any voluntary or involuntary
insolvency proceeding under any bankruptcy law and no order shall have been
entered and be in effect with respect to the Company or any substantial part of
its property under any bankruptcy law.
(n) Additional Documents. Each Purchaser shall have received all such
--------------------
agreements, documents, instruments, approvals, certificates, legal opinions and
information as such Purchaser shall reasonably request in connection with this
Agreement, the Shares and the transactions herein and therein contemplated, all
of which shall be in form and substance reasonably satisfactory to the
Purchasers and their counsel.
(o) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Purchasers.
Section 04. Covenants.
---------
The Company covenants and agrees that:
4.1 Registration and Listing. The Company will cause its Common Stock to
------------------------
continue to be registered under Section 12(b) or 12(g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or file
any document (whether or not permitted by the Securities Act or the Exchange Act
or the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under such Acts. The
Company will take all action within its power to continue the listing or trading
of its Common Stock on the NYSE and will comply in all respect with the
Company's reporting, filing and other obligations under the bylaws or rules of
such exchange.
4.2 Financial Statements and Information. The Company will furnish or
------------------------------------
cause to be furnished to each of the Purchasers (as long as such Purchaser
remains the beneficial owner of at least 25% of the Securities purchased
hereunder) the following financial statements and information:
(a) All reports and other written communications delivered by the Company
to its stockholders as such, and all registration statements (when available to
the public) and periodic reports filed by the Company or any officer or director
thereof with the SEC or any securities exchange, pursuant to the Securities Act,
the Exchange Act, or the rules of such securities exchange.
-17-
<PAGE>
(b) With reasonable promptness, all financial statements or reports
(including comment letters to management) furnished to the Company by its
independent certified public accountants.
4.3 Use of Proceeds. The Company will use the proceeds received from the
---------------
sales of the Securities for general corporate purposes.
4.4 Compliance with Applicable Law. The Company will comply, and cause
------------------------------
each Subsidiary to comply, with each statute, law, rule, regulation, order or
other governmental requirement, noncompliance with which (in any one instance or
in the aggregate) is likely to materially adversely affect (a) the business,
operations, property or financial condition of the Company or such Subsidiary,
or (b) the Company's ability to perform its obligations to the Purchasers.
4.5 Pre-Merger Notification Act Compliance. If in connection with any
--------------------------------------
proposed conversion, exchange of the Convertible Notes or the issuance or
conversion of Preferred Stock the Company or a Purchaser determines that a
filing is required under the HSR Act, as promptly as practicable after
notification of the proposed conversion is received the Company will make all
such filings required by the HSR Act to be made in order to complete the
proposed conversion. The Purchasers will cooperate with the Company to the
extent reasonably necessary to complete such filings. The Company will pay all
filing fees required in connection with such filings. The issuance of
Conversion Shares resulting from such conversion may be delayed until two (2)
days after the expiration of the applicable waiting period following such
filing(s).
4.6 Stockholder Approval. The Company shall exert its best efforts to
--------------------
obtain the stockholders' approval and authorization of the issuance of Common
Stock upon conversion of the Series B Preferred Stock and the Series C Preferred
Stock as promptly as practicable after the Series B and Convertible Notes
Closing Date and the Series C Closing Date, respectively, all in accordance with
the terms of the Certificate of Designations, and all to the extent necessary to
satisfy the requirements of Rule 312.03 of the New York Stock Exchange Listed
Company Manual, as applied to the issuance of Common Stock upon conversion of
the Preferred Stock.
4.7 Further Assurances. The Company will execute and deliver or cause to
------------------
be executed and delivered such further instruments and do or cause to be done
such further acts as may be reasonably necessary to carry out its obligations
under this Agreement.
4.8 Rights Offering. The Company shall, as promptly as practicable, use
---------------
its best efforts to (a) file with the SEC and have declared effective a
Registration Statement covering (i) the distribution to holders of the Company's
common stock rights
-18-
<PAGE>
("Rights") to subscribe for and purchase an aggregate of 3,500,000 shares of
------
Series C Preferred Stock (the "Rights Offering"), (ii) the registration of the
---------------
Series C Preferred Stock issuable upon exercise of such Rights and (iii) the
registration of the Company common stock issuable upon conversion of such Series
C Preferred Stock; and (b) cause the Series C Preferred Stock and the common
stock issuable upon conversion thereof to be approved for listing on the NYSE.
The Rights Offering and the Rights shall have substantially the terms and
conditions set forth on Schedule 1 hereto.
4.9 Nomination of Certain Officers. For so long as WCI and BTC hold 50%
------------------------------
or more of the Securities issued to them pursuant to this Agreement, WCI and BTC
(or in the event WCI or BTC holds 50% or more of the Securities purchased by it
and the other does not hold 50% or more of the Securities purchased by it, then
such 50% or more holder alone) shall have the exclusive power to nominate a
candidate to be considered for the position of Executive Vice President-Finance,
subject to the consent of the Co-Chairman and Chief Executive Officer of the
Company, whose consent shall not be unreasonably withheld. Such Co-Chairman and
Chief Executive Officer shall not remove the Executive Vice President - Finance
without the approval of the Board of Directors of the Company which shall be the
only limitation of such Co-Chairman and Chief Executive Officer's power to fire
employees, and such Co-Chairman and Chief Executive Officer shall retain the
exclusive power to nominate a candidate to be considered as the executive in
charge of distribution operations or logistics (or other similar position
involving the supervision of the warehousing and shipping of inventory), subject
to the consent of WCI and BTC so long as WCI and BTC hold 50% or more of the
Securities issued to them pursuant to the Purchase Agreement (or in the event
WCI or BTC holds 50% or more of the Securities purchased by it pursuant to the
Purchase Agreement and the other does not hold 50% or more of the Securities
purchased by it pursuant to the Purchase Agreement, then such 50% or more holder
alone), which consent shall not be unreasonably withheld.
4.10 Board of Directors Representation. In the event the Series C
---------------------------------
Closing shall occur and BTC does not commit to purchase at least 50% of the
Series C Shares not subscribed for in the Rights Offering exclusive of shares
subscribed for by WCI and BTC, then BTC shall cause one of the persons
designated by BTC pursuant to Section 3.1(i) to serve on the Board of Directors
of the Company to resign, WCI shall designate a replacement and BTC shall cause
the other Directors designated by BTC to vote in favor of such replacement. In
the event the Series C Closing shall occur and BTC commits to purchase at least
50% of the Series C Shares, and WCI does not purchase at least 50% of the Series
C Shares not subscribed for in the Rights Offering exclusive of shares
subscribed for by WCI and BTC, then WCI shall cause one of the persons
designated by WCI pursuant to Section 3.1(i) to serve on
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<PAGE>
the Board of Directors of the Company to resign, BTC shall designate a
replacement and WCI shall cause the other directors designated by WCI to vote in
favor of such replacement.
Section 5. Investment Representation.
-------------------------
5.1 Securities Act. Each Purchaser acknowledges that (a) the Securities
--------------
being acquired by such Purchaser are not being registered under the Securities
Act (other than the Series C Shares in connection with the Rights Offering) on
the ground that the issuance thereof is exempt from registration under Section
4(2) of the Securities Act as not involving any public offering, and (b) the
Company's reliance on such exemption is predicated in part on the representation
hereby made to the Company by such Purchaser that it is sophisticated in
financial affairs and is able to evaluate the risks inherent in investing in the
Securities and is capable of bearing the economic loss of its entire investment,
and is acquiring its Securities for investment for its own account, with no
present intention of dividing its participation with others or reselling or
otherwise distributing the same, subject, nevertheless, to any requirement of
law that the disposition of its property shall at all times be within its
control. None of the Purchasers is aware of any particular occasion, event or
circumstance upon the occurrence or happening of which it intends to dispose of
its Securities.
5.2 Resales. None of the Purchasers will sell or transfer all or any
-------
part of its Securities unless and until it shall first have given notice to the
Company describing such sale or transfer and furnished to the Company either (i)
an opinion, reasonably satisfactory to counsel for the Company, of Shearman &
Sterling, Eaton & Van Winkle or other counsel skilled in securities matters
(selected by such Purchaser and reasonably satisfactory to the Company) to the
effect that the proposed sale or transfer may be made without registration under
the Securities Act, or (ii) an interpretive letter from the staff of the SEC to
the effect that no enforcement action will be recommended if the proposed sale
or transfer is made without registration under the Securities Act, in either
case accompanied by evidence that such transfer will be in compliance with
applicable state securities ("blue sky") laws; provided, however, that the
-------- -------
foregoing shall not apply with respect to (1) any transfer pursuant to an
effective registration statement under the Securities Act, or pursuant to Rule
144 thereunder, or (2) any transfers between a Purchaser and any institutional
affiliate of such Purchaser for its own account.
5.3 Legends. The Company may place appropriate legends on the
-------
certificates for the Securities and Conversion Shares concerning the
restrictions set forth in this Section 6 and may refuse to transfer any of the
Securities or Conversion Shares on its books should the holder thereof attempt
to transfer any of them otherwise than in compliance herewith and therewith.
The Company
-20-
<PAGE>
agrees to reissue certificates representing the Securities or, if applicable,
the Conversion Shares without the legend provided for above at such time as (i)
the holder thereof is permitted to dispose of such Securities or Conversion
Shares pursuant to Rule 144(k) under the Securities Act, (ii) the Securities or
Conversion Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to such purchasers, in form and substance reasonably satisfactory to the
Company and its counsel) are able to dispose of such Securities or Conversion
Shares publicly without registration under the Securities Act, or (iii) such
securities are registered under the Securities Act.
Section 6. Transfers.
---------
Subject only to compliance with the requirements of Section 5.2, each
Purchaser shall be entitled to assign and transfer all or any part of its
Securities or Conversion Shares, or any interest or participation therein, and
its related rights under this Agreement; and upon the assignment or transfer by
such Purchaser of all or any part of its Securities or Conversion Shares or its
interest therein (except in a Public Offering, or a sale pursuant to Rule 144
under the Securities Act), the term "Purchaser" as used herein shall thereafter
include, to the extent of the interest so assigned or transferred, the assignee
or transferee of such interest. Notwithstanding the foregoing, except for sales
on the NYSE or otherwise made in the open market, or pursuant to a Public
Offering, Securities shall not be transferred to a competitor of the Company
without the prior consent of the Company's Board of Directors.
Section 7. Effectiveness of Agreement.
--------------------------
The covenants contained in this Agreement shall continue in full force and
effect with respect to the Purchasers until all Shares of Preferred Stock and
the Notes have been redeemed (and the redemption price therefor paid in full) or
have been converted, and all Conversion Shares have been sold by the Purchasers
in a Public Offering or pursuant to Rule 144 under the Securities Act, except
that (i) the covenants contained in Section 1.4 shall terminate as provided in
Section 1.4(b), and (ii) the covenants contained in Sections 4.2(b) shall
terminate at such time as the total number of shares of Common Stock held by the
Purchasers does not exceed [twenty-five (25)] percent of the fully diluted
outstanding shares of Common Stock of the Company purchased by such Purchaser
pursuant to this Agreement.
Section 8. Judicial Proceedings.
--------------------
8.1 Jurisdiction. The Company irrevocably submits to the non-exclusive
------------
jurisdiction of any New York State or Federal court sitting in the City of New
York over any suit, action or proceeding arising out of or relating to this
Agreement or any of
-21-
<PAGE>
the Securities or Conversion Shares. To the fullest extent it may effectively
do so under applicable law, the Company irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
8.2 Judgments. The Company agrees, to the fullest extent it may
---------
effectively do so under applicable law, that a judgment in any suit, action or
proceeding of the nature referred to in Section 8.1 brought in any such court
shall, subject to such rights of appeal on issues other than jurisdiction as may
be available, be conclusive and binding upon the Company and may be enforced in
the courts of the United States of America or the State of New York (or any
other courts to the jurisdiction of which the Company is or may be subject) by a
suit upon such judgment.
8.3 Service. The Company consents to service of process in any suit,
-------
action or proceeding of the nature referred to in Section 8.1 by mailing a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to its address specified in or designated pursuant to Section 9.1.
Such service (a) shall be deemed in every respect effective service of process
upon the Company in any such suit, action or proceeding and (b) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to the Company.
8.4 Other Service or Jurisdiction. Nothing in this Section 8 shall
-----------------------------
affect the right of any of the Purchasers to serve process in any manner
permitted by law, or limit any right that any of the Purchasers may have to
bring proceedings against the Company in the courts of any jurisdiction or to
enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
8.5 Waiver of Jury Trial. THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT
--------------------
IT MAY HAVE NOW OR HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE SHARES OR THE
CONVERSION SHARES.
8.6 Remedies for Breach. Upon breach or default by the Company with
-------------------
respect to any obligation hereunder, under the Shares or the Conversion Shares,
the Purchasers (or their agents) shall be entitled to protect and enforce their
rights at law, or in equity or by other appropriate proceedings for specific
performance of such obligation, or for an injunction against such breach or
default, or in aid of the exercise of any power or remedy granted hereby or
thereby or by law.
-22-
<PAGE>
Section 9. Miscellaneous.
-------------
9.1 Notices. All notices, requests, demands or other communications to or
-------
upon the respective parties hereto shall be in writing and shall be deemed to
have been given or made, and all financial statements, information and the like
required to be delivered hereunder shall be deemed to have been delivered, five
(5) days after deposited in the mails, registered or certified with postage
prepaid, addressed to the Company at 110 East 59th Street, New York, New York
10022 Attention: President, with a copy to the counsel for the Company,
Christopher J. Joyce, Esq., 110 East 59th Street, New York, New York 10022, and
to the Purchasers at their respective addresses set forth in Section 1 of this
Agreement, or to such other address as any of them shall specify in writing to
the others. The Company shall maintain registers of the holders of the
Securities and the Conversion Shares which shall contain the last address
specified as provided in the preceding sentence. No other method of giving
notice is hereby precluded. Upon reasonable request of any Purchaser, the
Company will deliver to such Purchaser, at the Company's expense, additional
copies of all financial statements, information and the like required hereunder.
9.2 Cumulative Remedies, Etc. No failure or delay on the part of any of
------------------------
the Purchasers in exercising any right, power or privilege hereunder, and no
course of dealing between the Company and the Purchasers, or any of them, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude the simultaneous or later exercise
of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Purchasers, or any of them, would otherwise have. No notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Purchasers, or any of them, to take any other or
further action in any circumstances without notice or demand.
9.3 No Oral Changes; Assignment; Survival of Representations. This
--------------------------------------------------------
Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company and the Purchasers and their successors and assigns.
The Company shall not make any assignment of its rights under this Agreement or
subject this Agreement or its rights hereunder to any lien or security interest
of any kind whatsoever; and any such assignment, lien or security interest shall
be absolutely void and unenforceable as against the Purchasers. All agreements,
representations and warranties made herein or in writing otherwise in connection
herewith shall survive the issuance of the Securities.
9.4 Several Obligations. The Purchasers shall not be jointly obligated
-------------------
hereunder; their obligations are several. The
-23-
<PAGE>
sales of Securities to the Purchasers shall be deemed separate sales to each
Purchaser.
9.5 Expenses. The Company agrees to pay and save the Purchasers harmless
--------
against liability for the payment of all out-of-pocket expenses arising in
connection with the negotiation, preparation, execution, delivery and
enforcement of, and any amendment, supplement or modification to, or waiver of
any provision of, this Agreement or the Securities, and the reasonable fees and
disbursements of Shearman & Sterling and Eaton & Van Winkle, such fees and
disbursements in respect of such preparation, execution and delivery to be paid
by the Company on the Series B and Convertible Notes Closing Date. Such other
expenses shall be paid promptly by the Company as and when payment thereof is
requested by the Purchasers. The obligations provided for in this Section 9.5
shall survive any termination of this Agreement.
9.6 Indemnification. The Company agrees to indemnify and hold harmless
---------------
each Purchaser, its subsidiaries, directors, officers and employees, to the
maximum extent permitted by law, from and against any and all liability
(including, without limitation, reasonable legal fees incurred in defending
against any such liability) under, arising out of or relating to this Agreement,
the Securities, the transactions contemplated hereby or thereby or in connection
herewith or therewith, and all action or failures to act and the transactions
contemplated thereby, including (to the maximum extent permitted by law) any
liability arising under Federal or state securities laws, except to the extent
such liability shall result from any act or omission on such Purchaser's part
constituting willful misconduct or gross negligence or the inaccuracy of
representations in Section 5. The obligations of the Company under this Section
9.6 shall survive and continue to be in full force and effect notwithstanding
the Shares not having been purchased, the redemption of the Shares or the
termination of this Agreement.
9.7 Publicity. Each party to this Agreement agrees not to disclose the
---------
name of the other, the existence of this Agreement or the terms hereof in any
press release or other public disclosure, or in any proxy statements, prospectus
or other, similar materials filings with any governmental entity, unless,
required by law or in each such case, and the other party first has reviewed and
approved such usage, with such review and approval not to be unreasonably
delayed or withheld.
9.8 Governing Law. THIS AGREEMENT AND THE OTHER AGREEMENTS AND
-------------
INSTRUMENTS EXECUTED AS PROVIDED HEREIN, AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER, SHALL BE CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS.
-24-
<PAGE>
9.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
9.10 Captions; Gender. The descriptive headings of the Sections of this
----------------
Agreement are inserted for convenience only and shall not affect the meaning,
construction or interpretation of any of the provisions hereof. The use of the
neuter form of a pronoun shall be deemed, where appropriate, to include the
masculine and feminine forms of such pronoun.
-25-
<PAGE>
If you are in agreement with the foregoing, please sign in the space
provided below.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Christopher J. Joyce
-------------------------------
Name: Christopher J. Joyce
Title: Executive Vice President
The foregoing is hereby accepted
and agreed to as of the date
first above written.
Purchasers:
- ----------
CYPRESS VENTURES, INC.
By: /s/ W. Townsend Ziebold
------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
WASSERSTEIN & CO., INC.
By: /s/ W. Townsend Ziebold
------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
BT CAPITAL PARTNERS, INC.
By: /s/ Robert Marakovits
-------------------------------
Name: Robert Marakovits
Title: Managing Director
-26-
<PAGE>
EXHIBIT 7.3
The Securities represented by this certificate
have not been registered under the Securities Act
of 1933. Such Securities have been acquired for
investment and may not be pledged or hypothecated,
and may not be sold or transferred, except in
compliance with the registration requirements of
the Securities Act of 1933, or upon delivery to
Alliance Entertainment Corp. of an opinion of
counsel to the Securityholder, in form and
substance satisfactory to said corporation and its
counsel, that registration under such Act is not
required.
No. R-1 $
ALLIANCE ENTERTAINMENT CORP.
6% Exchangeable Note due December 31, 2001
ALLIANCE ENTERTAINMENT CORP., a Delaware corporation, promises
to pay to _____________________________
or registered assigns
the principal sum of _______________________________ Dollars,
on December 31, 2001.
Interest Payment Dates: March 31, June 30, September 30 and
December 31
Record Dates: March 1, June 1, September 1 and December 1
Additional provisions of this Security are set forth on the
reverse side of this Security.
IN WITNESS WHEREOF, ALLIANCE ENTERTAINMENT CORP. has caused
this instrument to be duly signed.
ALLIANCE ENTERTAINMENT CORP.
By: ____________________________
By: ____________________________
Dated: December ___, 1996
<PAGE>
-2-
[REVERSE OF SECURITY]
ALLIANCE ENTERTAINMENT CORP.
6% Exchangeable Note due December 31, 2001
1. Interest. ALLIANCE ENTERTAINMENT CORP., a Delaware
--------
corporation (the "Company"), promises to pay interest on the principal amount of
-------
this Security at 6% per annum from and including the date of issuance of this
Security until maturity or exchange. The Company will pay interest on each
interest payment date, beginning March 31, 1997. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. Interest shall be paid in
additional Securities having a principal amount equal in amount to the interest
payable, by mailing additional Securities to each Securityholder's address as it
appears on the Company's register at least five days prior to each interest
payment date or otherwise delivering such Securities so as to be received by
such holder on the interest payment date. Interest on principal amount shall be
calculated cumulatively at the rate and in the manner prescribed herein from and
including the date of issuance of the Security for such principal amount. For
purposes of this Section 1, the date on which the Company shall initially issue
a Security shall be deemed to be its "date of issuance" regardless of the number
of times transfer of such Security shall have been made on the register
maintained by or for the Company and regardless of the number of Securities
which may be issued to evidence such principal amount (whether by reason of
transfer of such principal amount or for any other reason).
2. Method of Payment. The Company will pay interest on the
-----------------
Securities (except defaulted interest) to the persons who are the registered
holders of the Securities at the close of business on the March 1, June 1,
September 1 or December 1 next preceding the interest payment date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company,
however, may pay principal by its check payable in such money. On December 31,
2001 the Company shall pay in cash to the holders of Securities an amount equal
to the outstanding principal amount and any accrued interest thereon.
3. Registrar and Agents. Initially, the Company will act as
--------------------
Registrar, Paying Agent, Exchange Agent and agent for service of notices and
demands. The Company may change any
<PAGE>
-3-
Registrar, co-registrar, Paying Agent, Exchange Agent and agent for service of
notices and demands without the prior consent of the holders but upon notice to
the holders. The Company or any of its Subsidiaries may act as Registrar, co-
registrar, Exchange Agent or Paying Agent.
4. Limitations. The Securities are general unsecured
-----------
obligations of the Company limited to $10,000,000 principal amount.
5. Exchange. A holder of a Security may exchange such Security
--------
for shares of the Company's Series B Convertible Preferred Stock, par value
$0.01 per share (the "Series B Preferred Stock"), at any time before the close
------------------------
of business on the fifth business day prior to December 1, 2001. The exchange
price is $100.00 principal amount per share of Series B Preferred Stock. To
determine the number of shares issuable upon exchange of a Security, divide the
principal amount and accrued interest to be converted by the exchange price in
effect on the exchange date and round to the nearest 1/100th share.
To exchange a Security, a holder must (1) complete and sign the
exchange notice on the back of the Security, (2) surrender the Security to the
Exchange Agent or Registrar, (3) furnish appropriate endorsements and transfer
documents if required by the Registrar or Exchange Agent, and (4) pay any
transfer or similar tax if required. Except as provided below, no adjustment is
to be made on conversion for interest accrued hereon or for dividends on shares
of Series B Preferred Stock issued on conversion. Following an election by a
holder to exchange Securities, the Company's delivery to the holder of the fixed
number of shares of Series B Preferred Stock of the Company into which the
Security is exchangeable shall be deemed to satisfy the Company's obligation to
pay the principal amount of the Security. The Series B Preferred Stock of the
Company so delivered shall be treated as issued in payment of accrued interest
first and then of principal. A holder may exchange a portion of a Security if
the portion is $1,000 principal amount or an integral multiple thereof. In the
event of exchange of this Security in part only, a new Security or Securities
for the unexchanged portion hereof will be issued in the name of the holder
hereof upon the cancellation hereof.
If the Company is a party to a consolidation or merger or a transfer
or lease of all or substantially all of its assets, the right to exchange a
Security into Series B Preferred Stock may be changed into a right to exchange
it into
<PAGE>
-4-
securities, cash or other assets of the Company or another person into which the
Series B Preferred Stock was exchanged or converted as a result of such
consolidation, merger, transfer or lease.
No amendment of the certificate of designations with respect to
the Series B Preferred Stock shall be made without the consent of holders of a
majority in interest of the Securities.
6. Events of Default. In addition to the failure to pay
-----------------
principal or interest all Events of Default under the Indenture (the
---------
"Indenture") of the Company dated July 25, 1995 with respect to the $125,000,000
principal amount of 11-1/4% Senior Subordinated Notes due 2005, as the Indenture
was in effect on July 25, 1995, are hereby incorporated by reference and shall
be deemed to be events of default under this Security. No subsequent waiver,
amendment or modification, or expiration of the Indenture or the 11-1/4% Senior
Subordinated Notes shall affect the meaning of "event of default" under this
Security.
7. Acceleration. If an event of default occurs and is
------------
continuing, the holders of 25% of the principal amount (the "Requesting
----------
Holders") of the Securities then outstanding, by written notice to the Company,
- -------
may declare all unpaid principal amount, if any, and accrued interest on the
Securities, to be immediately due and payable. NOTWITHSTANDING ANY OTHER
PROVISION HEREIN, THE RIGHT TO DECLARE PRINCIPAL AND INTEREST IMMEDIATELY DUE
PURSUANT TO THIS PARAGRAPH SHALL NOT BE TRANSFERABLE AND NO TRANSFEREE OF THE
SECURITIES MAY BE CONSIDERED A REQUESTING HOLDER.
8. Mandatory Exchange. (a) In the event the Company shall
------------------
determine that the payment of interest on the principal amount of the Securities
would violate any provision of the Indenture, the Company shall provide the
holder with written notice accompanied by a certificate of the chief financial
officer of the Company satisfactory to the holder to such effect. The Company
may then exchange a principal amount of the Securities which the Company
reasonably believes is necessary to be in compliance with the Indenture for
Series B Preferred Stock having a liquidation value equal to the principal
amount of the Securities to be exchanged.
(b) Upon the good faith request of the Company, which may not
exceed $2,000,000 principal amount in the
<PAGE>
-5-
aggregate without the consent of the holders of the securities, a portion of the
outstanding Securities shall be exchanged for Series B Preferred Stock (such
amount allocated on a pro rata basis among the holders of Securities) in an
aggregate amount the Company believes in good faith is necessary to exchange in
order to appropriately increase the availability of additional borrowings
permitted under Section 5.08(vi) of the Indenture; provided, however, that the
-------- -------
Company shall only make such a request to the holders of Securities on or after
the date that the condition set forth in Section 3.2(i) of the Purchase
Agreement dated as of December 20, 1996 by and among the Company and the
Purchasers named therein, has been satisfied by the Company.
9. Denominations, Transfer, Exchange. The Securities are in
---------------------------------
registered form without coupons in denominations of $1,000 principal amount and
integral multiples thereof. A holder may register the transfer of or exchange
Securities. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law.
10. Persons Deemed Owners. The registered holder of a Security
---------------------
shall be treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
---------------
interest on any Securities remains unclaimed for two years, any Paying Agent
other than the Company will pay the money back to the Company at its request.
After that, holders may look only to the Company for payment.
12. Merger or Consolidation. The Company may not consolidate
-----------------------
with, or merge into, or transfer or lease all or substantially all of its assets
to, another person unless the person is a corporation and such corporation
assumes all the obligations of the Company under the Securities at the time
thereof.
13. Amendment and Waiver. Subject to certain exceptions, the
--------------------
Securities may be amended with the consent to the holders of at least a majority
in principal amount of the Securities then outstanding and any existing default
in compliance with any provision hereof may be waived with the consent of the
holders of a majority in principal amount of the Securities then outstanding.
Without the consent of or notice to any Securityholder, the Company may amend
the Securities to, among
<PAGE>
-6-
other things, provide for uncertificated Securities, to cure any ambiguity,
defect or inconsistency or make any other change that does not adversely affect
the rights of any Securityholder.
14. Successors. When a successor assumes all the obligations
----------
of its predecessor under the Securities the predecessor will be released from
those obligations.
15. No Recourse Against Others. No shareholder, director,
--------------------------
officer or incorporator, as such, past, present or future, of the Company or any
successor corporation shall have any liability for any obligation of the Company
under the Securities or for any claim based on, in respect of or by reason of,
such obligations or their creation. Each holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
16. Abbreviations. Customary abbreviations may be used in the
-------------
name of a Securityholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with rights of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
<PAGE>
-7-
ASSIGNMENT FORM
If you as the holder want to assign this Security, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Security to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
-------------------------------------------------------
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
________________________________________________________________________agent
to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date: __________________________________________________________________________
Your signature: ________________________________________________________________
(Sign exactly as your name appears on the other
side of this Security)
Signature Guarantee: ___________________________________________________________
(by national bank, trust company or member
firm of national securities exchange or
the National Association of Securities
Dealers, Inc.)
<PAGE>
EXCHANGE NOTICE
To exchange this Security into Series B Preferred Stock of the Company, check
the box:
___
/__/
To exchange only part of this Security, state the principal amount to be
exchanged (which must be a minimum of $1,000 or any multiple thereof):
_____________________
$
_____________________
If you want the stock certificate made out in another person's name, fill in the
form below:
(INSERT OTHER PERSON'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
_________________________________________
_________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code)
Date: _________________________________________________________________________
Your signature: _______________________________________________________________
(Sign exactly as your name appears on the other
side of this Security)
<PAGE>
EXHIBIT 7.4
CERTIFICATE OF DESIGNATIONS
OF
ALLIANCE ENTERTAINMENT CORP.
--------------------------------------
Pursuant to Section 151 of the Delaware General Corporation Law (the
"GCL"), ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
---
"Corporation"), certifies as follows:
-----------
FIRST: Under the authority contained in Article FOURTH of the
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors of the Corporation has classified an aggregate of three hundred
thousand (300,000) shares of the authorized but unissued shares of preferred
stock of the Corporation into a series which shall be designated Series B
Convertible Preferred Stock.
SECOND: The following resolution was adopted by the Board of Directors on
December 19, 1996 and such resolution has not been modified and is in full force
and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the authorized
but unissued shares of preferred stock of the Corporation, a series of
convertible preferred stock designated as Series B Convertible Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), and hereby fixes the powers,
---------------
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series, as follows:
Section 01. Preferred Stock Dividends.
-------------------------
1.1 General Dividend Obligation. When, as and if declared by the
---------------------------
Board of Directors of the Corporation, the Corporation shall pay to the holders
of record of the Preferred Stock, out of the assets of the Corporation available
for the payment of dividends under the General Corporation Law of the State of
Delaware, preferential dividends at the times and in the amounts provided for in
this Section 1.
<PAGE>
1.2 Payments of Dividends; Payments in Additional Shares. (a) When
----------------------------------------------------
declared by the Board of Directors of the Corporation, dividends on the
Preferred Stock shall be payable on whole shares of Preferred Stock on each
Dividend Payment Date (capitalized terms not otherwise defined herein being used
in this Certificate of Designations with the definitions set forth in Section
11).
(b) Dividends shall be paid only in additional whole shares of
Preferred Stock, having a Liquidation Value (exclusive of any accrued unpaid
dividends) equal in amount to the dividends payable, by mailing certificates for
such shares to each holder of record of Preferred Stock at such holder's address
as it appears on the Corporation's stock register at least five days prior to
the due date of each dividend or otherwise delivering such shares so as to be
received by such holder on the due date of such dividend. If any portion of a
dividend would result in the issuance of a fraction of a share of Preferred
Stock, such fraction shall be carried forward and accumulated with other
fractions and shall be paid on a subsequent Dividend Payment Date when such
accumulated fractions equal at least one whole share of Preferred Stock.
(c) If at any time dividends on the outstanding Preferred Stock at the
rate set forth herein shall not have been fully paid or declared and set aside
for payment, no dividends or other distributions shall be declared or paid upon
or set apart for payment on the shares of any other class of Junior Securities.
1.3 Calculation of Dividends. Dividends on each share of Preferred
------------------------
Stock shall be calculated cumulatively at the rate and in the manner prescribed
herein from and including the date of issuance of such share of Preferred Stock,
whether or not such dividends shall have been declared and whether or not there
shall be (at the time such dividends are calculated or become payable or at any
other time) profits, surplus or other funds or assets of the Corporation legally
available for the payment of dividends. For purposes of this Section 1.3, the
date on which the Corporation shall initially issue any share of Preferred Stock
shall be deemed to be its "date of issuance" regardless of the number of times
----------------
transfer of such share of Preferred Stock shall be made on the stock register
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Preferred Stock
(whether by reason of transfer of such share or for any other reason).
2
<PAGE>
1.4 Dividend Rates. Dividends shall be cumulative, and shall accrue
--------------
on a daily basis on each Outstanding share of Preferred Stock at the rate per
annum (computed on the basis of a 360-day year having twelve thirty-day months)
of six percent (6%) of the Liquidation Value of each share of Preferred Stock.
To the extent not paid, on a Dividend Payment Date all unpaid dividends accrued
on each share of Preferred Stock Outstanding during such quarter (or from and
including the original date of issuance of such share in the case of the initial
quarter-end after the date of issuance) shall be added to the Liquidation Value
of such share and shall remain a part thereof until such dividends are paid.
Section 2. Liquidation Preferences.
-----------------------
Subject to the holders' conversion rights provided below herein, upon
any liquidation (complete or partial), dissolution or winding up of the
Corporation, or any similar distribution of its assets to its stockholders which
results in a return of capital, whether voluntary or involuntary, the holders of
the Preferred Stock shall be entitled, before any distribution or payment is
made upon any Junior Securities of the Corporation, to be paid out of the assets
of the Corporation available for distribution to its stockholders (whether from
capital, surplus or earnings) an amount in cash equal to the sum of (i) the
aggregate Liquidation Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other distribution of assets, stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested, not less than
60 days prior to the payment date stated therein, to each record holder of any
share of Preferred Stock entitled thereto at the address for such record holder
shown on the Corporation's records. Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation, dissolution, winding up or similar distribution of the
Corporation within the meaning of any of the provisions of this Section 2. The
Preferred Stock shall rank pari passu with the Corporation's Series A
---- -----
Convertible Preferred Stock.
Section 3. Redemptions of Preferred Stock.
------------------------------
3.1 Redemption Price. For each share of Preferred Stock which is to
----------------
be redeemed by the Corporation at any time
3
<PAGE>
and for any reason in a redemption pursuant to this Section 3, the Corporation
shall be obligated on the Redemption Date, regardless of whether the Corporation
shall be able or legally permitted to make such payment on the Redemption Date,
to pay to the holder thereof (upon surrender by such holder at the Corporation's
principal office of the certificate representing such share of Preferred Stock
duly endorsed in blank or accompanied by an appropriate form of assignment) the
Redemption Price for such share of Preferred Stock, payable in cash.
3.2 Redeemed or Otherwise Acquired Shares Not to Be Reissued. Any
--------------------------------------------------------
shares of Preferred Stock redeemed pursuant to this Section 3 or otherwise
acquired by the Corporation shall not be reissued, sold or transferred by the
Corporation and shall be retired.
3.3 Determination of Number of Each Holder's Shares to Be Redeemed.
--------------------------------------------------------------
The number of shares of Preferred Stock to be redeemed from each holder thereof
in each redemption under this Section 3 shall be determined by multiplying the
total number of shares of Preferred Stock to be redeemed times a fraction, the
numerator of which shall be the total number of shares of Preferred Stock then
held by such holder and the denominator of which shall be the total number of
shares of Preferred Stock then Outstanding, rounded if the result is fractional
to the nearest whole number of shares.
3.4 Optional Redemption by Corporation. (a) The Preferred Stock may
----------------------------------
be redeemed in whole (but not in part), at the Redemption Price, at the
Corporation's option at any time after the seventh (7th) anniversary of the date
of original issuance of the Preferred Stock, on at least 30 days' notice.
3.5 Mandatory Redemption Based on Failure of Stockholders' Vote.
-----------------------------------------------------------
(a) In the event that the Preferred Stock has not become convertible in
accordance with Section 4.1(a) on or before July 26, 2005, then at any time
after such date (i) any holder of shares of Preferred Stock may require the
Corporation to redeem all or any portion of the Preferred Stock owned by such
holder, at the Redemption Price (as determined pursuant to this Section 3.5),
upon written notice to the Corporation requesting such redemption, or (ii) the
Corporation may, at its option, redeem the Preferred Stock then Outstanding in
whole (but not in part), at the Redemption Price (as determined pursuant to this
Section 3.5), upon written notice to the holders thereof. Notice of any such
election by the Corporation to redeem shall specify a redemption date not
4
<PAGE>
less than 10 nor more than 30 days after the date of such notice.
(b) The Redemption Price for each holder's shares of Preferred Stock
redeemed pursuant to this Section 3.5 shall be the lesser of
------
(i) the amount which, on receipt by the holder, will cause the holder to
realize an Internal Rate of Return of thirty-five percent (35%) with respect to
its investment in such shares being redeemed, and
(ii) seventy-five percent (75%) of the Corporation's cumulative EBITDA, for
the period from the date of original issuance of the Preferred Stock to the date
of such redemption, multiplied by a fraction, the numerator of which is the
number of shares of Preferred Stock to be redeemed from such holder and the
denominator of which is the aggregate number of shares of Preferred Stock issued
by the Corporation, provided that the Redemption Price per share of Preferred
-------------
Stock calculated pursuant to this paragraph (ii) shall in no event be less than
the Liquidation Value thereof.
3.6 Redemptions or Purchase by Corporation's Designee(s). In lieu of
----------------------------------------------------
any redemption of Preferred Stock by the Corporation permitted hereunder, the
Corporation may designate one or more purchasers who shall be entitled to
purchase the Preferred Stock from the holders thereof at the applicable
Redemption Price. Any such designee(s) shall have the rights and obligations of
the Corporation specified herein with respect to the redemption of such shares.
3.7 Notice of Redemption. Except as otherwise expressly provided
--------------------
herein, notice of any redemption of Preferred Stock, specifying the time and
place of redemption, the Redemption Price (in the case of a redemption under
Section 3.5, showing the computation thereof in reasonable detail) and the
Section and paragraph pursuant to which such redemption is being made, shall be
mailed by certified or registered mail, return receipt requested, to each holder
of record of shares of Preferred Stock to be redeemed, at the address for such
holder shown on the Corporation's records, not more than sixty (60) nor less
than thirty (30) days prior to the date on which such redemption is to be made.
The notice shall also specify the number of shares of Preferred Stock and the
certificate numbers thereof which are to be redeemed. With respect to
redemptions made pursuant to Section 3.4, upon mailing any such notice of
redemption the Corporation shall become obligated to redeem at the time of
redemption specified therein all shares of Preferred Stock therein specified. In
5
<PAGE>
case less than all the shares of Preferred Stock represented by any certificate
are redeemed, a new certificate representing the unredeemed shares of Preferred
Stock shall be issued to the holder thereof without cost to such holder.
Notwithstanding any other provision of this Section 3, the Corporation shall not
be entitled to redeem any shares of Preferred Stock in respect of which the
holder of such Preferred stock has delivered to Corporation a Conversion Notice
after the delivery of notice by the Corporation as provided in this paragraph
but prior to the Redemption Date.
3.8 Rights After Redemption Date. Provided that the Redemption Price
----------------------------
is paid in full on the applicable Redemption Date, no share of Preferred Stock
shall be entitled to any dividends accrued after its Redemption Date, and on
such Redemption Date, except as otherwise provided herein or by law, all rights
of the holder of such share of Preferred Stock as a stockholder of the
Corporation, by reason of the ownership of such share, shall cease, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.
3.9 Other Redemptions. The Corporation shall neither redeem nor
-----------------
otherwise acquire any shares of any class of Preferred Stock except (i) as
expressly authorized in this Certificate of Designations, or (ii) pursuant to
any offer of redemption made to the holders of Preferred Stock of such class pro
---
rata according to the shares held by them.
- ----
3.10 Deposit of Redemption Price. If on or before the date of
---------------------------
redemption specified in any notice of redemption of any share of Preferred
Stock, the Corporation shall irrevocably deposit the amount of the Redemption
Price thereof with a bank or trust company having an office in the City of New
York, designated in such notice of redemption, in trust for the benefit of the
holder of such share of Preferred Stock, such share of Preferred Stock shall be
deemed to have been redeemed on the date so specified, whether or not the
certificate for such share shall be surrendered for redemption and canceled.
Section 4. Conversion of Preferred Stock.
-----------------------------
4.1 Conversion Procedures. (a) The Preferred Stock shall be
---------------------
convertible into shares of Common Stock, in accordance with the terms of this
Section 4 after the receipt by the Corporation of a Conversion Notice as defined
in Section 4.1(c) hereof received at any time after the date that the issuance
of Common Stock upon such conversion is approved by the holders of outstanding
Common Stock, in
6
<PAGE>
compliance with Rule 312.03 of the New York Stock Exchange Listed Company Manual
(or such approval otherwise is not required) subject to the requirements of
Section 4.1(b) hereof.
(b) A holder of shares of Preferred Stock may, at any time after the
requirements of Section 4.1(a) are satisfied, convert pursuant to this Section 4
all or any part (in whole numbers of shares only) of the shares of Preferred
Stock held by such holder into such number of fully paid and non-assessable
whole shares of Common Stock as is obtained by multiplying the number of shares
of Preferred Stock so to be converted by the Liquidation Value thereof and
dividing the result by the Conversion Price then in effect. Such right as to
any particular share shall terminate at the close of business on the day
immediately prior to the date fixed for payment on the Preferred Stock upon any
liquidation, dissolution, winding up or similar distribution of the Corporation.
(c) Each conversion of Preferred Stock shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holder or holders of the Preferred Stock) at any time during its usual
business hours, which shall be accompanied by a written notice by the holder of
such Preferred Stock (a "Conversion Notice") stating that such holder desires to
-----------------
convert shares, or a stated number of shares, represented by a certificate or
certificates specifically described therein. Such Conversion Notice shall also
specify the name or names (with addresses) and denominations in which the
certificate or certificates for Common Stock shall be issued and shall include
instructions for delivery thereof. The Conversion Price shall be determined as
of the close of business on the date the certificate representing the Preferred
Stock and the Conversion Notice is received by the Corporation. Such conversion
shall be deemed to have been effected as of the close of business on the date on
which the certificate representing the Preferred Stock and the Conversion Notice
for such shares shall have been received by the Corporation, and as of such date
(the "Conversion Date") the rights of the holder of such Preferred Stock (or
---------------
specified portion thereof) as such holder shall cease and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
7
<PAGE>
(d) As soon as possible after the Conversion Date (and in no event
more than 30 days after the Conversion Date), subject to Section 4.2(c), with
respect to the certificate(s) specified in (i) and (ii) below, the Corporation
shall deliver to the converting holder or, with respect to the certificate(s)
specified in (i) below, as specified by such converting holder:
(i) a certificate or certificates representing the number of shares of
Common Stock issuable by reason of such conversion registered in such name or
names and such denomination or denominations as the converting holder shall have
specified;
(ii) a certificate representing any shares of Preferred Stock which shall
have been represented by the certificate or certificates which shall have been
delivered to the Corporation in connection with such conversion but which shall
not have been converted; and
(iii) a payment of cash in an amount equal to the value of any fractional
share of Common Stock that otherwise would be issuable in connection with the
Preferred Stock converted.
04.2 Authorization and Issuance of Common Stock. The
------------------------------------------
Corporation covenants and agrees that:
(a) The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
issuing upon the conversion of the Preferred Stock as provided in this Section
4, such number of shares of Common Stock as shall then be issuable upon the
conversion of all Outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issuable shall, when
issued, be duly and validly issued, fully paid and non-assessable and free from
all taxes, liens, and charges. The Corporation will take all such action as may
be necessary to assure that all shares of Common Stock may be so issued without
violation of any applicable law or regulation or any requirements of any
domestic stock exchange upon which any shares of Common Stock may be listed.
(b) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock acquirable upon conversion of
a share of Preferred Stock if after such action the total number of shares of
Common Stock issuable upon conversion of the Preferred Stock then Outstanding,
together with the total number of
8
<PAGE>
shares of Common Stock then Outstanding and the total number of shares of Common
Stock reserved for any purpose other than issuance upon conversion of Common
Stock, would exceed the total number of shares of Common Stock then authorized
by the Corporation's Certificate of Incorporation, as amended.
(c) If any shares of Common Stock required to be reserved for
purposes of conversions of shares of Preferred Stock under this Certificate of
Designations require registration with, or approval of, any governmental
authority under any federal or state law (other than any registration under the
Securities Act of 1933, as then in effect, or any similar federal statute then
in force, or any state securities law, required by reason of any transfer
involved in such conversion), or listing on any domestic securities exchange,
before such shares may be issued upon conversion, the Corporation will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved for listing or
listed on such domestic securities exchange, as the case may be.
(d) The issuance of certificates for shares of Common Stock upon
conversion of shares of the Preferred Stock shall be made without charge to the
holders of such shares for any issuance tax in respect thereof, or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Preferred Stock converted.
(e) The Corporation will not close its books against the transfer of
any share of Preferred Stock or of any share of Common Stock issued or issuable
upon the conversion of such shares in any manner which interferes with the
timely conversion of such shares.
4.3 Conversion Price. (a) The initial Conversion Price shall be
----------------
one dollar and twenty-five cents ($1.25). In order to prevent dilution of the
conversion rights granted hereunder, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 4.
(b) If and whenever the Corporation shall issue or sell, or shall in
accordance with Section 4.4 be deemed to have issued or sold, any shares of
Common Stock for a consideration per share that is less than 95% of the Market
Price on the date of such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price shall, subject to Section 4.4, be reduced to the
price (calculated to the nearest $0.001) determined by multiplying the
Conversion
9
<PAGE>
Price in effect immediately prior to the time of such issue or sale by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock Deemed Outstanding immediately prior to such issue or sale
multiplied by the Market Price immediately prior to such issue or sale plus (ii)
the consideration received by the Corporation upon such issue or sale, and the
denominator of which shall be the product of (iii) the total number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale, multiplied
by (iv) the Market Price immediately prior to such issue or sale.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
made in an amount less than $0.001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.001 per share or more.
(c) Notwithstanding the provisions of this Section 4.3 and Section
4.4, no adjustment of the Conversion Price shall be required as a result of the
sale or issuance of Common Stock, at prices less than 95% of the Market Price
then in effect, (i) upon conversion of any of the Preferred Stock or the
Corporation's Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock") or the exchange of the Corporation's 6%
------------------------
Exchangeable Notes due December 31, 2001, (ii) in connection with Excluded
Securities, or (iii) the issuance of the Series C Preferred Stock.
4.4 Effect of Certain Events on Conversion Price. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section 4.3, the following shall
be applicable:
(a) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities being
-------
herein called "Convertible Securities"), whether or not such Options or the
----------------------
rights to convert or exchange such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such
10
<PAGE>
Options, plus the minimum aggregate amount of additional consideration payable
to the Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than 95% of
the Market Price, determined as of the date of granting of such Options), then
the total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall (as of
the date of grant of such Options) be deemed to be outstanding and to have been
issued for such price per share. No adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities, except as
otherwise provided in Section 4.4(c).
(b) Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than 95% of the
Market Price, determined as of the date of such issue or sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued for such price per share. Except as
otherwise provided in Section 4.4(c), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common stock upon conversion or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustments of the
11
<PAGE>
Conversion Price have been made or are to be made pursuant to other provisions
of this Section 4.4, no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.
(c) Change in Option or Conversion Price. If the purchase price
------------------------------------
provided for in any Option referred to in Section 4.4(a), the additional
consideration, if any, payable upon conversion or exchange of any Convertible
Securities referred to in Section 4.4(a) or (b), or the rate at which any
Convertible Securities referred to in Section 4.4(a) or (b) are convertible into
or exchangeable for Common Stock, shall change at any time (other than under or
by reason of provisions designed to protect against dilution of the type set
forth in this Section 4.4 or in Sections 4.3 and 4.5), then the Conversion Price
in effect at the time of such change shall forthwith be adjusted to the
Conversion Price which would have been in effect at such time had such Option or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price provided for in
any Option referred to in Section 4.4(a), the additional consideration, if any,
payable upon conversion or exchange of any Convertible Securities referred to in
Section 4.4(a) or (b), or the rate at which any Convertible Securities referred
to in Section 4.4(a) or (b), are convertible into or exchangeable for Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution of the type set forth in
this Section 4.4 or Sections 4.3 and 4.5, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder would be reduced.
(d) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities (without any exercise of such
Option or right), the Conversion Price then in effect hereunder shall forthwith
be adjusted to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued, and the Common Stock
12
<PAGE>
issuable thereunder shall no longer be deemed to be outstanding.
(e) Calculation of Consideration Received. (i) In case any shares of
-------------------------------------
Common Stock, Options or Convertible Securities shall be issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
shall be deemed to be the aggregate proceeds payable to the Corporation
therefor, prior to deduction of any expenses incurred and any underwriting
commission or concessions paid or allowed by the Corporation in connection
therewith.
(ii) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of consideration other than cash received by the Corporation shall be
deemed to be the fair value, determined in good faith by the Board of Directors.
(iii) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration.
(iv) In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value, determined in good faith by the Board of
Directors, of such portion of the net assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
(v) In the event of any consolidation or merger of the Corporation in
which stock or other securities of any corporation are issued in exchange for
Common Stock of the Corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other securities
of any corporation, the Corporation shall be deemed to have issued a number of
shares of its Common Stock for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of the Conversion
Price the determination of the number of shares of Common Stock receivable upon
conversion of the Preferred Stock immediately prior to such merger,
13
<PAGE>
consolidation or sale, for purposes of Section 4.7, shall be made after giving
effect to such adjustment of the Conversion Price.
(vi) In case the Corporation shall declare a dividend or make any
other distribution upon any stock of the Corporation payable in Common Stock,
Options or Convertible Securities, any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(f) Record Date. For purposes of Sections 4.3 and 4.4, in case the
-----------
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of granting of
such right or subscription or purchase, as the case may be.
4.5 Subdivisions and Combinations. Except to theextent Section 4.4
-----------------------------
(e)(vi) above applies, in the event that the Corporation shall at any time
subdivide (by any stock split, stock dividend or otherwise) one or more classes
of its outstanding Common Stock into a greater number of shares of Common Stock,
the Conversion Price in effect immediately prior to such subdivision forthwith
shall be proportionately reduced. Conversely, in the event the outstanding
shares of one or more classes of the Common Stock shall be combined into a
smaller number of shares (by reverse stock split or otherwise), the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
4.6 Dividends. In the event that the Corporation declares a
---------
dividend (other than a dividend payable in Common Stock, Options or Convertible
Securities, or a cash dividend payable out of earnings or earned surplus) upon
Common Stock, then at the option of the holders of a majority of the outstanding
shares of Preferred Stock,
(1) the Corporation shall pay over to each holder, on the dividend payment
date, the cash, stock or other securities and other property which holder would
have received if such holder had converted all of his or its shares of Preferred
Stock into Common Stock and had been the record holder of such Common Stock on
the date on which a record is taken for the purpose of such
14
<PAGE>
dividend, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend are to be determined, or
(2) the Conversion Price in effect immediately prior to the declaration of
such dividend shall be reduced by an amount equal to the amount of such dividend
payable per share of Common Stock, in the case of a cash dividend, or by the
fair value of such dividend per share (as reasonably determined by the Board of
Directors of the Corporation), in the case of any other dividend, such reduction
to be effective on the date as of which a record is taken for purposes of such
dividend, or if a record is not taken, the date as of which holders of record of
Common Stock entitled to such dividend are determined, or
(3) in the case of a dividend consisting of stock or securities (other than
Common Stock, Options or Convertible Securities) or other property distributable
to holders of Common Stock, the holder of Preferred Stock may elect that, in
lieu of (1) or (2) above, lawful and adequate provisions shall be made
(including without limitation any necessary reduction in the Conversion Price)
whereby such holder of Preferred Stock shall thereafter have the right to
purchase and/or receive, on the terms and conditions specified in this
Certificate of Designations and in addition to the shares of Common Stock
receivable immediately prior to the declaration of such dividend upon conversion
of his or its shares of Preferred Stock, such shares of stock, securities or
property as are distributable with respect to outstanding shares of Common Stock
equal to the number of shares of Common Stock receivable immediately prior to
such declaration upon conversion of his or its shares of Preferred Stock, to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of shares receivable upon
such conversion) shall thereafter be applicable, as nearly as may be, in
relation to such shares of stock, securities or property.
For the purposes of this Section 4.6, "dividend" shall mean any distribution to
--------
the holders of Common Stock as such, and a dividend shall be considered payable
out of earnings or earned surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as reasonably determined by the Board
of Directors of the Corporation.
15
<PAGE>
4.7 Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Corporation, or any consolidation or merger of the Corporation with or into
another corporation, or any sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
(as determined reasonably and in good faith by the Board of Directors of the
Corporation) shall be made whereby each of the holders of the Preferred Stock
shall thereafter have the right to acquire and receive upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore acquirable and receivable upon
the conversion of such holder's shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore acquirable and receivable upon conversion of such
shares had such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provision shall be made with
respect to such holder's rights and interests to the end that the provisions of
this Section 4 (including without limitation provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock acquirable and
receivable upon the exercise of the conversion rights granted in this Section 4)
shall thereafter be applicable in relation to any shares of stock, securities or
assets thereafter deliverable upon the conversion of such holder's shares
(including, in the case of any such consolidation, merger or sale in which the
successor corporation or purchasing corporation is other than the Corporation,
an immediate adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale if the value
so reflected is less than the Conversion Price in effect immediately prior to
such consolidation, merger or sale). The Corporation shall not effect any
consolidation, merger or sale, unless the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire or receive.
16
<PAGE>
4.8 Notice of Adjustment. Immediately upon any adjustment of the
--------------------
Conversion Price, the Corporation shall send written notice thereof to all
holders of Preferred Stock, which notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock acquirable and receivable upon conversions of
all shares of Preferred Stock held by each such holder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.9 Other Adjustment-Related Notices. In the event that at any time:
--------------------------------
(a) the Corporation shall declare a dividend (or any other distribution)
upon its Common Stock payable otherwise than in cash out of earnings or earned
surplus;
(b) the Corporation shall offer for subscription pro rata to the holders of
any class of its Common Stock any additional shares of stock of any class or
other rights;
(c) there shall be any capital reorganization, or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with, or sale of all or substantially all of its assets to, another corporation;
or
(d) there shall be any voluntary or involuntary dissolution, liquidation,
winding up or similar distribution of the Corporation;
then, in connection with any such event, the Corporation shall give by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:
(i) at least 30 days' prior written notice of the date on which the books of
the Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding up or similar distribution; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding up or similar
17
<PAGE>
distribution, at least 30 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or similar distribution).
4.10 Certain Events. If any event occurs as to which the other
--------------
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of the Preferred Stock
in accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such conversion rights as aforesaid.
4.11 Disputes. In the event that there is any dispute as to (a) the
--------
computation of the price or the number of shares of Common Stock required to be
issued upon conversion of Preferred Stock, or (b) the computation of the
Redemption Price under Section 3.6, in either case in which holders of 50
percent or more of the Preferred Stock shall join, the holders and the
Corporation will retain an independent and nationally recognized accounting firm
to conduct at the expense of the Corporation an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
determination of such nationally recognized accounting firm shall, in the
absence of manifest error, be binding upon the holders of the Preferred Stock
and the Corporation. If there shall be a dispute as to the selection of such
nationally recognized accounting firm, such firm shall be appointed by the
American Institute of Certified Public Accountants ("AICPA") if willing,
-----
otherwise the American Arbitration Association ("AAA"), upon application by the
---
Corporation or any holder or holders of at least 50 percent of the outstanding
Preferred Stock with notice to the others. If the price, number of shares of
Common Stock or Redemption Price as determined by such accounting firm is five
percent (5%) or more higher or lower than the price, number of shares of Common
Stock or Redemption Price computed by the Corporation, the expenses of such
accounting firm and, if any, AICPA and AAA, shall be borne completely by the
Corporation. In all other cases, they shall be borne by the disputing holders of
Preferred Stock.
18
<PAGE>
Section 5. Purchase Rights.
---------------
If at any time or from time to time the Corporation shall grant, issue
or sell any Options, Convertible Securities or rights to purchase property (any
"Purchase Rights") pro rata to the record holders of Common Stock and such
---------------
grant, issuance or sale does not result in an adjustment of the Conversion Price
under Section 4.4, then each holder of Preferred Stock shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable and receivable (directly or upon subsequent
conversion, assuming unrestricted convertibility) upon conversion immediately
prior to the time or times at which the Corporation, granted issued or sold such
Purchase Rights.
Section 6. Voting Rights of Preferred Stock. (a) Except as
--------------------------------
otherwise provided by law, by agreement among the stockholders, or as otherwise
provided in this Certificate of Designations, Preferred Stock shall entitle the
holders thereof to no voting rights.
(b) The Preferred Stock shall be entitled to vote with the holders of
Common Stock on any and all matters presented to the holders of Common Stock for
a stockholders' vote at any time after the satisfaction of the conditions
set forth in Section 4.1(a) hereof. After the Preferred Stock is entitled to
vote on matters presented to holders of Common Stock, a share of Preferred Stock
shall possess that number of votes equal to the number of shares of Common Stock
that such share of Preferred Stock is convertible into on the applicable record
date.
Section 7. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other
place as the Corporation reasonably designates) a register for the registration
of shares of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing the aggregate number of shares represented by the
surrendered certificate, subject to the requirements of applicable securities
laws. Each such new certificate shall be registered in such name and shall
represent such number of shares as shall be requested by the holder of the
surrendered certificate, shall be substantially identical in form to the
surrendered
19
<PAGE>
certificate, and the holders of the shares represented by such new
certificate shall be entitled to receive all theretofore payable but unpaid
dividends on the shares represented by the surrendered certificate.
Section 8. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing one
or more shares of the Preferred Stock and, in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the registered holder is an institutional investor
its own agreement of indemnity, without bond, shall be satisfactory), or, in the
case of any such mutilation, upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares represented by such
lost, stolen, destroyed or mutilated certificate, and the shares represented by
such new certificate shall be entitled, among other things, to receive all
theretofore payable but unpaid dividends on the shares represented by the lost,
stolen, destroyed or mutilated certificate.
Section 9. Restrictions on Corporate Action.
--------------------------------
So long as any shares of the Preferred Stock remain outstanding and in
addition to any other approvals or consents required by law, without the prior
affirmative vote or written consent of the holders of at least a majority of all
shares of the Preferred Stock Outstanding at the time:
(a) The Corporation shall not increase the number of shares of the
Preferred Stock which the Corporation is authorized to issue, or issue
additional shares of Preferred Stock except pursuant to Section 1.2(b).
(b) Unless the dividend payment and redemption obligations of the
Corporation with respect to the Preferred Stock have, at such time, been fully
satisfied, the Corporation shall not declare or pay any dividend or make any
other distribution on any Junior Securities other than dividends or
distributions payable solely in Junior Securities, or purchase, redeem, or
otherwise acquire for any consideration, or set aside as a sinking fund or other
fund for the redemption or repurchase of any Junior Securities or any warrants,
rights or options to purchase the same.
20
<PAGE>
Section 10. Closing Books.
-------------
The Corporation will not close its books against the transfer of any
share of Preferred Stock.
Section 011. Definitions.
-----------
As used in this Certificate of Designations the following terms shall
have the following meanings, which meanings shall be equally applicable to the
singular and plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday or a
------------
day on which banks are permitted to close in New York, New York.
"Common Stock" means the Common Stock, par value $0.0001 per share, of
------------
the Corporation, and any capital stock of any class of the Corporation hereafter
authorized which shall not be limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution,
winding up or similar distribution of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the sum of
-------------------------------
(a) the number of shares of Common Stock actually outstanding at such time
(exclusive of any shares of Common Stock owned or held by or for the account of
the Corporation), plus (b) the number of shares of Common Stock into which
Outstanding shares of Preferred Stock are convertible at such time, plus (c) the
number of other shares of Common Stock deemed to be outstanding under Section 4
at such time.
"Consolidated Interest Expense" means (without duplication), for any
-----------------------------
period, the sum of:
(i) the interest expense of the Corporation and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP;
(ii) all fees, commissions, discounts and other charges of the Corporation
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP, with respect to letters of credit and bankers' acceptances
and the costs (net of benefits) associated with interest hedging obligations;
(iii) amortization or write-off of debt discount and deferred financing
costs (other than deferred financing costs incurred on or prior to the Closing
21
<PAGE>
Date) in connection with any Long Term Debt of the Corporation and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; and
(iv) interest capitalized by the Corporation and its Subsidiaries during
such period determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the
-----------------------
aggregate net income for such period, on a consolidated basis, determined in
accordance with GAAP ("Net Income"), of the Corporation and its Subsidiaries;
----------
provided, however, that (i) the Net Income (if positive) of any person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
Corporation or a Subsidiary by such person during such period, (ii) the Net
Income (if positive) of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) extraordinary gains, losses and non-cash restructuring charges
shall be excluded, (iv) the Net Income (if positive) of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of such Net Income is not at the time of
determination permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (v) net after tax gains (but not net
after tax losses) from sales of assets other than current assets or from the
disposition of any property or assets other than in the ordinary course of
business shall be excluded, (vi) any after tax gains (but not losses) from
currency exchange transactions not in the ordinary course of business consistent
with past practice shall be excluded, and (vii) the cumulative effect of any
change in accounting principles shall be excluded.
"Conversion Price" means one dollar and twenty-five cents ($1.25), as
----------------
such price may be adjusted from time to time pursuant to the provisions of
Section 4.
"Dividend Payment Date" means, with respect to Preferred Stock, the
---------------------
last day of March, June, September and December in each year (or if any such day
is not a Business Day the immediately preceding Business Day).
"EBITDA" shall mean, with respect to any period, Consolidated Net
------
Income of the Corporation for such period plus, in each case to the extent
deducted in computing such Consolidated Net Income, the sum of (without
duplication)
22
<PAGE>
(i) Consolidated Interest Expense for such period, (ii) the provision for taxes
based on net income of the Corporation and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, and (iii) the
depreciation and amortization expense of such the Corporation and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"Excluded Securities" means (a) Options or Convertible Securities
-------------------
issued and outstanding on the date of original issuance of the Preferred Stock,
and Common Stock issued upon exercise or conversion thereof, (b) Common
Stock, Options or Common Stock issued upon exercise of such Options, issued to
employees of the Corporation or any of its Subsidiaries pursuant to the stock
option plans or other incentive plans adopted by the Board of Directors and
submitted for approval by the Corporation's stockholders at its 1996 annual
meeting of stockholders, and (c) any Common Stock, Options, or Common Stock
issued upon exercise of such Options, issued to employees of the Corporation or
any of its Subsidiaries pursuant to the provisions of any other stock bonus or
stock option or other incentive plan or plans subsequently adopted by the Board
of Directors.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.
"Internal Rate of Return" means the annual rate (assuming quarterly
-----------------------
compounding) which if used to discount to present value the payments in cash or
cash equivalents made or received by the holder of Preferred Stock, during the
period from the date of calculation back to the initial issuance of such shares,
would cause the net present value (on such date) of such investment to equal
zero (0). In calculating an Internal Rate of Return:
(A) each payment received in cash or cash equivalents by a holder (or its
predecessors in interest) of shares attributable to such shares or any sale
thereof for cash shall be treated as a cash inflow with a positive value, and
each cash disbursement made by the holder (or its predecessors in interest)
directly attributable to such shares shall be treated as a cash outflow with a
negative value;
(B) each such payment or disbursement shall be discounted from the date
actually made to the date of the holder's initial investment in shares; and
23
<PAGE>
(C) indemnity payments, financing fees (including without limitation the
financing fee paid in connection with the original issuance of Preferred Stock)
and payments in reimbursement of out-of-pocket expenses received by the holders
of shares shall not be treated as cash inflows and therefore shall be
disregarded.
"Junior Security" means the Series C Convertible Preferred Stock, the
---------------
Corporation's Common Stock and any other equity security of any kind which the
Corporation or any Subsidiary shall at any time issue or be authorized to issue
other than preferred stock.
"Liquidation Value" of any share of Preferred Stock as of any
-----------------
particular date means an amount equal to the sum of $100.00 plus any accrued and
unpaid dividends on such share of Preferred Stock.
"Long-Term Debt" shall mean (without duplication) (A) all indebtedness
--------------
for borrowed money or evidenced by notes, bonds, debentures or similar evidences
of indebtedness, all obligations for the deferred and unpaid purchase price of
any property, service or business (other than trade accounts payable and accrued
liabilities incurred in the ordinary course of business and constituting current
liabilities), (B) all capitalized lease obligations, (C) letters of credit and
all obligations of relating thereto, (D) all obligations in respect of interest
rate swap agreements, currency swap agreements and other similar agreements
designed to hedge against fluctuations in interest rates or foreign exchange
rates, and (E) all Preferred Stock (and convertible preferred stock of any other
class) if and so long as the Market Price of Common Stock is less than the
Conversion Price (or conversion price of any such other class of convertible
preferred stock) from time to time in effect; in each case determined on a
consolidated basis in accordance with GAAP.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on such day on all domestic exchanges on which
such security may at the time be listed, or, if there shall have been no sales
on any such exchange on such day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on such day
such security shall not be so listed or trading thereon or on such exchange
shall be suspended, the closing price on such day of any such security traded on
the NASDAQ System or, if no such closing price is available, (i) the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
P.M., New York time, on such day, or (ii) if on such day such security shall not
be quoted in the
24
<PAGE>
NASDAQ System, the average of the high and low bid and asked prices on such day
in the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in the case of (i)
or (ii) averaged over a period of 21 business days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day (unless otherwise provided herein). If at any time such
security is not listed on any domestic exchange or quoted in the NASDAQ System
or the domestic over-the-counter market, the "Market Price" shall be the fair
market value per share of Common Stock, which shall be reasonably determined by
the Board of Directors of the Corporation as of a date which is within 15 days
of the date as of which the determination is to be made.
"Outstanding" when used with reference to shares of Preferred Stock as
-----------
of any particular time shall mean shares thereof issued and outstanding at such
time and shall not include any shares of Preferred Stock represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Corporation in accordance with Section 7 or Section 8, but shall include
only those shares represented by such new certificate.
"Person" means and includes an individual, a partnership, a
------
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
"Redemption Date" as to any share of Preferred Stock means the date
---------------
specified in the notice of redemption delivered pursuant to Section 3.7;
provided that for purposes of Section 3.8, the Redemption Date shall be the date
- --------
on which the applicable Redemption Price is actually paid to the holder of such
share of Preferred Stock or deposited in trust for the benefit of such holder
pursuant to Section 3.10.
"Redemption Price" as to any share of Preferred Stock means (a) for
----------------
purposes of Section 3.5, the Redemption Price specified therein, and (b) in all
other cases, the Liquidation Value of such share.
"Subsidiary" means any corporation at least 50% of the Voting Stock of
----------
every class of which is, at the time as of which any determination is being
made, owned by the Corporation either directly or through one or more
Subsidiaries.
"Voting Stock" means any shares of stock having general voting power
------------
in electing the board of directors
25
<PAGE>
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of the happening of any contingency).
Section 12. Miscellaneous.
-------------
(a) The unenforceability or invalidity of any provision or provisions
of this Certificate of Designations shall not render invalid or unenforceable
any other provision or provisions herein contained.
(b) Section and paragraph headings herein are for convenience only
and shall not be construed as a part of this Certificate of Designations.
(c) All notices to holders of Preferred Stock required or permitted
hereunder shall be sent by overnight courier service, prepaid, addressed to each
such holder at the address for such holder shown on the books of the
Corporation.
* * * * * *
26
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on this day
of December, 1996, and the signature of the undersigned shall constitute the
affirmation and acknowledgment of the undersigned, under penalties of perjury,
that this Certificate is the act and deed of the undersigned and that the facts
stated in the Certificate are true.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Joseph J. Bianco
---------------------------------
Joseph J. Bianco, Co-Chairman
ATTEST:
/s/ Christopher J. Joyce
-----------------------------------
Christopher J. Joyce,
Assistant Secretary
27
<PAGE>
Exhibit 7.5
-----------
VOTING AGREEMENT
----------------
Voting Agreement, dated as of December 20, 1996 (this "Agreement"),
among Joseph Bianco ("Bianco"), Alvin Teller, Bain Capital, Inc., BCI Growth
III, L.P., BCI Growth IV, L.P. ("BCI IV"), BT Capital Partners, Inc. ("BTC"),
U.S. Equity Partners, L.P., U.S. Equity Partners (Offshore), L.P., Cypress
Ventures, Inc. ("CVI") and Wasserstein & Co. Inc. ("WCI"; individually a
"Participating Party", and collectively the "Participating Parties") and Peter
Kaufmann, R. Tobias Knobel, John H. Friedman, Robert O. Marx, Elliot B. Newman,
Terence Shand (individually a "Terminating Party", and collectively with the
Participating Parties, "Parties"), each of which are record or beneficial owners
of Common Stock, par value $.0001 per share ("Common Stock"), of Alliance
Entertainment Corp., a Delaware corporation (the "Company").
WHEREAS, pursuant to a Purchase Agreement dated as of December 20,
1996, among WCI, BTC and the Company (the "Purchase Agreement"), CVI will
receive shares of Series B Convertible Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), and WCI has entered into a standby
purchase commitment in connection with a rights offering for
<PAGE>
-2-
Series C Convertible Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock"), of the Company,
WHEREAS, the Participating Parties are the owners of, or by
proxy or otherwise exercise irrevocable voting control over shares of
Common Stock of the Company as set forth in Attachment A hereto,
WHEREAS, the Parties wish to terminate that certain Voting
Agreement dated as of August 15, 1996 (the "August 15th Voting Agreement")
among the stockholders and optionholders thereto and that certain Voting
Agreement dated as of July 16, 1996 (the "July 16th Voting Agreement")
among the stockholders and optionholders thereto; and
WHEREAS, BTC and BCI IV desire to revoke their proxy granted to
Bianco pursuant to Section 3(b) of that certain Inducement Agreement dated
July 16, 1996 (the "Inducement Agreement") among BTC, BCI IV and Bianco.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements hereinafter contained, the Parties
hereby agree as follows:
1. Termination of Prior Voting Agreements. The July 16th
--------------------------------------
Voting Agreement and the August 15th Voting Agreement
<PAGE>
-3-
(other than paragraph 4 of the August 15th Voting Agreement which paragraph
shall remain in full force and effect) are hereby terminated and are no
longer in force or effect.
2. Voting of Shares by Parties. Each Participating Party
---------------------------
agrees to vote all of the shares of Common Stock which are now or hereafter
owned by such Participating Party, beneficially or of record, or which he
or it is entitled to vote by proxy or otherwise, including without
limitation those shares identified on Attachment A hereto, at any special
------------
or annual meeting of the stockholders of the Company, or by any written
consent, whereat or whereby the same are considered for approval by the
stockholders of the Company, for (a) the approval of the conversion rights
and the voting rights of the Series B Preferred Stock and the Series C
Preferred Stock, as set forth in the certificates of designations attached
thereto, and the issuance of the Series B Preferred Stock and the Series C
Preferred Stock pursuant to the Purchase Agreement, and (b) the approval of
the Company's issuance of Common Stock pursuant to any Participating
Party's exercise of any such conversion rights.
<PAGE>
-4-
3. Termination of Proxy. BTC and BCI IV hereby terminate
--------------------
and revoke their proxy granted to Bianco pursuant to Section 3(b) of the
Inducement Agreement.
4. Changes in Common Stock. In the event that subsequent to
-----------------------
the date of this Agreement any shares or other securities (other than any
shares or securities of another corporation issued to the stockholders of
the Company pursuant to a plan of merger) are issued on, or in exchange
for, any of the shares of the Common Stock or Preferred Stock held by the
Participating Parties by reason of any stock divided, stock split,
consolidation of shares, reclassification, or consolidation involving the
Company, such shares or securities shall be deemed to be Common Stock for
purposes of this Agreement.
5. Representations of Participating Parties. Each
----------------------------------------
Participating Party hereby represents and warrants that, after the
termination of the July 16th Voting Agreement and the August 15th Voting
Agreement pursuant to Section 1 hereof, (i) such Participating Party owns
and/or has the right to vote the number of shares of the Common Stock set
forth opposite his or its name on Attachment A hereto, (ii) such
Participating Party has full power to enter into this Agreement and has
not, prior to the date of this Agreement, executed or delivered any
<PAGE>
-5-
proxy or entered into any other voting agreement or similar arrangement that
would conflict with the purposes or provisions of this Agreement, (iii) such
Participating Party will not take any action inconsistent with the purposes and
provisions of this Agreement and (iv) this Agreement is a valid, binding and
enforceable obligation of such Participating Party.
6. Enforceability. Each Party expressly agrees that this
--------------
Agreement shall be specifically enforceable in any court of competent
jurisdiction in accordance with its terms against each of the Parties
hereto.
7. Benefit. This Agreement shall be binding upon and inure
-------
to the benefit of the respective Parties hereto and their successors.
8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE
OF NEW YORK.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
<PAGE>
-6-
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
Participating Parties:
- ---------------------
/s/ Joseph Bianco
--------------------------------------------
Joseph Bianco
/s/ Alvin Teller
--------------------------------------------
Alvin Teller
BAIN CAPITAL, INC.
By:
----------------------------------------
Name:
Title:
BCI GROWTH III, L.P.
By:
----------------------------------------
Name:
Title:
BCI GROWTH IV, L.P.
By:
----------------------------------------
Name:
Title:
<PAGE>
-7-
BT CAPITAL PARTNERS, INC.
By: /s/ Robert Marakovits
----------------------------------------
Name: Robert Marakovits
Title: Managing Director
U.S. EQUITY PARTNERS, L.P.,
by its general partner,
W.P. Management Partners, L.L.C.
By: /s/ W. Townsend Ziebold
----------------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
U.S. EQUITY PARTNERS (OFFSHORE),
L.P., by its general partner,
W.P. Management Partners, L.L.C.
By: /s/ W. Townsend Ziebold
----------------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
WASSERSTEIN & CO., INC.
By: /s/ W. Townsend Ziebold
----------------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
CYPRESS VENTURES, INC.
By: /s/ W. Townsend Ziebold
----------------------------------------
Name: W. Townsend Ziebold
Title: Managing Director
<PAGE>
-8-
Terminating Parties:
- -------------------
/s/ Peter Kaufmann
___________________________
Peter Kaufmann
/s/ R. Tobias Knobel
___________________________
R. Tobias Knobel
/s/ John H. Friedman
___________________________
John H. Friedman
/s/ Robert O. Marx
___________________________
Robert O. Marx
/s/ Elliot B. Newman
___________________________
Elliot B. Newman
/s/ Terence Shand
___________________________
Terence Shand
<PAGE>
Attachment A
------------
Common Stock
------------
Joseph Bianco
Alvin Teller
Bain Capital, Inc.
BCI Growth III, L.P.
BCI Growth IV, L.P.
BT Capital Partners, Inc.
U.S. Equity Partners, L.P.
U.S. Equity Partners (Offshore),
L.P.
Cypress Ventures, Inc.
Wasserstein & Co., Inc.
<PAGE>
EXHIBIT 7.6
Exhibit D
to
Preferred Stock Purchase Agreement
among Alliance Entertainment Corp.
and the Purchasers named therein
Registration Rights
-------------------
1. Definitions. As used in this Exhibit D, the following terms shall have
-----------
the following meanings:
"Common Stock" means Common Stock, par value $0.0001 per share, of the
------------
Company, including without limitation the Conversion Shares.
"Conversion Shares" means shares of Common Stock issued or issuable upon
-----------------
conversion of Preferred Stock.
"Preferred Stock" means the Company's Series B Convertible Preferred Stock,
---------------
par value $0.01 per share, or Series C Convertible Preferred Stock, par value
$0.01 per share.
"Pro Rata" means, with respect to the shares of Common Stock that a
--------
Registering Stockholder has requested be included in an underwritten public
offering, but which are to be excluded in part from such offering as provided in
this Exhibit D, the same proportion of the aggregate number of shares of Common
Stock to be excluded from such offering as the aggregate number of shares of
Common Stock held by such Registering Stockholder bears to the aggregate number
of shares of Common Stock held by all Registering Stockholders whose shares are
to be excluded in part.
"Purchase Agreement" means the Purchase Agreement dated as of December 20,
------------------
1996, among the Company and the Purchasers named therein, to which this Exhibit
D is attached.
"Registrable Securities" means, collectively, (i) Common Stock of the
----------------------
Company issued to Stockholders and (ii) Common Stock issued or issuable by way
of stock dividend or stock split or upon the exercise of stock options or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise with respect to Registrable Securities.
Registrable Securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration
<PAGE>
statement, (ii) such securities shall have been sold pursuant to Rule 144 (or
any successor provision) under the Securities Act or (iii) such securities shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such securities shall not require the registration or
qualification of such securities under the Securities Act or any similar state
law then in effect.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with this Exhibit D and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all printing expenses, the fees and disbursements of the Company's
independent public accountants, including the expenses of any special audits,
reviews, compilations or other reports or information required by or incident to
such performance and compliance, and any fees or expenses of counsel for the
Company and of one special counsel to represent the holders on whose behalf
Registrable Securities are being registered, but excluding any underwriting
discounts and commissions with respect to such Registrable Securities, which
shall be borne by the holder on whose behalf such Registrable Securities are
being registered.
"Stockholder" means a Purchaser or any other holder of Common Stock or
-----------
Preferred Stock.
Unless otherwise defined herein, capitalized terms used in this Exhibit D have
the meanings assigned to them in the Purchase Agreement.
2. Registration on Request. (a) Upon the written request of either WCI,
-----------------------
CVI or BTC, (each a "Requesting Stockholder"), requesting that the Company
----------------------
effect the registration under the Securities Act of all or part of the
Conversion Shares held by such Requesting Stockholder and specifying the
intended method or methods of disposition of such Conversion Shares, the Company
will promptly give written notice of such requested registration by registered
or certified mail, return receipt requested, to all Stockholders holding
Registrable Securities and thereupon will use its best efforts to effect, at the
earliest possible date, the registration, under the Securities Act, subject to
Section 2(d), of
(i) the Conversion Shares which the Company has been so requested to
register by such Requesting Stockholder, for disposition as stated in such
request, and
(ii) all other Registrable Securities which the Company has been
requested to register by Stockholders
2
<PAGE>
holding Registrable Securities (which Stockholders, together with the
Requesting Stockholders, are referred to herein as "Registering
-----------
Stockholders") by written request delivered to the Company within thirty
------------
(30) days after the giving of such written notice by the Company (which
request shall specify the intended method of disposition of such
Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities to be so
registered, provided that (A) if the Company shall have previously effected a
--------
registration of which notice has been given to all Stockholders holding
Registrable Securities pursuant to Section 3, in which either Requesting
Stockholder wishing to do so was permitted to sell all Registrable Securities
they desired to sell, the Company shall not be required by either Requesting
Stockholder to effect a registration pursuant to this Section 2 until a period
of 90 days shall have elapsed from the effective date of the most recent such
previous registration, and (B) the Company shall not be obligated to effect more
than two such registrations for CVI and WCI together and two such registrations
for BTC. Each registration requested pursuant to this Section 2 shall be
effected by the filing of a registration statement on Form S-1, Form S-2 or Form
S-3 (or any other form which the Company is qualified to use).
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by the Company pursuant to
this Section 2.
(c) The Company will not register securities for sale for the account
of any Person other than (i) the Company, and (ii) holders of Registrable
Securities. The Company will not grant to any Person the right to request a
registration of securities except pursuant to Section 2(a); provided, however,
the Company has granted such rights pursuant to the Stock Acquisition and Merger
Agreement dated as of August 15, 1996 and Exhibit I thereto. The Company may
grant incidental rights to participate in registrations comparable to those
granted in Section 3.
(d) If the registration so requested by the Requesting Stockholder
involves an underwritten offering of the securities so being registered, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and the managing underwriter of such underwritten offering shall
advise the Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Registering
Stockholders have requested to register under Section 2(a)(i) or (ii) will
3
<PAGE>
cause the total number of securities to be distributed to exceed the number
which can be sold in an orderly manner within a price range acceptable to the
holders of a majority of the Registrable Securities initially requesting the
registration, then the Company will promptly furnish each Registering
Stockholder a copy of the opinion of the managing underwriter, will register the
shares of Common Stock which the Registering Stockholders have requested
pursuant to Section 2(a)(i) or (ii) in an amount not to exceed the maximum
number of shares that the managing underwriter deems advisable and, to the
extent necessary so that the aggregate number of shares to be registered does
not exceed the maximum amount the managing underwriter deems advisable, will
first reduce the number of shares that each Registering Stockholder, other than
a Requesting Stockholder, has requested to register pursuant to Section
2(a)(ii), Pro Rata, and then, to the extent necessary, reduce the number of
shares that the Requesting Stockholder has requested to register pursuant to
Section 2(a)(i) or (ii), Pro Rata.
(e) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a holder or holders of Registrable
Securities pursuant to a registration requested under this Section 2, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution provisions to the effect and to
the extent provided in Section 6.
(f) If, at any time after requesting registration pursuant to Section
2(a) and prior to the effective date of the registration statement filed in
connection with such registration request, any Requesting Stockholder shall
determine for any reason not to register such Registrable Securities, such
Requesting Stockholder may, at its election, give written notice of such
determination to the Company. The Company shall then be relieved of its
obligations to register any Registrable Securities in connection with such
Requesting Stockholder's registration request (but not its obligation to pay the
Registration Expenses in connection therewith as provided in Section 2(b)),
without prejudice, however, to the rights pursuant to Section 2(a) of any other
Registering Stockholders to request that such registration be effected.
(g) In connection with the first request for registration pursuant to
Section 2(a), the Company may, within fifteen (15) days after its receipt of
such request, give the Requesting Stockholder notice that it is the good faith
intention of the Company to register securities under the Securities Act for
sale for its own account. Thereafter, the
4
<PAGE>
provisions of Section 3 shall govern, and the Requesting Stockholders'
registration request under Section 2(a) shall be deemed rescinded. The
Requesting Stockholders shall again be entitled to request such registration
under Section 2(a), but not sooner than the earliest of (i) ninety (90) days
after the effective date of the Company's registration, (ii) the Company's
determination (of which the Company shall promptly notify the holders of
Registrable Securities) not to proceed with its registration of securities, and
(iii) the Company's failure to use best efforts to effect the registration of
its securities.
(h) In connection with any request for registration pursuant to
Section 2(a), the Company may, on one occasion only, upon a good-faith
determination by the Company's Board of Directors that such a registration would
interfere with the completion of a proposed corporate transaction, notify the
Requesting Stockholder that it intends to defer such registration for up to one
hundred twenty (120) days. In such event the Requesting Stockholder may rescind
their registration request, and shall again be entitled to request such
registration under Section 2(a), but not sooner than the end of the period of
deferral determined by the Company.
3. Incidental Registrations. (a) If, at any time, the Company
------------------------
proposes to register any of its securities under the Securities Act, whether or
not for sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time give prompt written notice to all holders
of Registrable Securities of its intention to do so, describing such securities
and specifying the form and manner and the other relevant facts involved in such
proposed registration, and upon the written request of any such holder delivered
to the Company within thirty (30) days after the giving of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
--------
(i) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date
of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities,
the Company may, at its election, give written notice of such determination
to each holder of Registrable
5
<PAGE>
Securities and thereupon shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not
from its obligation to pay the Registration Expenses in connection
therewith as provided in Section 3(b)), without prejudice however to the
rights of any Requesting Stockholder to request that such registration be
effected as a registration under Section 2(a);
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not
for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction, and
the managing underwriter of such underwritten offering shall advise the
Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Registering
Stockholders have requested the Company to register in accordance with this
Section 3(a) concurrently with the securities being distributed by such
underwriters will cause the total number of securities to be distributed to
exceed the number which can be sold in an orderly manner within a price
range acceptable to the Company or the holders of the other securities to
be distributed, as the case may be, then the Company will promptly furnish
each such holder of Registrable Securities with a copy of such opinion and
may deny, by written notice to each such holder accompanying such opinion,
the registration of all or a specified portion of such Registrable
Securities (in case of a denial as to a portion of such Registrable
Securities, such portion to be allocated Pro Rata among such holders;
provided that, if such registration as initially proposed by the Company
was in whole or in part requested by holders of securities of the Company
pursuant to demand registration rights the Company will include in such
registration to the extent of the amount of securities which the managing
underwriter advises the Company can be sold in such offering, (x) first,
such securities held by the holders initiating such registration and, if
applicable, any securities proposed by the Company to be sold for its own
account, allocated in accordance with the priorities then existing among
the Company and such holders, and (y) second, any Registrable Securities
requested to be included in such registration by Requesting Holders and any
other securities of the Company proposed to be included in such
registration (1) as between such Registrable Securities and such other
securities, pro rata on the basis of the numbers of such Registrable
Securities and such other securities, respectively, (2) as among such
Registrable Securities, pro rata on the basis of the number
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of Registrable Securities requested to be included by such holders and (3)
as among such other securities, allocated among the holders thereof in
accordance with the priorities then existing among the Company and the
holders of such other securities and any securities so excluded shall be
withdrawn from and shall not be included in such incidental registration;
and
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 3 incidental to
the registration of any of its securities in connection with dividend
reinvestment plans or stock option or other employee benefit plans.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
3.
4. Registration Procedures. (a) If and whenever the Company is
-----------------------
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3, the Company
will as expeditiously as possible:
(i) prepare and promptly file with the Commission a registration
statement with respect to such Registrable Securities (in any event, use
its best efforts to file such registration statement within sixty (60) days
after the end of the period within which requests for registration may be
delivered to the Company) and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of such
time as all of such Registrable Securities and other securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement or the
expiration of nine (9) months after such registration statement becomes
effective;
(iii) furnish to each seller of such Registrable Securities,
without charge, such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary
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prospectus and any summary prospectus), in conformity with the requirements
of the Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as each seller
(or in an underwritten offering, the managing underwriter) shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;
(v) furnish to each seller of Registrable Securities by means of
such registration a signed counterpart, addressed to such seller, of (A) an
opinion of counsel for the Company, dated the effective date of such
registration statement (or, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement speaking both as of the effective date of the registration
statement and the date of the closing under the underwriting agreement)and
(B) a "cold comfort" letter dated the effective date of such registration
statement (and, if such registration statement includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have certified
the Company's financial statements included in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, as such seller may
reasonably request;
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any
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event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or other securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(vii) otherwise comply with all applicable rules and regulations
of the Commission, and make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve (12) months beginning with the first day of the first month of
the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder; and
(viii) use its best efforts to list such securities on the New
York Stock Exchange and each securities exchange on which the Common Stock
of the Company is then listed, if such securities are not already so listed
and if such listing is then permitted under the rules of such exchange,
and, if necessary, provide a transfer agent and registrar for such
Registrable Securities not later than the effective date of such
registration statement.
The Company may require each such holder of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
or by the Commission in connection therewith.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act (other than pursuant to a request made under
Section 2), and such securities are to be distributed by or through one or more
underwriters, the Company will make reasonable efforts, if requested by any
holder of Registrable Securities who requests incidental registration of
Registrable Securities in connection therewith pursuant to Section 3, to arrange
for such underwriters to include such Registrable Securities among those
securities to be distributed by or through such underwriters, provided that, for
--------
purposes of this sentence, reasonable efforts shall not require
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<PAGE>
the Company to reduce the amount or sale price of such securities proposed to be
so distributed. In all registrations under Section 2 or Section 3 hereof, the
holders of Registrable Securities on whose behalf Registrable Securities are to
be distributed by underwriters shall be parties to any underwriting agreement
and the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters, shall also be made
to and for the benefit of such holders of Registrable Securities.
(c) Whenever a registration requested pursuant to Section 2 is for an
underwritten offering, the holders of a majority of the Registrable Securities
included in such registration shall have the right to select the managing
underwriter to administer the offering subject to the approval of the Company,
such approval not to be unreasonably withheld. If the Company at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the managing underwriter shall be selected by the Company and
approved by the holders of Registrable Securities requesting registration
thereof, such approval not to be unreasonably withheld.
(d) If any registration pursuant to Section 2 or 3 shall be made in
connection with an underwritten public offering, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so required
by the managing underwriters, not to effect any public sale or distribution of
Registrable Securities (other than as part of such underwritten public offering)
within the period of time between seven days prior to the effective date of such
registration statement and one hundred twenty (120) days after the effective
date of such registration statement.
5. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered and their underwriters, if any, and their respective counsel and
accountants, the opportunity to review and comment upon such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the reasonable
opinion of such holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
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6. Indemnification; Contribution. (a) In the event of any
-----------------------------
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless in the case of any
registration statement filed pursuant to Section 2 or 3, the holder of any
Registrable Securities covered by such registration statement, its directors and
officers, each officer and director of each underwriter, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such holder or any such underwriter
within the meaning of the Securities Act against any losses, claims, damages,
liabilities and expenses, joint or several, to which such holder or any such
director or officer or participating or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings or investigations in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus (unless, with respect to the indemnification of the
officers and directors of each underwriter and each other person participating
as an underwriter, any such statement is corrected in a subsequent prospectus
and the underwriters are given the opportunity to circulate the corrected
prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any violation by the Company of any securities laws, and the Company will
reimburse such holder and each such director, officer, participating person and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
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be liable to any seller, director, officer, participating person or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company in an instrument executed by or under the direction of such seller,
director, officer, participating person or controlling person for use in the
preparation thereof, which information was specifically stated to be for use in
the registration statement, prospectus, offering circular or other document.
Such indemnity shall remain in full force and effect
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regardless of any investigation made by or on behalf of such seller or any such
director, officer, participating person or controlling person and shall survive
the transfer of such securities by such seller. The Company shall agree to
provide for contribution relating to such indemnity as shall be reasonably
requested by any seller of Registrable Securities or the underwriters.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2(a), that the Company shall have received an undertaking satisfactory to it
from the prospective sellers of such securities and their underwriters, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 6) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, but only if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such sellers or their underwriters specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such sellers. Anything
contained herein to the contrary notwithstanding, the maximum liability of each
prospective seller in the case of each prospective seller shall be limited to an
amount equal to the net proceeds actually received by such prospective seller
from the sale of such Registrable Securities.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
- -------
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 6 except to the extent that the
indemnifying party's rights are prejudiced, or liabilities and obligations under
this Section 6 are increased, as a result of such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be
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<PAGE>
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof unless (i) the
indemnifying party shall have failed to retain counsel for the indemnified party
as aforesaid, (ii) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (iii) representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other person represented by such counsel in such
proceeding or the indemnified party shall have reasonably concluded that there
may be legal defenses available to it which are different from or additional to
those available to the indemnifying party (in which case the indemnifying party
shall not have the right to direct the defense of such action on behalf of the
indemnified party). No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without the written consent of such indemnifying party (which consent
shall not be unreasonably withheld), but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify each indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) Indemnification and contribution similar to that specified in this
Section 6 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of such Registrable Securities under any federal or state
law or regulation or governmental authority other than the Securities Act.
(e) The rights and obligations of the parties under this Section 6
shall survive any termination of the Purchase Agreement.
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