<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2 )
-----
Alliance Entertainment Corp.
----------------------------------------------------------------
(Name of Issuer)
Common Stock, $.0001 par value
----------------------------------------------------------------
(Title of Class of Securities)
018593103
----------------------------------------------------------------
(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
----------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
July 16, 1996
----------------------------------------------------------------
(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.)
Page 1
<PAGE>
SCHEDULE 13D
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CUSIP NO. 018593103
- --------------------------------------------------------------------------------
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. 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
- --------------------------------------------------------------------------------
NUMBERS OF 7. SOLE VOTING POWER
SHARES
BENEFICIALLY 8,802,523
OWNED BY EACH ----------------------------------------------------------
REPORTING 8. SHARED VOTING POWER
PERSON WITH
0
----------------------------------------------------------
9. SOLE DISPOSITIVE POWER
8,802,523
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,802,523
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
20.8%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
CO
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Page 2
<PAGE>
SCHEDULE 13D
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CUSIP NO. 018593103
- --------------------------------------------------------------------------------
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. 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
BENEFICIALLY 71,300
OWNED BY EACH ----------------------------------------------------------
REPORTING 8. SHARED VOTING POWER
PERSON WITH
0
----------------------------------------------------------
9. SOLE DISPOSITIVE POWER
71,300
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
71,300
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.2%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
BK, IA
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Page 3
<PAGE>
SCHEDULE 13D
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CUSIP NO. 018593103
- --------------------------------------------------------------------------------
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. 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
- --------------------------------------------------------------------------------
NUMBERS OF 7. SOLE VOTING POWER
SHARES
BENEFICIALLY 0*
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 shares of
Common Stock owned or deemed to be owned by BT Capital Partners, Inc. and
Bankers Trust Company.
Page 4
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Amendment No. 2 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, and subsequently amended (as amended, the "Original
--------
13D") by the filing persons described under Item 2.
- ---
This Amendment No. 2 to the Original 13D relates to the acquisition
by BT Capital Partners, Inc. ("BT Capital Partners") of 350,000 shares of Series
-------------------
A Convertible Preferred Stock, $0.01 par value per share (the "Preferred
---------
Stock"), which are convertible into shares of Common Stock under certain terms
- -----
and conditions as described in Item 5.
ITEM 2. IDENTITY AND BACKGROUND.
Item 2(a) through (c), Item 2(f).
--------------------------------
No change is made other than an amended 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
BTCo. and BTNY which is set forth in Annex A attached hereto and incorporated
into this Item 2 by reference.
Items 2(d) and (e).
------------------
No change.
Other than the addition of an amended Annex A, no change is made to
the response to Item 2 in the Original 13D.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
BT Capital Partners purchased 350,000 shares of Preferred Stock for
an aggregate price of $35 million. Funds used in such acquisition came from a
line of credit provided by BTNY.
The shares of Preferred Stock were purchased by BT Capital Partners
and another purchaser pursuant to a Preferred Stock Purchase Agreement dated
July 16, 1996 (the "Purchase Agreement"), certain terms of which are more
------------------
particularly described under Items 4 and 6 below.
Page 5
<PAGE>
ITEM 4. PURPOSE OF TRANSACTION.
BT Capital Partners acquired the Preferred Stock reported herein
for investment purposes. BT Capital Partners and its 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, either through negotiated
transactions or through transactions in the open market.
As of the date of this Amendment to statement on Schedule 13D, BT
Capital Partners has no 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. BT Capital Partners acquired the Preferred Stock pursuant to the
Purchase Agreement dated as of July 16, 1996 by and among the purchasers
named therein and the Issuer (the "Purchase Agreement"). Under the Purchase
------------------
Agreement, the Issuer is required to, among other things: (a) use best
efforts to cause to be elected to the Boards of Directors of the Issuer and
(if so requested, each subsidiary of the Issuer) two (2) directors designated
by BT Capital Partners, and to take no action that would diminish the
prospects of such directors being elected; (b) at the option of BT Capital
Partners, in lieu of directors appointed by BT Capital Partners, permit up to
two non-voting representatives of BT Capital Partners to attend all meetings
of the Boards of Directors of the Issuer and its subsidiaries; (c) permit
similar rights to certain other holders of Preferred Stock; and (d) provide
standard notice, reimbursement and other benefits to the directors so
designated.
2. In addition, the 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 Preferred Stock.
The foregoing description of the Purchase Agreement is qualified in its
entirety by reference to the Purchase Agreement, a copy of which is attached
hereto as Exhibit 7.2, and is specifically incorporated in this Item 4 by
reference.
Other than the addition of the foregoing, no change is made to the
response to Item 4 in the Original 13D.
Page 6
<PAGE>
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As a result of acquiring the Preferred Stock, BT Capital
Partners may be deemed to have acquired, on the date of acquisition of the
Preferred Stock, beneficial ownership of the shares of Common Stock into which
the Preferred Stock may be converted. Under the terms of the Preferred Stock,
the Preferred Stock may be converted only after the issuance of Common Stock
underlying such conversion is approved by the holders of the then outstanding
Common Stock. The number of shares of Common Stock into which the Preferred
Stock is convertible is obtained by multiplying the number of shares of
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 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 seven dollars and twenty-five cents
----------------
($7.25), subject to adjustment from time to time in order to prevent dilution.
Until conversion, the dividend rate on the Preferred Stock is 7 7/8 % (seven and
seven-eighths percent) per annum; dividends are not payable in cash but in
additional shares of Preferred Stock.
As of the date hereof, (i) BT Capital Partners beneficially owns
3,974,937 shares of Common Stock (of which 407,903 shares are the subject of
warrants), which constituted, prior to the issuance of the Preferred Stock and
the underlying shares into which the Preferred Stock is convertible, 10.8% of
the issued and outstanding shares of Common Stock of the Issuer**, and (ii) if
BT Capital Partners converted all of the shares of Preferred Stock held by it
(assuming the requisite shareholder consent has been obtained and BT Capital
Partners has met all other requirements for conversion), it would beneficially
own 4,827,586 additional shares of Common Stock as a result of such conversion,
which would constitute 11.4% of the issued and outstanding shares of Common
Stock of the Issuer. After such conversion, therefore, BT Capital Partners would
hold 8,802,523 shares (including the shares which are the subject of warrants),
which would constitute 20.8% of the issued and outstanding shares of Common
Stock of the Issuer.
As a parent of each of the Purchasers, Bankers Trust New York
Corporation may be deemed to be the indirect beneficial owner of the shares of
Common Stock owned by the Purchasers.
To the best knowledge and belief of the Purchasers and BTNY, none
of the persons listed on Annex A to the Original 13D beneficially owns any
shares of Common Stock.
__________
** After giving effect to the exercise of 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.
Page 7
<PAGE>
(b) Each Purchaser 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 Preferred Stock.
BT Capital Partners entered into a Voting Agreement dated as of
July 15, 1996 with the Issuer and certain other holders of Common Stock (the
"Voting Agreement"). Under the Voting Agreement, each holder of Common Stock
----------------
agrees to vote for (a) the approval of the conversion rights of the Preferred
Stock, as set forth in the Issuer's Certificate of Designations governing the
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 may 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 disclaims beneficial ownership of the shares of Common Stock or
Preferred Stock owned by the other parties to the Voting Agreement. 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
7.4, and such agreement is specifically incorporated in this Item 5 by
reference.
BT Capital Partners is also a party to an Inducement Agreement with
Joseph J. Bianco, the chairman and chief executive officer of the Issuer (the
"Management Stockholder"), and the other purchasers of Preferred Stock, pursuant
----------------------
to which the Management Stockholder agrees to vote for and use best efforts to
cause (a) the approval of the conversion rights of the Preferred Stock and (b)
the approval of the Issuer's issuance of Common Stock pursuant to any exercise
of such conversion rights. Because of the agreement with the Management
Stockholder and the other purchasers, BT Capital Partners may be considered to
be a member of a group together with the other parties to the Inducement
Agreement, including the Management Stockholder, for purposes of Rule 16a-
1(a)(1). 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 parties to the Inducement Agreement. The foregoing
description of the Inducement Agreement is qualified in its entirety by
reference to the Inducement Agreement, a copy of which is attached hereto as
Exhibit 7.4, and such agreement is specifically incorporated in this Item 5 by
reference.
(c) Other than the acquisition of shares of Preferred Stock,
which are convertible into shares of Common Stock, none of the persons referred
to in paragraph (a) have engaged in any transactions in shares of Common Stock
since June 18, 1996, the date of Amendment No.1 to Schedule 13D.
(d) No change.
(e) Not applicable.
Page 8
<PAGE>
Other than the addition of the foregoing, no change is made to the
response to Item 5 in the Original 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 Original 13D, certain persons named in
Item 2 are parties to the following agreements:
1. Purchase Agreement and Registration Rights. BT Capital
------------------------------------------
Partners acquired its shares of Preferred Stock under the Purchase Agreement. In
addition to the provisions governing the acquisition of Preferred Stock, the
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
Purchase Agreement also contains standard representations and warranties and
covenants by the Issuer.
The Purchase Agreement contains standard investment representations
by the purchasers of the Preferred Stock. In addition, the holders of the
Preferred Stock agree (i) not to transfer such shares or shares of Common Stock
to a competitor of the Issuer without the prior consent of the Issuer's Board of
Directors, or (ii) except for sales on the New York Stock Exchange or otherwise
made in the open market, or pursuant to a public offering, not to sell or
transfer shares of Preferred Stock to any transferee unless such transferee has
been approved by the Issuer, such approval not to be unreasonably withheld or
delayed.
Under the 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 registration rights which are
set forth in the Registration Rights, the terms of which are attached as Exhibit
B to the Purchase Agreement which is attached hereto as Exhibit 7.2.
Because BT Capital Partners has entered into the Purchase Agreement
together with certain other purchasers of Preferred Stock, it might be
considered to be a member of a group together with the other parties to the
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 Purchase Agreement.
The foregoing description of the Purchase Agreement is qualified in
its entirety by reference to the Purchase Agreement, including the Registration
Rights set forth in Exhibit B thereto, a copy of which is included herein as
Exhibit 7.2, and such agreement is specifically incorporated in this Item 6 by
reference.
Page 9
<PAGE>
2. Certificate of Designations. The terms of the 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 7.3, and such Certificate is specifically
incorporated in this Item 6 by reference.
3. Inducement Agreement. In order to induce the purchase of
--------------------
Preferred Stock by BT Capital Partners and other purchasers, the Management
Stockholder entered into the Inducement Agreement, certain terms of which are
described in Item 5(b). In addition to such terms, the Management Stockholder
has agreed to maintain certain levels of investment in the Issuer and has agreed
to provide co-sale rights with respect to shares owned by him to the other
parties to the Inducement Agreement. The foregoing description of the Purchase
Agreement is qualified in its entirety by reference to the Inducement Agreement,
a copy of which is included herein as Exhibit 7.4, and the Inducement Agreement
is specifically incorporated in this Item 6 by reference.
4. 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.
Other than the addition of the foregoing, no change is made to the
response to Item 6 in the Original 13D.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
7.1. Joint filing statement pursuant to Rule 13d-1(f)(1).
7.2. Preferred Stock Purchase Agreement dated as of July 16, 1996,
together with terms of Registration Rights attached as Exhibit
B.
7.3. Certificate of Designations covering the Preferred Stock.
7.4. Inducement Agreement dated as of July 16, 1996.
7.5. Voting Agreement dated as of July 16, 1996.
Page 10
<PAGE>
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: July 18, 1996
Signature: BANKERS TRUST NEW YORK CORPORATION
By: /s/ James T. Byrne
---------------------------------
Name: James T. Byrne
Title: Senior Vice President
Page 11
<PAGE>
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.
<TABLE>
<CAPTION>
Occupation or Principal
Name and Mail Address Business Affiliation Citizenship
--------------------- -------------------- -----------
<S> <C> <C>
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 Study Institute for Advanced 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, Hauer & Feld, Akin, Gump, Strauss, Hauer & Feld, LLP
LLP
1333 New Hampshire Avenue, N.W.
Suite 400
Washington D.C. 20036
</TABLE>
Page 12
<PAGE>
<TABLE>
<S> <C> <C>
Hamish Maxwell Retired Chairman and Chief Executive U.S.
Philip Morris Companies, Inc. Officer
100 Park Avenue Philip Morris Companies Inc.
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
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
Donald L. Staheli Chairman and Chief Executive Officer U.S.
Continental Grain Company United States Continental Grain Company
277 Park Avenue, 50th Floor
New York, NY 10172
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
</TABLE>
Page 13
<PAGE>
<TABLE>
<S> <C> <C>
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 Counsel U.S.
Bankers Trust Company Bankers Trust Company;
130 Liberty Street Executive Vice President and General
New York, NY 10006 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 De Balmann Chairman U.S., France
Bankers Trust Company Bankers Trust International PLC;
1 Appold Street Managing Director
Broadgate, 4th Floor Bankers Trust Company;
London, EC2A 2HE Senior Vice President
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 Limited Bankers Trust Australia Limited;
Level 15, The Chifley Tower Managing Director
2 Chifley Square Bankers Trust Company;
Sydney, N.S.W. 2000 Senior Vice President
Australia Bankers Trust New York Corporation
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
</TABLE>
Page 14
<PAGE>
<TABLE>
<S> <C> <C>
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 Limited Bankers Trust Australia Limited;
Level 15, The Chifley Tower Senior Vice President
2 Chifley Square Bankers Trust New York Corporation
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
</TABLE>
Page 15
<PAGE>
JOINT FILING STATEMENT
Pursuant to Rule 13d-1(f)(1), each of the undersigned hereby consents to the
joint filing of Amendment No. 2 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: July 18, 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/ Brian Talbot
-------------------------------------
Name: Brian Talbot
Title: Secretary/Treasurer
Page 16
<PAGE>
EXHIBIT 7.2
ALLIANCE ENTERTAINMENT CORP.
PREFERRED STOCK PURCHASE AGREEMENT
422,500 Shares of Series A Convertible Preferred Stock
$0.01 Par Value Per Share
July 16, 1996
To the Purchasers (the "Purchasers")
----------
named in Section 1.1 below
Dear Sirs:
The undersigned, ALLIANCE ENTERTAINMENT CORP., a Delaware corporation
(the "Company"), proposes to issue and sell to the Purchasers for cash 422,500
-------
shares (the "Shares") of its Series A Convertible Preferred Stock, par value
------
$0.01 per share ("Preferred Stock").
---------------
The Shares will be issued pursuant to and subject to the terms and
conditions of this Agreement (the terms "this Agreement" or "Purchase Agreement"
-------------- ------------------
as used herein or in any Exhibit or Schedule hereto shall mean this Agreement
and the Exhibits and Schedules hereto individually and collectively as they may
from time to time be modified or amended).
As used in this Agreement, the following terms shall have the
following meanings:
"BCI" shall mean BCI Growth IV, L.P.
---
"BTC" shall mean BT Capital Partners, Inc.
---
"Business Day" shall mean a day other than a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by
law to close.
<PAGE>
"Certificate of Designations" shall have the meaning provided in
---------------------------
Section 1.1(b).
"Closing Date" shall mean the date of the closing of the purchase and
------------
sale of Shares pursuant to the terms and conditions of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Common Stock" shall mean the Company's Common Stock, par value
------------
$0.0001 per share.
"Conversion Shares" shall mean shares of Common Stock issued or
-----------------
issuable upon conversion of Preferred Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"fully-diluted" shall mean taking into account all outstanding
-------------
warrants and options to acquire Common Stock as though exercised, and all
outstanding securities convertible into Common Stock (including without
limitation the Preferred Stock) as though converted on the date of
determination.
"Governmental Authority" shall mean any nation or government, any
----------------------
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"HSR Act" shall mean the Hart-Scott Rodino Antitrust Improvements Act
-------
of 1976 or any successor law, together with the regulations and rules issued
thereunder.
"Inducement Agreement" shall mean the Inducement Agreement
--------------------
substantially in the form of Exhibit C attached hereto, to be delivered
pursuant to Section 3(e). ---------
-2-
<PAGE>
"NYSE" shall mean the New York Stock Exchange.
----
"Public Offering" shall mean any time a registration statement filed
---------------
under the Securities Act respecting a primary offering of Common Stock (or
securities convertible into, or exchangeable for, Common Stock or rights to
acquire Common Stock or such securities), which is underwritten on a firmly
committed basis, is declared effective and the securities so registered are
issued and sold.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Stockholders Agreement" shall mean the Restated Stockholders
----------------------
Agreement dated as of November 30, 1993, as amended, among the Company, BTC
and the other stockholders of the Company parties thereto.
"Subsidiary" shall mean each corporation or other entity, if any, of
----------
which the Company or another Subsidiary shall own at least fifty percent
(50%) of (x) the stock of any class having power under ordinary
circumstances to vote for the election of directors or (y) the capital or
equity, however named.
In connection with the issuance of the Shares, the Company agrees with
each of the Purchasers and the Purchasers severally agree with the Company as
follows:
Section 1. Purchase and Sale of Shares.
---------------------------
1.1 Preferred Stock. (a) Subject to the terms and conditions of this
---------------
Agreement, the Company agrees to issue and sell to each Purchaser, and each
Purchaser severally agrees to purchase from the Company, on the Closing Date, at
a price of $100.00 per Share, the number of Shares of Preferred Stock set forth
opposite such Purchaser's name below:
-3-
<PAGE>
Name and Address
of Purchaser Number of Shares
- ---------------- ----------------
BT Capital Partners, Inc. 350,000
130 Liberty Street, 25th Floor
New York, New York 10006
BCI Growth IV, L.P. 72,500
Glenpointe Centre West
Teaneck, New Jersey 07666-6883
(b) The Preferred Stock shall be issued pursuant to a Certificate of
Designations substantially in the form of Exhibit A hereto (the "Certificate of
--------- --------------
Designations"), which shall be in effect on the Closing Date.
- ------------
1.2 Payment of Purchase Price for Shares. The purchase price for the
------------------------------------
Shares shall be payable on the Closing Date, in cash by wire transfer of
immediately available funds pursuant to the Company's written instructions.
1.3 Financing Fee. The Company agrees to pay to BTC on the Closing
-------------
Date a financing fee in the amount of $1,250,000.
1.4 Registration Rights. (a) The Company agrees to use best efforts
-------------------
to maintain with respect to the Conversion Shares and all other shares of Common
Stock held by the Purchasers on the Closing Date an effective registration
statement under the Securities Act and a current prospectus relating thereto,
and effective registration statements or qualifications under the securities
laws of each holder's state of residence, for a period of five (5) years after
the date hereof. To the extent such registration statements or qualifications
are not maintained in effect, the Purchasers and the Company shall have the
rights and obligations set forth in Exhibit B attached hereto with respect to
---------
registrations of the Company's securities under the Securities Act.
-4-
<PAGE>
(b) The rights of a Purchaser under Sections 2 and 3 of Exhibit B
---------
shall cease to be exercisable after the later of (a) the fifth anniversary of
the date of this Agreement, and (b) any date as of which the Purchasers have
disposed of shares of Common Stock constituting 80% of the Common Stock held by
them (including Conversion Shares issuable upon conversion of the Shares held by
them) on the date hereof (determined on a fully-diluted basis), in either case
provided that the Company shall continue to comply with the public information
requirements for the availability of Rule 144 with respect to subsequent sales
by the Purchaser.
Section 2. Representations of the Company.
------------------------------
In order to induce the Purchasers to purchase the Shares, the Company
hereby represents and warrants to, and agrees with, the Purchasers and their
respective successors, endorsees and assigns that:
2.1 Certificate of Designations. The Company has filed the
---------------------------
Certificate of Designations with the Secretary of State of the State of
Delaware. The Certificate of Designations and the resolutions of the Company's
Board of Directors contained therein are in full force and effect.
2.2 Organizational Documents. The Company has delivered to the
------------------------
Purchasers an accurate and complete copy of (a) its Certificate of Incorporation
and all amendments thereto, certified by the Secretary of State or other
comparable authority of the jurisdiction of its incorporation, and (b) its By-
laws and all amendments thereto, certified by its Secretary or Assistant
Secretary.
2.3 Existence and Qualification. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction where failure to so qualify or be in
good standing as a foreign corporation could reasonably be expected to have a
material adverse effect on its business, operations, prospects,
-5-
<PAGE>
properties or condition (financial or otherwise), or its ability to perform its
obligations hereunder.
2.4 Power and Authority. The Company has all corporate power and
-------------------
authority necessary to own, operate or lease its properties and assets and to
conduct its business as now conducted by it. The Company has all corporate
power and authority necessary to issue the Shares, and to execute, deliver, and
perform its obligations under this Agreement (including without limitation
Exhibit B hereto) and the Shares (collectively, the "Transaction Documents").
- --------- ---------------------
2.5 Corporate Action. The Company has taken all corporate action
----------------
required to authorize the issuance of the Shares and the execution, delivery and
performance of the Transaction Documents.
2.6 Due Execution and Delivery. The Company has duly executed and
--------------------------
delivered each of the Transaction Documents. The certificates representing the
Shares have been duly and properly authorized, executed and delivered.
2.7 Consents; Governmental Approvals. No consent or approval of any
--------------------------------
person, firm or corporation, and no consent, license, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority is
required to be obtained or made by or on behalf of the Company in connection
with the offer, issuance and sale of the Shares, the execution, delivery or
performance of any of the Transaction Documents or the completion of the
transactions contemplated thereby, except for (a) the approval of the Board of
Directors of the Company, (b) the filing of the Certificate of Designations in
the State of Delaware, (c) filings with the SEC, the NYSE and under state
securities laws that may be required, (d) filings under the HSR Act contemplated
by Section 4.6, and (e) approval of the stockholders of the Company contemplated
by Section 4.7; in the cases of (a) and (b) above, each of which shall have been
obtained or made prior to or simultaneously with the closing of the sale of
Shares on the Closing Date.
2.8 Binding Effect. Each of the Transaction Documents is a legal,
--------------
valid and binding obligation of the
-6-
<PAGE>
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or limitations on the availability of equitable
remedies. The terms of the Certificate of Designations applicable to the
Preferred Stock are legal, valid and binding obligations of the Company,
enforceable against it in accordance with their terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally or
limitations on the availability of equitable remedies.
2.9 Absence of Conflicts. The issuance of the Shares and the
--------------------
execution, delivery and performance of the Transaction Documents by the Company
do not and will not (a) conflict with or violate any provision of the Restated
Certificate of Incorporation or By-laws of the Company, (b) conflict with or
result in a violation, breach or default by the Company under (i) any provision
of any existing statute, law, rule or regulation binding on it or any order,
judgment, award, decree, license or authorization of any court or governmental
instrumentality, authority, bureau or agency binding on it, or (ii) any material
provision of any mortgage, indenture, lease or other contract, agreement,
instrument or undertaking to which it is a party or will be a party immediately
after the Closing, or by which or to which it or any of its property or assets
is now or immediately after the Closing will be bound or subject, or (c) result
in the creation or imposition of any lien, encumbrance or other charge on any of
its properties or assets.
2.10 No Defaults. None of the Company or its Subsidiaries is, or
-----------
immediately after the Closing will be, in default under or in violation of (a)
its Certificate of Incorporation or By-laws, (b) any agreement or instrument to
which it is a party relating to its indebtedness for borrowed money, (c) any
other agreement or instrument to which it is a party, (d) any statute, rule,
writ, injunction, judgment, decree, order or regulation of any
-7-
<PAGE>
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. The entire authorized, issued
-------------------------------
and outstanding capital stock of the Company was as set forth in the SEC
Documents, on and as of the dates indicated therein. Immediately after the
Closing, all outstanding shares will be duly and validly issued and outstanding
and fully-paid and non-assessable. Immediately after the Closing, except as
described in the SEC Documents and other public announcements by the Company,
and except for the Shares, there will be no options, warrants or other rights
outstanding or proposed involving the issuance of any additional shares of
capital stock of the Company, and except for this Agreement and the Stockholders
Agreement there will be no agreements or other instruments providing
registration rights to stockholders or holders of other securities of the
Company.
2.12 SEC Documents. (a) The Common Stock of the Company is
-------------
registered pursuant to Section 12(g) of the Exchange Act and the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC. The Company has delivered or made
available to the Purchasers true and complete copies of (i) its annual reports
on Form 10-K and quarterly reports on Form 10-Q for its 1994 and 1995 fiscal
years, (ii) proxy statements, information and solicitation materials filed by
the Company with the SEC since January 1, 1994, and (iii) each other report,
registration statement, proxy statement and other document filed with the SEC
since
-8-
<PAGE>
the filing of its most recent Form 10-K (all of the foregoing,
collectively, the "SEC Documents"). The Company has not provided to the
-------------
Purchasers any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, other than with respect to the transactions contemplated by
this Agreement.
(b) As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such SEC Documents, and none of the
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
2.13 Financial Statements. The financial statements of the Company
--------------------
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
2.14 No Material Adverse Change. Since March 31, 1996, the date
--------------------------
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the
-9-
<PAGE>
businesses, properties, prospects, operations or financial condition of the
Company and its Subsidiaries, except as otherwise disclosed or reflected in
other SEC Documents, or otherwise disclosed in writing to the Purchasers on or
before the Closing Date.
2.15 No Undisclosed Events or Circumstances. No event or
--------------------------------------
circumstance has occurred or exists with respect to the Company or its
Subsidiaries, or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company and which has not been
so publicly disclosed or announced, or otherwise disclosed in writing to the
Purchasers on or before the Closing Date.
2.16 No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, or, to its knowledge, any person acting on its or their behalf has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
2.17 No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Securities Act.
2.18 Brokers. The Company represents and warrants that it has
-------
employed no brokers, agents or finders in carrying on the negotiations relating
to this Agreement or to the transactions herein contemplated.
2.19 Untrue or Misleading Statements. Neither this Agreement nor any
-------------------------------
other Transaction Document or other agreement, certificate, instrument or
written statement furnished by or on behalf of the Company or, to the best of
the Company's knowledge, by any other person, firm or corporation, to the
Purchasers in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits a material fact
-10-
<PAGE>
necessary to make the statements contained therein not misleading in light of
the circumstances in which such statements were made.
Section 3. Conditions Precedent.
--------------------
The obligation of each Purchaser to purchase Shares hereunder on the
Closing Date shall be subject to the satisfaction of each of the following
conditions precedent on the Closing Date:
(a) Representations. All representations and warranties made in this
---------------
Agreement and in any other agreement, certificate or instrument furnished to the
Purchasers in connection herewith shall be true and correct in all material
respects with the same force and effect as though such representations and
warranties had been made at the time of, and immediately after giving effect to,
the sale of Shares.
(b) Officer's Certificate. The Company shall deliver to the
---------------------
Purchasers a certificate of its President or Executive Vice President dated the
Closing Date, in form and substance reasonably satisfactory to the Purchasers
and their counsel, certifying the satisfaction of the conditions in Sections
3(a).
(c) No Material Adverse Change. The Purchasers shall be satisfied
--------------------------
that no event, circumstance or condition shall have occurred and be continuing
that could reasonably be expected to have a material adverse effect on the
Company's business, operations, prospects, properties or condition (financial or
otherwise), or its ability to perform its obligations hereunder.
(d) Suspension of Trading. Trading in the Company's Common Stock
---------------------
shall not have been suspended by the SEC or any exchange on which it is listed
for trading (except for any suspension of trading of limited duration agreed to
by the Company solely to permit dissemination of material information regarding
the Company), and trading in
-11-
<PAGE>
securities generally as reported by such exchange(s) shall not have been
suspended or limited.
(e) Inducement Agreement. Joseph J. Bianco shall have executed and
--------------------
delivered to the Purchaser the Inducement Agreement, substantially in the form
of Exhibit C attached hereto.
---------
(f) Senior Debt Amendments. The Third Amended and Restated Credit
----------------------
Agreement and Guaranty dated as of July 25, 1995 among the Company, The Chase
Manhattan Bank, N.A., as agent, and the banks parties thereto shall have been
amended, in form and substance satisfactory to the Purchasers, among other
things, (i) to provide in effect that proceeds of the sale of Shares will not be
used to reduce term loans outstanding thereunder, and (ii) to revise the
financial covenants therein so that certain restructuring charges taken or to be
taken by the Company will not breach such covenants.
(g) Voting Agreement. The parties thereto shall have executed and
delivered to the Purchasers a Voting Agreement substantially in the forms of
Exhibit D attached hereto.
- ---------
(h) Legal Opinions. The Company shall have delivered to the
--------------
Purchasers the executed legal opinions of Messrs. Cahill Gordon & Reindel and
Elliot Newman, Esq., counsel to the Company, dated the Closing Date, in form and
substance reasonably satisfactory to the Purchasers and their counsel.
(i) Fairness Opinion. The Company shall have received, and shall
----------------
have delivered to the Purchasers a copy of, the opinion of Tucker Anthony
Incorporated as to the fairness of the transactions contemplated hereby, in form
and substance reasonably satisfactory to the Purchasers.
(j) Fees. The Purchasers (or their agents) shall have received the
----
fees and other amounts payable on the Closing Date referred to in Sections 1.3
and 10.5.
-12-
<PAGE>
(k) Additional Documents. Each Purchaser shall have received all such
--------------------
agreements, documents, instruments, approvals, certificates, legal opinions and
information as such Purchaser shall reasonably request in connection with this
Agreement, the Shares and the transactions herein and therein contemplated, all
of which shall be in form and substance reasonably satisfactory to the
Purchasers and their counsel.
(l) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to the Purchasers.
Section 4. Covenants.
---------
The Company covenants and agrees that:
4.1 Registration and Listing. The Company will cause its Common
------------------------
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement and will not take any action or file
any document (whether or not permitted by the Securities Act or the Exchange Act
or the rules thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under such Acts. The
Company will take all action within its power to continue the listing or trading
of its Common Stock on the NYSE and will comply in all respect with the
Company's reporting, filing and other obligations under the bylaws or rules of
such exchange.
4.2 Financial Statements and Information. The Company will furnish
------------------------------------
or cause to be furnished to each of the Purchasers the following financial
statements and information:
4.2.1 All reports and other written communications delivered by the
Company to its
-13-
<PAGE>
stockholders as such, and all registration statements (when available to the
public) and periodic reports filed by the Company or any officer or director
thereof with the SEC or any securities exchange, pursuant to the Securities
Act, the Exchange Act, or the rules of such securities exchange.
4.2.2 With reasonable promptness, (a) all financial statements or
reports (including comment letters to management) furnished to the Company
by its independent certified public accountants, and (b) all press releases
other than press releases dealing with the sale of its products in the usual
and ordinary course of its business.
4.2.3 Such information as any Purchaser shall reasonably require in
order to furnish reports to the Small Business Administration or any other
governmental authority.
4.3 Use of Proceeds. The Company will use the proceeds received from
---------------
the sales of Shares (a) to fund the purchase of catalog and other proprietary
rights, (b) for general corporate purposes, and (c) to fund the legal and other
reasonable expenses of the transactions contemplated by this Agreement and all
other agreements delivered in connection herewith and therewith.
4.4 Representatives of Purchasers. The Company will (a) use best
-----------------------------
efforts to cause to be elected to the Boards of Directors of the Company and (if
so requested) each Subsidiary two (2) directors designated by BTC, and shall
take no action that would diminish the prospects of such directors being
elected; (b) at the option of BTC, in lieu of directors appointed by BTC, permit
up to two non-voting representatives of BTC to attend all meetings of the Boards
of Directors of the Company and its Subsidiaries; (c) permit one non-voting
representative of BCI to attend all meetings of the Boards of Directors of the
Company and its Subsidiaries; (d) provide to such directors or representatives
all notices, documents and information furnished to the directors or
stockholders of the Company and its Subsidiaries, at the same time as furnished
to such
-14-
<PAGE>
directors or stockholders; (e) use best efforts to notify such directors
or representatives of and permit such directors or representatives to
participate by telephone in emergency meetings of the Boards and the
stockholders, and to provide such directors or representatives copies of the
minutes of all such meetings promptly after they are held; and (f) in connection
with attendance at meetings of the Boards of Directors, committees thereof and
of the stockholders of the Company and its Subsidiaries by each of the directors
designated by BTC and the representative designated by BCI, (i) provide to BTC
expense reimbursements, compensation and other benefits on terms at least as
favorable as those paid or provided to each other outside director, and (ii) pay
the reasonable expenses of the representative designated by BCI.
4.5 Compliance with Applicable Law. The Company will comply, and
------------------------------
cause each Subsidiary to comply, with each statute, law, rule, regulation, order
or other governmental requirement, noncompliance with which (in any one (1)
instance or in the aggregate) is likely to materially adversely affect (a) the
business, operations, property or financial condition of the Company or such
Subsidiary, or (b) the Company's ability to perform its obligations to the
Purchasers.
4.6 Pre-Merger Notification Act Compliance. If in connection with
--------------------------------------
any proposed conversion of Preferred Stock the Company or a Purchaser determines
that a filing is required under the HSR Act, as promptly as practicable after
notification of the proposed conversion is received the Company will make all
such filings required by the HSR Act to be made in order to complete the
proposed conversion. The Purchasers will cooperate with the Company to the
extent reasonably necessary to complete such filings. The Company will pay all
filing fees required in connection with such filings. The issuance of
Conversion Shares resulting from such conversion may be delayed until two (2)
days after the expiration of the applicable waiting period following such
filing(s).
4.7 Stockholder Approval. The Company shall exert best efforts as
--------------------
promptly as practicable after the date
-15-
<PAGE>
hereof to obtain the stockholders' approval and authorization of the issuance of
Common Stock upon conversion of the Preferred Stock, all in accordance with the
terms of the Certificate of Designations, and all to the extent necessary to
satisfy the requirements of Rule 312.03 of the New York Stock Exchange Listed
Company Manual, as applied to the issuance of Common Stock upon conversion of
the Preferred Stock.
4.8 Further Assurances. The Company will execute and deliver or
------------------
cause to be executed and delivered such further instruments and do or cause to
be done such further acts as may be reasonably necessary to carry out its
obligations under this Agreement.
Section 5. Consents.
--------
Any provision in this Agreement to the contrary notwithstanding, with
the written consents of Purchasers holding a majority of the outstanding
Preferred Stock, or after the Preferred Stock has been redeemed or converted in
full a majority of the Conversion Shares then held by all Purchasers, the
Company may be relieved from the effect of any default hereunder or from
compliance with any covenant, agreement or undertaking contained herein or in
any instrument executed and delivered as herein provided, except the provisions
------
of the Company's Restated Certificate of Incorporation and the Certificate of
Designations relating to the Shares.
-16-
<PAGE>
Section 6. Investment Representation.
-------------------------
6.1 Securities Act. Each Purchaser acknowledges that (a) the Shares
--------------
being acquired by such Purchaser are not being registered under the Securities
Act on the ground that the issuance thereof is exempt from registration under
Section 4(2) of the Securities Act as not involving any public offering, and (b)
the Company's reliance on such exemption is predicated in part on the
representation hereby made to the Company by such Purchaser that it is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act, and is acquiring its Shares for investment for its own account,
with no present intention of dividing its participation with others or reselling
or otherwise distributing the same, subject, nevertheless, to any requirement of
law that the disposition of its property shall at all times be within its
control. None of the Purchasers is aware of any particular occasion, event or
circumstance upon the occurrence or happening of which it intends to dispose of
its Shares.
6.2 Resales. None of the Purchasers will sell or transfer all or any
-------
part of its Shares unless and until it shall first have given notice to the
Company describing such sale or transfer and furnished to the Company either (i)
an opinion, reasonably satisfactory to counsel for the Company, of Eaton & Van
Winkle, or other counsel skilled in securities matters (selected by such
Purchaser and reasonably satisfactory to the Company) to the effect that the
proposed sale or transfer may be made without registration under the Securities
Act, or (ii) an interpretive letter from the staff of the SEC to the effect that
no enforcement action will be recommended if the proposed sale or transfer is
made without registration under the Securities Act, in either case accompanied
by evidence that such transfer will be in compliance with applicable state
securities ("blue sky") laws; provided, however, that the foregoing shall not
-------- -------
apply with respect to (1) any transfer pursuant to an effective registration
statement under the Securities Act, or pursuant to Rule 144 thereunder, or (2)
any transfers between a Purchaser and any institutional affiliate of such
Purchaser for its own account.
-17-
<PAGE>
6.3 Legends. The Company may place appropriate legends on the
-------
certificates for the Shares and Conversion Shares concerning the restrictions
set forth in this Section 6 and may refuse to transfer any of the Shares or
Conversion Shares on its books should the holder thereof attempt to transfer any
of them otherwise than in compliance herewith and therewith. The Company agrees
to reissue certificates representing the Shares or, if applicable, the
Conversion Shares without the legend provided for above at such time as (i) the
holder thereof is permitted to dispose of such Shares or Conversion Shares
pursuant to Rule 144(k) under the Securities Act, (ii) the Shares or Conversion
Shares are sold to a purchaser or purchasers who (in the opinion of counsel to
such purchasers, in form and substance reasonably satisfactory to the Company
and its counsel) are able to dispose of such Shares or Conversion Shares
publicly without registration under the Securities Act, or (iii) such securities
are registered under the Securities Act.
Section 7. Transfers.
---------
Subject only to compliance with the requirements of Section 6.2, each
Purchaser shall be entitled to assign and transfer all or any part of its Shares
or Conversion Shares, or any interest or participation therein, and its related
rights under this Agreement; and upon the assignment or transfer by such
Purchaser of all or any part of its Shares or Conversion Shares or its interest
therein (except in a Public Offering, or a sale pursuant to Rule 144
thereunder), the term "Purchaser" as used herein shall thereafter include, to
the extent of the interest so assigned or transferred, the assignee or
transferee of such interest. Notwithstanding the foregoing, (a) Shares shall
not be transferred to a competitor of the Company without the prior consent of
the Company's Board of Directors, and (b) except for sales on the NYSE or
otherwise made in the open market, or pursuant to a Public Offering, the
Purchasers shall not sell or transfer Shares to any transferee unless such
transferee has been approved by the Company, such approval not to be
unreasonably withheld or delayed.
-18-
<PAGE>
Section 8. Effectiveness of Agreement.
--------------------------
The covenants contained in this Agreement shall continue in full force
and effect with respect to the Purchasers until all Shares of Preferred Stock
have been redeemed (and the redemption price therefor paid in full) or have been
converted, and all Conversion Shares have been sold by the Purchasers in a
Public Offering or pursuant to Rule 144, except that (i) the covenants contained
in Section 1.4 shall terminate as provided in Section 1.4(b), and (ii) the
covenants contained in Sections 4.2.2 and 4.4 shall terminate at such time as
the total number of shares of Common Stock held by the Purchasers, on a fully-
diluted basis, do not exceed 2,900,000.
Section 9. Judicial Proceedings.
--------------------
9.1 The Company irrevocably submits to the non-exclusive jurisdiction
of any New York State or Federal court sitting in the City of New York over any
suit, action or proceeding arising out of or relating to this Agreement or any
of the Shares or Conversion Shares. To the fullest extent it may effectively do
so under applicable law, the Company irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the 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.
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<PAGE>
9.2 The Company agrees, to the fullest extent it may effectively do
so under applicable law, that a judgment in any suit, action or proceeding of
the nature referred to in Section 9.1 brought in any such court shall, subject
to such rights of appeal on issues other than jurisdiction as may be available,
be conclusive and binding upon the Company and may be enforced in the courts of
the United States of America or the State of New York (or any other courts to
the jurisdiction of which the Company is or may be subject) by a suit upon such
judgment.
9.3 The Company consents to service of process in any suit, action or
proceeding of the nature referred to in Section 9.1 by mailing a copy thereof by
registered or certified mail, postage prepaid, return receipt requested, to its
address specified in or designated pursuant to Section 10.1 Such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company.
9.4 Nothing in this Section 9 shall affect the right of any of the
Purchasers to serve process in any manner permitted by law, or limit any right
that any of the Purchasers may have to bring proceedings against the Company in
the courts of any jurisdiction or to enforce in any lawful manner a judgment
obtained in one (1) jurisdiction in any other jurisdiction.
9.5 THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE NOW OR
HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE SHARES OR THE CONVERSION SHARES.
9.6 Upon breach or default by the Company with respect to any
obligation hereunder, under the Shares or the Conversion Shares, the Purchasers
(or their agents) shall be entitled to protect and enforce their rights at law,
or in equity or by other appropriate proceedings for specific performance of
such obligation, or for an injunction against
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<PAGE>
such breach or default, or in aid of the exercise of any power or remedy granted
hereby or thereby or by law.
Section 10. Miscellaneous.
-------------
10.1 Notices. All notices, requests, demands or other communications
-------
to or upon the respective parties hereto shall be in writing and shall be deemed
to have been given or made, and all financial statements, information and the
like required to be delivered hereunder shall be deemed to have been delivered,
five (5) days after deposited in the mails, registered or certified with postage
prepaid, addressed to the Company at 110 East 59th Street, New York, New York
10022 Attention: President, with a copy to the counsel for the Company, Elliot
Newman, Esq., 1401 University Drive, Suite 305, Coral Springs, Florida 33071,
and to the Purchasers at their respective addresses set forth in Section 1 of
this Agreement, or to such other address as any of them shall specify in writing
to the others. The Company shall maintain registers of the holders of the
Shares and the Conversion Shares which shall contain the last address specified
as provided in the preceding sentence. No other method of giving notice is
hereby precluded. Upon reasonable request of any Purchaser, the Company will
deliver to such Purchaser, at the Company's expense, additional copies of all
financial statements, information and the like required hereunder.
10.2 Cumulative Remedies, Etc. No failure or delay on the part of any
-------------------------
of the Purchasers in exercising any right, power or privilege hereunder, and no
course of dealing between the Company and the Purchasers, or any of them, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude the simultaneous or later exercise
of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Purchasers, or any of them, would otherwise have. No notice to or
demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the
-21-
<PAGE>
Purchasers, or any of them, to take any other or further action in any
circumstances without notice or demand.
10.3 No Oral Changes; Assignment; Survival of Representations. This
--------------------------------------------------------
Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company and the Purchasers and their successors and assigns.
The Company shall not make any assignment of its rights under this Agreement or
subject this Agreement or its rights hereunder to any lien or security interest
of any kind whatsoever; and any such assignment, lien or security interest shall
be absolutely void and unenforceable as against the Purchasers. All agreements,
representations and warranties made herein or in writing otherwise in connection
herewith shall survive the issuance of the Shares.
10.4 Several Obligations. The Purchasers shall not be jointly
-------------------
obligated hereunder; their obligations are several. The sales of Shares to the
Purchasers shall be deemed separate sales to each Purchaser.
10.5 Expenses. The Company agrees to pay and save the Purchasers
--------
harmless against liability for the payment of all out-of-pocket expenses arising
in connection with the negotiation, preparation, execution, delivery and
enforcement of, and any amendment, supplement or modification to, or waiver of
any provision of, this Agreement or the Shares, and the reasonable fees and
disbursements of Messrs. Eaton & Van Winkle, such fees and disbursements in
respect of such preparation, execution and delivery to be paid by the Company on
the Closing Date. Such other expenses shall be paid promptly by the Company as
and when payment thereof is requested by the Purchasers. The obligations
provided for in this Section 10.5 shall survive any termination of this
Agreement.
10.6 Indemnification. The Company agrees to indemnify and hold
---------------
harmless each Purchaser, its subsidiaries, directors, officers and employees, to
the maximum extent permitted by law, from and against any and all liability
(including, without limitation, reasonable legal fees incurred in defending
against any such liability) under, arising out of or relating to this Agreement,
the
-22-
<PAGE>
Shares, the transactions contemplated hereby or thereby or in connection
herewith or therewith, and all action or failures to act and the transactions
contemplated thereby, including (to the maximum extent permitted by law) any
liability arising under Federal or state securities laws, except to the extent
such liability shall result from any act or omission on such Purchaser's part
constituting willful misconduct or gross negligence or the inaccuracy of
representations in Section 6. The obligations of the Company under this Section
10.6 shall survive and continue to be in full force and effect notwithstanding
the Shares not having been purchased, the redemption of the Shares or the
termination of this Agreement.
10.7 Publicity. Each party to this Agreement agrees not to disclose
---------
the name of the other in any press release or other public disclosure, or in any
proxy statements, prospectus or other, similar materials filings with any
governmental entity, unless, in each such case, the other party first has
reviewed and approved such usage, with such review and approval not to be
unreasonably delayed or withheld.
10.8 Governing Law. This Agreement and the other agreements and
-------------
instruments executed as provided herein, and the rights and obligations of the
parties hereunder and thereunder, shall be construed and interpreted in
accordance with and governed by the laws of the State of New York.
10.9 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one (1) and the same instrument.
10.11 Captions; Gender. The descriptive headings of the Sections of
----------------
this Agreement are inserted for convenience only and shall not affect the
meaning, construction or interpretation of any of the provisions hereof. The
use of the neuter form of a pronoun shall be deemed, where appropriate, to
include the masculine and feminine forms of such pronoun.
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<PAGE>
If you are in agreement with the foregoing, please sign in the space
provided below.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Joseph Bianco
---------------------------
Title:
The foregoing is hereby accepted
and agreed to as of the date
first above written.
Purchasers:
- ----------
BT CAPITAL PARTNERS, INC.
By: /s/ Robert Marakovits
-----------------------
Title:
BCI GROWTH IV, L.P.
By: Glenpointe Associates, LLC
By: /s/ Stephen Eley
-----------------------
General Partner
Managing Member
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<PAGE>
EXHIBIT B
---------
to
Preferred Stock Purchase Agreement
among Alliance Entertainment Corp.
and the Purchasers named therein
Registration Rights
-------------------
1. Definitions. As used in this Exhibit B, the following terms shall
-----------
have the following meanings:
"BCI Stockholder" means BCI Growth IV, L.P. and any transferee of
---------------
Shares originally owned by BCI Growth IV, L.P.
"BT Stockholder" means BT Capital Partners, Inc. and any transferee of
--------------
Shares originally owned by BT Capital Partners, Inc.
"Common Stock" means Common Stock, par value $0.0001 per share, of the
------------
Company, including without limitation the Conversion Shares.
"Conversion Shares" means shares of Common Stock issued or issuable
-----------------
upon conversion of Preferred Stock.
"Preferred Stock" means the Company's Series A Preferred Stock, par
---------------
value $0.01 per share.
"Pro Rata" means, with respect to the shares of Common Stock that a
--------
Registering Stockholder has requested be included in an underwritten public
offering, but which are to be excluded from such offering as provided in this
Exhibit B, the same proportion of the aggregate number of shares of Common Stock
to be excluded from such offering as the aggregate number of shares of Common
Stock held by such Registering Stockholder bears to the aggregate number of
shares of Common Stock held by all Registering Stockholders whose shares are to
be excluded.
<PAGE>
"Purchase Agreement" means the Preferred Stock Purchase Agreement
------------------
dated as of July __, 1996, among the Company and the Purchasers named therein,
to which this Exhibit B is attached.
"Registrable Securities" means, collectively, (i) Common Stock of the
----------------------
Company issued to Stockholders, including without limitation the Conversion
Shares, and (ii) Common Stock issued or issuable by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise with respect to
Registrable Securities. Registrable Securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been sold pursuant to Rule 144 (or
any successor provision) under the Securities Act or (iii) such securities shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such securities shall not require the registration or
qualification of such securities under the Securities Act or any similar state
law then in effect.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with this Exhibit B and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all printing expenses, the fees and disbursements of the Company's
independent public accountants, including the expenses of any special audits,
reviews, compilations or other reports or information required by or incident to
such performance and compliance, and any fees or expenses of counsel for the
Company and of one special counsel to represent the holders on whose behalf
Registrable Securities are being registered, but excluding (i) any allocation of
the Company or selling Stockholder personnel or other general overhead expenses
of the Company or of any selling Stockholder or other expenses for the
-2-
<PAGE>
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business, which shall be borne by the
party incurring the expense in all cases, and (ii) any underwriting discounts
and commissions with respect to such Registrable Securities, which shall be
borne by the holder on whose behalf such Registrable Securities are being
registered.
"Stockholder" means a Purchaser or any other holder of Common Stock or
-----------
Preferred Stock.
Unless otherwise defined herein, capitalized terms used in this Exhibit B have
the meanings assigned to them in the Purchase Agreement.
2. Registration on Request. (a) Upon the written request of (i) BT
-----------------------
Stockholders holding more than fifty percent (50%) of the Shares then held by
all BT Stockholders, or (ii) BCI Stockholders holding at least one
million (1,000,000) shares of Common Stock (in either such case, the "Requesting
----------
Stockholders"), requesting that the Company effect the registration under the
- ------------
Securities Act of all or part of the Conversion Shares held by such Requesting
Stockholders and specifying the intended method or methods of disposition of
such Conversion Shares, the Company will promptly give written notice of such
requested registration by registered or certified mail, return receipt
requested, to all Stockholders and thereupon will use its best efforts to
effect, at the earliest possible date, the registration, under the Securities
Act, subject to Section 2(d), of
(i) the Conversion Shares which the Company has been so requested to
register by such Requesting Stockholders, for disposition as stated in such
request, and
(ii) all other Registrable Securities which the Company has been
requested to register by Stockholders holding Registrable Securities (which
Stockholders, together with the Requesting Stockholders, are referred to
herein as "Registering Stockholders") by written request delivered to the
------------------------
Company within thirty (30) days after the giving of such written notice by
the
-3-
<PAGE>
Company (which request shall specify the intended method of disposition of
such Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities to be so
registered, provided that (A) if the Company shall have previously effected a
--------
registration of which notice has been given to all Stockholders holding
Registrable Securities pursuant to Section 3, in which all BT Stockholders
wishing to do so were permitted to sell all Registrable Securities they desired
to sell, the Company shall not be required by any BT Stockholder to effect a
registration pursuant to this Section 2 until a period of 90 days shall have
elapsed from the effective date of the most recent such previous registration,
and (B) the Company shall not be obligated to effect more than two (2) such
registrations requested by BT Stockholders or one (1) such registration
requested by BCI Stockholders. Each registration requested pursuant to this
Section 2 shall be (i) effected by the filing of a registration statement on
Form S-1, Form S-2 or Form S-3 (or any other form which the Company is qualified
to use), and (ii) if the Company is qualified and if agreed to in writing by the
Requesting Stockholders, filed pursuant to Rule 415 under the Securities Act (or
equivalent rule then in effect).
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by the Company pursuant to
this Section 2.
(c) The Company will not register securities for sale for the account
of any Person other than (i) the Company, and (ii) holders of Registrable
Securities. The Company will not grant to any Person the right to request a
registration of securities except pursuant to Section 2(a) and pursuant to the
Stockholders Agreement. The Company may grant incidental rights to participate
in registrations comparable to those granted in Section 3.
(d) If the registration so requested by the Requesting Stockholders
involves an underwritten offering of
-4-
<PAGE>
the securities so being registered, to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and the managing
underwriter of such underwritten offering shall advise the Company in writing
that, in its opinion, the distribution of all or a specified portion of the
Registrable Securities which the Registering Stockholders have requested to
register under Section 2(a)(i) or (ii) will cause the total number of securities
to be distributed to exceed the number which can be sold in an orderly manner
within a price range acceptable to the holders of a majority of the Registrable
Securities initially requesting the registration, then the Company will promptly
furnish each Registering Stockholder a copy of the opinion of the managing
underwriter, will register the shares of Common Stock which the Registering
Stockholders have requested pursuant to Section 2(a)(i) or (ii) in an amount not
to exceed the maximum number of shares that the managing underwriter deems
advisable and, to the extent necessary so that the aggregate number of shares to
be registered does not exceed the maximum amount the managing underwriter deems
advisable, will first reduce the number of shares that each Registering
Stockholder, other than a Purchaser, has requested to register pursuant to
Section 2(a)(ii), Pro Rata, and then, to the extent necessary, reduce the number
of shares that each Purchaser has requested to register pursuant to Section
2(a)(i) or (ii), Pro Rata.
(e) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a holder or holders of Registrable
Securities pursuant to a registration requested under this Section 2, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution provisions to the effect and to
the extent provided in Section 6.
-5-
<PAGE>
(f) If, at any time after requesting registration pursuant to Section
2(a) and prior to the effective date of the registration statement filed in
connection with such registration request, any Requesting Stockholder shall
determine for any reason not to register such Registrable Securities, such
Requesting Stockholder may, at its election, give written notice of such
determination to the Company. The Company shall then be relieved of its
obligations to register any Registrable Securities in connection with such
Requesting Stockholder's registration request (but not its obligation to pay the
Registration Expenses in connection therewith as provided in Section 2(b)),
without prejudice, however, to the rights pursuant to Section 2(a) of any other
Registering Stockholders to request that such registration be effected.
(g) In connection with the first request for registration pursuant to
Section 2(a), the Company may, within fifteen (15) days after its receipt of
such request, give the Requesting Stockholders notice that it is the good faith
intention of the Company to register securities under the Securities Act for
sale for its own account. Thereafter, the provisions of Section 3 shall govern,
and the Requesting Stockholders' registration request under Section 2(a) shall
be deemed rescinded. The Requesting Stockholders shall again be entitled to
request such registration under Section 2(a), but not sooner than the earliest
of (i) ninety (90) days after the effective date of the Company's registration,
(ii) the Company's determination (of which the Company shall promptly notify the
holders of Registrable Securities) not to proceed with its registration of
securities, and (iii) the Company's failure to use best efforts to effect the
registration of its securities.
(h) In connection with any request for registration pursuant to
Section 2(a), the Company may, on one occasion only, upon a good-faith
determination by the Company's Board of Directors that such a registration would
interfere with the completion of a proposed corporate transaction, notify the
Requesting Stockholders that it intends to defer such registration for up to one
hundred twenty (120) days. In such event the Requesting Stockholders may
rescind their registration request, and
-6-
<PAGE>
shall again be entitled to request such registration under Section 2(a), but not
sooner than the end of the period of deferral determined by the Company.
3. Incidental Registrations. (a) If, at any time, the Company
------------------------
proposes to register any of its securities under the Securities Act, whether or
not for sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time give prompt written notice to all holders
of Registrable Securities of its intention to do so, describing such securities
and specifying the form and manner and the other relevant facts involved in such
proposed registration, and upon the written request of any such holder delivered
to the Company within thirty (30) days after the giving of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
--------
(i) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date
of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities,
the Company may, at its election, give written notice of such determination
to each holder of Registrable Securities and thereupon shall be relieved of
its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the Registration
Expenses in connection therewith as provided in Section 3(b)), without
prejudice however to the rights of any Stockholders to request that such
registration be effected as a registration under Section 2(a);
-7-
<PAGE>
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not
for sale for the account of the Company, to be distributed (on a firm
commitment basis) by or through one or more underwriters of recognized
standing under underwriting terms appropriate for such a transaction, and
the managing underwriter of such underwritten offering shall advise the
Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Stockholders have
requested the Company to register in accordance with this Section 3(a)
concurrently with the securities being distributed by such underwriters
will cause the total number of securities to be distributed to exceed the
number which can be sold in an orderly manner within a price range
acceptable to the Company or the holders of the other securities to be
distributed, as the case may be, then the Company will promptly furnish
each such holder of Registrable Securities with a copy of such opinion and
may deny, by written notice to each such holder accompanying such opinion,
the registration of all or a specified portion of such Registrable
Securities (in case of a denial as to a portion of such Registrable
Securities, such portion to be allocated Pro Rata among such holders); and
(iii) the Company shall not be obligated to effect any registration
of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with dividend
reinvestment plans or stock option or other employee benefit plans.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
3.
4. Registration Procedures. (a) If and whenever the Company is
-----------------------
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3, the Company
will as expeditiously as possible:
-8-
<PAGE>
(i) prepare and promptly file with the Commission a registration
statement with respect to such Registrable Securities (in any event, use
its best efforts to file such registration statement within sixty (60) days
after the end of the period within which requests for registration may be
delivered to the Company) and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of such
time as all of such Registrable Securities and other securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement or the
expiration of nine (9) months after such registration statement becomes
effective;
(iii) furnish to each seller of such Registrable Securities,
without charge, such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and
any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under the securities or blue sky laws of such jurisdictions as each seller
(or in an underwritten offering, the managing underwriter)
-9-
<PAGE>
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
-10-
<PAGE>
to be delivered under the Securities Act, of the happening of any event as
a result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or other securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(vii) otherwise comply with all applicable rules and regulations of
the Commission, and make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve (12) months beginning with the first day of the first month of
the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder; and
(viii) use its best efforts to list such securities in the NASDAQ
System and each securities exchange on which the Common Stock of the
Company is then listed, if such securities are not already so listed and if
such listing is then permitted under the rules of such exchange, and, if
necessary, provide a transfer agent and registrar for such Registrable
Securities not later than the effective date of such registration
statement.
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
-11-
<PAGE>
be required by law or by the Commission in connection therewith.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act (other than pursuant to a request made under
Section 2), and such securities are to be distributed by or through one or more
underwriters, the Company will make reasonable efforts, if requested by any
holder of Registrable Securities who requests incidental registration of
Registrable Securities in connection therewith pursuant to Section 3, to arrange
for such underwriters to include such Registrable Securities among those
securities to be distributed by or through such underwriters, provided that, for
--------
purposes of this sentence, reasonable efforts shall not require the Company to
reduce the amount or sale price of such securities proposed to be so
distributed. In all registrations under Section 2 or Section 3 hereof, the
holders of Registrable Securities on whose behalf Registrable Securities are to
be distributed by underwriters shall be parties to any underwriting agreement
and the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters, shall also be made
to and for the benefit of such holders of Registrable Securities.
(c) Whenever a registration requested pursuant to Section 2 is for an
underwritten offering, the holders of a majority of the Registrable Securities
included in such registration shall have the right to select the managing
underwriter to administer the offering subject to the approval of the Company,
such approval not to be unreasonably withheld. If the Company at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the managing underwriter shall be selected by the Company and
approved by the holders of Registrable Securities requesting registration
thereof, such approval not to be unreasonably withheld.
(d) If any registration pursuant to Section 2 or 3 shall be made in
connection with an underwritten public offering, each holder of Registrable
Securities agrees by
-12-
<PAGE>
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.
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
-13-
<PAGE>
Act or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions or proceedings or investigations in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus (unless, with respect to the indemnification of the
officers and directors of each underwriter and each other person participating
as an underwriter, any such statement is corrected in a subsequent prospectus
and the underwriters are given the opportunity to circulate the corrected
prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any violation by the Company of any securities laws, and the Company will
reimburse such holder and each such director, officer, participating person and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
-------- -------
be liable to any seller, director, officer, participating person or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company in an instrument executed by or under the direction of such seller,
director, officer, participating person or controlling person for use in the
preparation thereof, which information was specifically stated to be for use in
the registration statement, prospectus, offering circular or other document.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
participating person
-14-
<PAGE>
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.
(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
-15-
<PAGE>
extent that the indemnifying party's rights are prejudiced, or liabilities and
obligations under this Section 6 are increased, as a result of such failure to
give notice. In case any such action is brought against an indemnified party,
the indemnifying party shall be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof unless (i) the indemnifying party shall have failed to retain counsel
for the indemnified party as aforesaid, (ii) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(iii) representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other person represented by
such counsel in such proceeding or the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnifying party shall not be liable for any settlement of any
proceeding effected without the written consent of such indemnifying party
(which consent shall not be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify each indemnified party from and against any loss or
liability by reason of such settlement or judgment.
-16-
<PAGE>
(d) Indemnification and contribution similar to that specified in this
Section 6 (with appropriate modifications) shall be given by the Company and
each seller of Registrable Securities with respect to any required registration
or other qualification of such Registrable Securities under any federal or state
law or regulation or governmental authority other than the Securities Act.
(e) The rights and obligations of the parties under this Section 6
shall survive any termination of the Purchase Agreement.
-17-
<PAGE>
EXHIBIT 7.3
CERTIFICATE OF DESIGNATIONS
OF
ALLIANCE ENTERTAINMENT CORP.
--------------------------------------
Pursuant to Section 151 of the Delaware General Corporation Law (the
"GCL"), ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
---
"Corporation"), certifies as follows:
-----------
FIRST: Under the authority contained in Article FOURTH of the
Certificate of Incorporation of the Corporation, the Board of Directors of the
Corporation has classified an aggregate of eight hundred eighty-six thousand two
hundred and forty (886,240) shares of the authorized but unissued shares of
Preferred Stock of the Corporation into a series which shall be designated
Series A Convertible Preferred Stock.
SECOND: The following resolution was adopted by the Board of
Directors on July 1, 1996 and such resolution has not been modified and is in
full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the
authorized but unissued shares of Preferred Stock of the Corporation, a series
of convertible preferred stock designated as Series A Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), and hereby fixes the
---------------
powers, designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series, as follows:
Section 1. Preferred Stock Dividends.
-------------------------
<PAGE>
1.1 General Dividend Obligation. When, as and if declared by the
---------------------------
Board of Directors of the Corporation, the Corporation shall pay to the holders
of record of the Preferred Stock, out of the assets of the Corporation available
for the payment of dividends under the General Corporation Law of the State of
Delaware, preferential dividends at the times and in the amounts provided for in
this Section 1.
1.2 Payments of Dividends; Payments in Additional Shares. (a) When
----------------------------------------------------
declared by the Board of Directors of the Corporation, dividends on the
Preferred Stock shall be 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
2
<PAGE>
the rate and in the manner prescribed herein from and including the date of
issuance of such share of Preferred Stock, whether or not such dividends shall
have been declared and whether or not there shall be (at the time such dividends
are calculated or become payable or at any other time) profits, surplus or other
funds or assets of the Corporation legally available for the payment of
dividends. For purposes of this Section 1.3, the date on which the Corporation
shall initially issue any share of Preferred Stock shall be deemed to be its
"date of issuance" regardless of the number of times transfer of such share of
----------------
Preferred Stock shall be made on the stock register maintained by or for the
Corporation and regardless of the number of certificates which may be issued to
evidence such share of Preferred Stock (whether by reason of transfer of such
share or for any other reason).
1.4 Dividend Rates. Dividends shall be cumulative, and shall accrue
--------------
on a daily basis on each Outstanding share of Preferred Stock at the rate per
annum (computed on the basis of a 360-day year having twelve thirty-day months)
of seven and seven-eighths percent (7-7/8%) of the Liquidation Value of each
share of Preferred Stock. To the extent not paid, on a Dividend Payment Date
all unpaid dividends accrued on each share of Preferred Stock Outstanding during
such quarter (or from and including the original date of issuance of such share
in the case of the initial quarter-end after the date of issuance) shall be
added to the Liquidation Value of such share and shall remain a part thereof
until such dividends are paid.
Section 2. Liquidation Preferences.
-----------------------
Subject to the holders' conversion rights provided below herein, upon
any liquidation (complete or partial), dissolution or winding up of the
Corporation, or any similar distribution of its assets to its stockholders which
results in a return of capital, whether voluntary or involuntary, the holders of
the Preferred Stock shall be entitled, before any distribution or payment is
made upon any Junior Securities of the Corporation, to be paid out of the assets
3
<PAGE>
of the Corporation available for distribution to its stockholders (whether from
capital, surplus or earnings) an amount in cash equal to the sum of (i) the
aggregate Liquidation Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other distribution of assets, stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested, not less than
60 days prior to the payment date stated therein, to each record holder of any
share of Preferred Stock entitled thereto at the address for such record holder
shown on the Corporation's records. Neither the consolidation nor merger
of the Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of all or any part of its assets, shall be
deemed to be a liquidation, dissolution, winding up or similar distribution of
the Corporation within the meaning of any of the provisions of this Section 2.
Section 3. Redemptions of Preferred Stock.
------------------------------
3.1 Redemption Price. For each share of Preferred Stock which is to
----------------
be redeemed by the Corporation at any time and for any reason in a redemption
pursuant to this Section 3, the Corporation shall be obligated on the Redemption
Date, regardless of whether the Corporation shall be able or legally permitted
to make such payment on the Redemption Date, to pay to the holder thereof (upon
surrender by such holder at the Corporation's principal office of the
certificate representing such share of Preferred Stock duly endorsed in blank or
accompanied by an appropriate form of assignment) the Redemption Price for such
share of Preferred Stock, payable in cash.
3.2 Redeemed or Otherwise Acquired Shares Not to be Reissued. Any
--------------------------------------------------------
shares of Preferred Stock redeemed pursuant to this Section 3 or otherwise
acquired by the Corporation shall not be reissued, sold or transferred by
4
<PAGE>
the Corporation and shall be retired.
3.3 Determination of Number of Each Holder's Shares to be Redeemed.
--------------------------------------------------------------
The number of shares of Preferred Stock to be redeemed from each holder thereof
in each redemption under this Section 3 shall be determined by multiplying the
total number of shares of Preferred Stock to be redeemed times a fraction, the
numerator of which shall be the total number of shares of Preferred Stock then
held by such holder and the denominator of which shall be the total number of
shares of Preferred Stock then Outstanding, rounded if the result is fractional
to the nearest whole number of shares.
3.4 Optional Redemption by Corporation Based on Market Price.
--------------------------------------------------------
(a) The Preferred Stock may be redeemed in whole (but not in part), at the
Redemption Price, at the Corporation's option at any time after the third (3rd)
anniversary of the date of original issuance of the Preferred Stock, on at least
30 days' notice; provided, however, that the Corporation may not exercise such
-------- -------
right of redemption unless (i) the Market Price of the Common Stock as reported
in the Wall Street Journal for 20 out of any consecutive 30 trading days prior
to the notice of redemption delivered pursuant to Section 3.8 shall exceed
eleven ($11.00) per share (subject to adjustment for stock dividends, stock
splits and reverse stock splits), and (ii) the shares issuable upon conversion
of the Preferred Stock are registered for resale by an effective registration
statement under the Securities Act or otherwise may be sold under Rule 144(k)
under the Securities Act and the Corporation's transfer agent has accepted an
instruction from the Corporation to that effect.
(b) If at the Redemption Date the registration conditions specified in
clause (ii) of Section 3.4(a) shall not be satisfied, then no shares shall be
redeemed and the notice of redemption shall be deemed to be withdrawn. In such
event, any notice of conversion given by a holder of Preferred Stock after the
redemption notice was given shall be deemed to be withdrawn, and any
certificates for Preferred Stock which have been surrendered for conversion
5
<PAGE>
or redemption shall be returned to the persons surrendering the same; provided,
however, that if a holder shall have received shares of Common Stock upon
conversion of Preferred Stock after the redemption notice was given but before
the Redemption Date, such holder may elect either to retain such Common Stock or
rescind such conversion by tendering such shares of Common Stock to the
Corporation.
(c) The Corporation's redemption rights under this Section 3.4 shall
terminate as to any shares of Preferred Stock upon the holder's delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.
3.5 Optional Redemption by Corporation Based on Other Valuation.
-----------------------------------------------------------
(a) The Preferred Stock may be redeemed in whole (but not in part), at the
Redemption Price (as determined pursuant to this Section 3.5), at the
Corporation's option at any time after the third (3rd) anniversary of the date
of original issuance of the Preferred Stock, upon written notice to the holders
thereof, if as of the end of the most recent complete fiscal quarter ended prior
to such notice of redemption (the "Valuation Date"), the amount equal to
--------------
(i) the sum of (A) the Corporation's EBITDA for the four fiscal
quarters ended on the Valuation Date, multiplied by ten (10), plus (B)
without duplication, the cash, if any, that would be deemed received by
the Corporation in connection with Options and Convertible Securities
deemed exercised or converted pursuant to (ii) following, minus (C) the
sum of the Corporation's Long-Term Debt on the Valuation Date,
divided by
----------
(ii) the number of shares of its Common Stock outstanding on the
Valuation Date, determined on a fully-diluted basis in accordance with
generally-accepted accounting principles for financial reporting purposes
(the so-called "treasury method" of accounting for shares), including
without limitation Common Stock issuable upon conversion of Preferred
Stock if and to
6
<PAGE>
the extent that Preferred Stock is not treated as Long-Term Debt, as
defined below,
is greater than eleven dollars ($11.00). Notice of any such redemption shall be
given concurrently with the delivery of the Corporation's financial statements
for the fiscal quarter ending on the Valuation Date, and shall specify a
redemption date not less than 10 nor more than 30 days after the date of such
notice. The Redemption Price for each holder's shares of Preferred Stock
redeemed pursuant to this Section 3.5 shall be the amount which, on receipt by
the holder, will cause the holder to realize an Internal Rate of Return of
thirty-five percent (35%) with respect to its investment in such shares.
(b) As used in this Certificate of Designations:
"Consolidated Interest Expense" means (without duplication), for any
-----------------------------
period, the sum of:
(i) the interest expense of the Corporation and its Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP;
(ii) all fees, commissions, discounts and other charges of the
Corporation and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, with respect to letters of
credit and bankers' acceptances and the costs (net of benefits)
associated with interest hedging obligations;
(iii) amortization or write-off of debt discount and deferred
financing costs (other than deferred financing costs incurred on or prior
to the Closing Date) in connection with any Long Term Debt of the
Corporation and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; and
(iv) interest capitalized by the Corporation and its Subsidiaries
during such period determined on a consolidated basis in accordance with
GAAP.
7
<PAGE>
"Consolidated Net Income" means, with respect to any period, the
-----------------------
aggregate net income for such period, on a consolidated basis, determined in
accordance with GAAP ("Net Income"), of the Corporation and its Subsidiaries;
----------
provided, however, that (i) the Net Income (if positive) of any person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
Corporation or a Subsidiary by such person during such period, (ii) the Net
Income (if positive) of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) extraordinary gains, losses and non-cash restructuring charges
shall be excluded, (iv) the Net Income (if positive) of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of such Net Income is not at the time of
determination permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (v) net after tax gains (but not net
after tax losses) from sales of assets other than current assets or from the
disposition of any property or assets other than in the ordinary course of
business shall be excluded, (vi) any after tax gains (but not losses) from
currency exchange transactions not in the ordinary course of business consistent
with past practice shall be excluded, and (vii) the cumulative effect of any
change in accounting principles shall be excluded.
"EBITDA" shall mean, with respect to any period, Consolidated Net
------
Income of the Corporation for such period plus, in each case to the extent
deducted in computing such Consolidated Net Income, the sum of (without
duplication) (i) Consolidated Interest Expense for such period, (ii) the
provision for taxes based on net income of the Corporation and its Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP, and
(iii) the depreciation and amortization expense of such the Corporation and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
8
<PAGE>
"Internal Rate of Return" means the annual rate (assuming quarterly
-----------------------
compounding) which if used to discount to present value the payments in cash or
cash equivalents made or received by the holder of Preferred Stock, during the
period from the date of calculation back to the initial issuance of such shares,
would cause the net present value (on such date) of such investment to equal
zero (0). In calculating an Internal Rate of Return:
(A) each payment received in cash or cash equivalents by a holder (or
its predecessors in interest) of shares attributable to such shares or any
sale thereof for cash shall be treated as a cash inflow with a positive
value, and each cash disbursement made by the holder (or its predecessors
in interest) directly attributable to such shares shall be treated as a
cash outflow with a negative value;
(B) each such payment or disbursement shall be discounted from the
date actually made to the date of the holder's initial investment in
shares; and
(C) indemnity payments, financing fees (including without limitation
the $1,250,000 fee paid to BT Capital Partners, Inc. in connection with the
original issuance of Preferred Stock) and payments in reimbursement of out-
of-pocket expenses received by the holders of shares shall not be treated
as cash inflows and therefore shall be disregarded.
"Long-Term Debt" shall mean (without duplication) (A) all indebtedness
--------------
for borrowed money or evidenced by notes, bonds, debentures or similar evidences
of indebtedness, all obligations for the deferred and unpaid purchase price of
any property, service or business (other than trade accounts payable and accrued
liabilities incurred in the ordinary course of business and constituting current
liabilities), (B) all capitalized lease obligations, (C) letters of credit and
all obligations of relating thereto, (D) all obligations in respect of interest
rate swap agreements, currency swap agreements and other similar agreements
designed to hedge against fluctuations in
9
<PAGE>
interest rates or foreign exchange rates, and (E) all Preferred Stock (and
convertible preferred stock of any other class) if and so long as the Market
Price of Common Stock is less than the Conversion Price (or conversion price of
any such other class of convertible preferred stock) from
time to time in effect; in each case determined on a consolidated basis in
accordance with GAAP.
(c) The Corporation's redemption rights under this Section 3.5 shall
terminate as to any shares of Preferred Stock upon the holder's delivery of a
Conversion Notice pursuant to Section 4.1(c) with respect to such shares.
3.6 Redemption Upon Corporate Change. (a) At any time after the
--------------------------------
Preferred Stock has become convertible by the holders thereof in accordance with
Section 4.1(a), if a Corporate Change is to occur and the holders of Preferred
Stock refuse to provide the vote or written consent required to authorize such
Corporate Change pursuant to Section 9(c), the Corporation may redeem all of the
Outstanding Preferred Stock immediately prior to the consummation of such
Corporate Change. Written notice of any impending Corporate Change, and the
substance and intended date of consummation thereof, shall be mailed by
certified or registered mail, return receipt requested, not more than sixty (60)
nor less than ten (10) days prior to the date of consummation thereof, to each
record holder of shares of Preferred Stock at the address for such record holder
shown on the Corporation's records. The Corporation's redemption rights under
this Section 3.6 shall terminate as to any shares of Preferred Stock upon the
holder's delivery of a Conversion Notice pursuant to Section 4.1(c) with respect
to such shares.
(b) "Corporate Change" means (i) the sale, exchange or transfer of
----------------
all or substantially all of the Corporation's assets, or (ii) any transaction or
series of related transactions in which one (1) or more persons (other than a
holder of Preferred Stock or an affiliate thereof) shall directly or indirectly
acquire ownership of or control over capital stock (not including shares held or
controlled
10
<PAGE>
by them on the date of original issuance of the Preferred Stock) of the
Corporation (or securities exchangeable for or convertible into such stock)
entitled to elect fifty percent (50%) or more of the Corporation's Board of
Directors and representing at least fifty percent (50%) of the number of shares
of Common Stock Outstanding.
(c) If a Corporate Change is proposed to occur, and either (i) the
Preferred Stock has not yet become convertible by the holders thereof in
accordance with Section 4.1(a), or (ii) and the Corporation would be prevented
from fulfilling its redemption obligations under this Section 3.6 by any
agreement to which it is a party with respect to its indebtedness for borrowed
money, then the Corporation shall not be entitled to redeem shares of Preferred
Stock pursuant to Section 3.6(a), and the Corporation shall not permit the
occurrence of such Corporate Change without the vote or approval of holders of
Preferred Stock required pursuant to Section 9(c).
3.7 Mandatory Redemption Based on Failure of Stockholders Vote.
----------------------------------------------------------
(a) In the event that the Preferred Stock has not become convertible in
accordance with Section 4.1(a) on or before July 26, 2005, then at any time
after such date (i) any holder of shares of Preferred Stock may require the
Corporation to redeem all or any portion of the Preferred Stock owned by such
holder, at the Redemption Price (as determined pursuant to this Section 3.7),
upon written notice to the Corporation requesting such redemption, or (ii) the
Corporation may, at its option, redeem the Preferred Stock then Outstanding in
whole (but not in part), at the Redemption Price (as determined pursuant to this
Section 3.7), upon written notice to the holders thereof. Notice of any such
election by the Corporation to redeem shall specify a redemption date not less
than 10 nor more than 30 days after the date of such notice.
(b) The Redemption Price for each holder's shares of Preferred Stock
redeemed pursuant to this Section 3.7 shall be the lesser of
------
11
<PAGE>
(i) the amount which, on receipt by the holder, will cause the holder
to realize an Internal Rate of Return of thirty-five percent (35%) with
respect to its investment in such shares being redeemed, and
(ii) seventy-five percent (75%) of the Corporation's cumulative
EBITDA, for the period from the date of original issuance of the Preferred
Stock to the date of such redemption, multiplied by a fraction, the
numerator of which is the number of shares of Preferred Stock to be
redeemed from such holder and the denominator of which is the aggregate
number of shares of Preferred Stock issued by the Corporation, provided
--------
that the Redemption Price per share of Preferred Stock calculated pursuant
----
to this paragraph (ii) shall in no event be less than the Liquidation Value
thereof.
3.8 Redemptions or Purchase by Corporation's Designee(s). In
----------------------------------------------------
lieu of any redemption of Preferred Stock 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.
3.9 Notice of Redemption. Except as otherwise expressly provided
--------------------
herein, notice of any redemption of Preferred Stock, specifying the time and
place of redemption, the Redemption Price (in the case of a redemption under
Section 3.5 or 3.7, showing the computation thereof in reasonable detail) and
the Section and paragraph pursuant to which such redemption is being made, shall
be mailed by certified or registered mail, return receipt requested, to each
holder of record of shares of Preferred Stock to be redeemed, at the address for
such holder shown on the Corporation's records, not more than sixty (60) nor
less than thirty (30) days (ten (10) days, in the case of a redemption pursuant
to Section 3.6) prior to the date on which such redemption is to be made. The
notice shall also specify the number of shares of Preferred Stock and the
certificate numbers thereof which are to be redeemed. With
12
<PAGE>
respect to redemptions made pursuant to Section 3.4, 3.5 or 3.6(b), upon mailing
any such notice of redemption the Corporation shall become obligated to redeem
at the time of redemption specified therein all shares of Preferred Stock
therein specified. In case less than all the shares of Preferred Stock
represented by any certificate are redeemed, a new certificate representing the
unredeemed shares of Preferred Stock shall be issued to the holder thereof
without cost to such holder.
3.10 Rights After Redemption Date. Provided that the Redemption
----------------------------
Price is paid in full on the applicable Redemption Date, no share of Preferred
Stock shall be entitled to any dividends accrued after its Redemption Date, and
on such Redemption Date, except as otherwise provided herein or by law, all
rights of the holder of such share of Preferred Stock as a stockholder of the
Corporation, by reason of the ownership of such share, shall cease, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.
3.11 Other Redemptions. The Corporation shall neither redeem nor
-----------------
otherwise acquire any shares of any class of Preferred Stock except (i) as
expressly authorized in this Certificate of Designations, or (ii) pursuant to
any offer of redemption made to the holders of Preferred Stock of such class pro
---
rata according to the shares held by them.
- ----
3.12 Deposit of Redemption Price. If on or before the date of
---------------------------
redemption specified in any notice of redemption of any share of Preferred
Stock, the Corporation shall irrevocably deposit the amount of the Redemption
Price thereof with a bank or trust company having an office in the City of New
York, designated in such notice of redemption, in trust for the benefit of the
holder of such share of Preferred Stock, such share of Preferred Stock shall be
deemed to have been redeemed on the date so specified, whether or not the
certificate for such share shall be surrendered for redemption and canceled.
13
<PAGE>
Section 4. Conversion of Preferred Stock.
-----------------------------
4.1 Conversion Procedures. (a) The Preferred Stock shall be
---------------------
convertible into shares of Common Stock, in accordance with the terms of this
Section 4, at any time after the issuance of Common Stock upon such conversion
are approved by the holders of outstanding Common Stock, in compliance with Rule
312.03 of the New York Stock Exchange Listed Company Manual (or such approval
otherwise is not required). Notwithstanding anything to the contrary herein,
conversion of the Preferred Stock shall not be permitted without such approval
of the holders of Common Stock first being obtained (or the requirements of such
Rule otherwise being satisfied).
(b) A holder of shares of Preferred Stock may, at any time after the
requirements of Section 4.1(a) are satisfied, convert pursuant to this Section 4
all or any part (in whole numbers of shares only) of the shares of Preferred
Stock held by such holder into such number of fully paid and non-assessable
whole shares of Common Stock as is obtained by multiplying the number of shares
of Preferred Stock so to be converted by the Liquidation Value thereof and
dividing the result by the Conversion Price then in effect. Such right as to any
particular share shall terminate at the close of business on the day immediately
prior to the date fixed for payment on the Preferred Stock upon any liquidation,
dissolution, winding up or similar distribution of the Corporation.
(c) Each conversion of Preferred Stock shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holder or holders of the Preferred Stock) at any time during its usual
business hours, together with written notice by the holder of such Preferred
Stock (a "Conversion Notice") stating that such holder desires to convert the
-----------------
shares, or a stated number of the shares, represented by such certificate or
certificates which notice shall also specify the name or names (with addresses)
and
14
<PAGE>
denominations in which the certificate or certificates for Common Stock shall be
issued and shall include instructions for delivery thereof. Such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such certificate or
certificates shall have been surrendered and such notice shall have been
received, and as of such date (the "Conversion Date") the rights of the holder
---------------
of such Preferred Stock (or specified portion thereof) as such holder shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(d) As soon as possible after the Conversion Date (and in no event
more than 30 days after the Conversion Date), subject to Section 4.2(c), with
respect to the certificate(s) specified in (i) and (ii) below, the Corporation
shall deliver to the converting holder or, with respect to the certificate(s)
specified in (i) below, as specified by such converting holder:
(i) a certificate or certificates representing the number of shares of
Common Stock issuable by reason of such conversion registered in such name
or names and such denomination or denominations as the converting holder
shall have specified; and
(ii) a certificate representing any shares of Preferred Stock which
shall have been represented by the certificate or certificates which shall
have been delivered to the Corporation in connection with such conversion
but which shall not have been converted; and
(iii) a payment of cash in an amount equal to the value of any
fractional share of Common Stock that otherwise would be issuable in
connection with the Preferred Stock converted.
4.2 Authorization and Issuance of Common Stock. The Corporation
------------------------------------------
covenants and agrees that:
15
<PAGE>
(a) The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
issuing upon the conversion of the Preferred Stock as provided in this Section
4, such number of shares of Common Stock as shall then be issuable upon the
conversion of all Outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issuable shall, when
issued, be duly and validly issued, fully paid and non-assessable and free from
all taxes, liens, and charges. The Corporation will take all such action as may
be necessary to assure that all shares of Common Stock may be so issued without
violation of any applicable law or regulation or any requirements of any
domestic stock exchange upon which any shares of Common Stock may be listed.
(b) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock acquirable upon conversion of
a share of Preferred Stock if after such action the total number of shares of
Common Stock issuable upon conversion of the Preferred Stock then Outstanding,
together with the total number of shares of Common Stock then Outstanding and
the total number of shares of Common Stock reserved for any purpose other than
issuance upon conversion of Common Stock, would exceed the total number of
shares of Common Stock then authorized by the Corporation's Restated Certificate
of Incorporation.
(c) If any shares of Common Stock required to be reserved for purposes
of conversions of shares of Preferred Stock under this Certificate of
Designations require registration with, or approval of, any governmental
authority under any federal or state law (other than any registration under the
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
16
<PAGE>
listed on such domestic securities exchange, as the case may be.
(d) The issuance of certificates for shares of Common Stock upon
conversion of shares of the Preferred Stock shall be made without charge to the
holders of such shares for any issuance tax in respect thereof, or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Preferred Stock converted.
(e) The Corporation will not close its books against the transfer of
any share of Preferred Stock or of any share of Common Stock issued or issuable
upon the conversion of such shares in any manner which interferes with the
timely conversion of such shares.
4.3 Conversion Price. (a) The initial Conversion Price shall be
----------------
seven dollars and twenty-five cents ($7.25). In order to prevent dilution of the
conversion rights granted hereunder, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 4.
(b) If and whenever the Corporation shall issue or sell, or shall in
accordance with Section 4.4 be deemed to have issued or sold, any shares of
Common Stock for a consideration per share that is less than (a) the Adjustment
Determination Price in effect immediately prior to the time of such issue or
sale, or (b) 95% of the Market Price on the date of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price shall, subject to
Section 4.4, be reduced to the lower of the prices (calculated to the nearest
$0.001) determined as follows:
(x) by dividing (i) an amount equal to the sum of (a) the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue
or sale multiplied by the then existing Conversion Price, and
17
<PAGE>
(b) the consideration, if any, received by the Corporation upon such issue
or sale by (ii) the total number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale; and
(y) by multiplying the Conversion Price in effect immediately prior
to the time of such issue or sale by a fraction, the numerator of which
shall be the sum of (i) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale multiplied by the
Market Price immediately prior to such issue or sale plus (ii) the
consideration received by the Corporation upon such issue or sale, and the
denominator of which shall be the product of (iii) the total number of
shares of Common Stock Deemed Outstanding immediately after such issue or
sale, multiplied by (iv) the Market Price immediately prior to such issue
or sale.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
made in an amount less than $0.00l per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.00l per share or more.
(c) As used in this Certificate of Designations, the "Adjustment
----------
Determination Price" means (i) $5.50, in the case of an issuance of Common Stock
- -------------------
governed by Section 4.3(b) or Options governed by Section 4.4(a), and (ii) the
Conversion Price, in the case of an issuance of Convertible Securities governed
by Section 4.4(b), or any other deemed issuance or sale of Common Stock under
Section 4.4. The Adjustment Determination Price shall be deemed increased or
reduced proportionately in connection with any increase or reduction of the
Conversion Price pursuant to this Section 4.
(d) Notwithstanding the provisions of this Section 4.3 and Section
4.4, no adjustment of the Conversion Price shall be required as a result of the
sale or issuance of Common Stock, at prices less than the Adjustment
18
<PAGE>
Determination Price then in effect or 95% of the Market Price then in effect,
(i) upon conversion of any of the Preferred Stock, or (ii) in connection with
Excluded Securities.
4.4 Effect of Certain Events on Conversion Price. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under Section 4.3, the following shall
be applicable:
(a) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities being
-------
herein called "Convertible Securities"), whether or not such Options or the
----------------------
rights to convert or exchange such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Adjustment Determination Price in effect immediately prior to the time of the
granting of such Options (or less than 95% of the Market Price, determined as of
the date of granting such Options, as the case may be), then the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum
19
<PAGE>
amount of such Convertible Securities issuable upon the exercise of such Options
shall (as of the date of grant of such Options) be deemed to be outstanding and
to have been issued for such price per share. No adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities,
except as otherwise provided in Section 4.4(c).
(b) Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Adjustment Determination Price in effect immediately prior to the time of such
issue or sale (or less than 95% of the Market Price, determined as of the date
of such issue or sale of such Convertible Securities, as the case may be), then
the total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share. Except as otherwise provided in Section
4.4(c), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common stock upon conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Conversion Price have
been made or are to be made pursuant to other provisions of this Section 4.4, no
further adjustment of the Conversion Price shall be made by reason
20
<PAGE>
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
21
<PAGE>
Convertible Securities (without any exercise of such Option or right), the
Conversion Price then in effect hereunder shall forthwith be adjusted to the
Conversion Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued, and the Common Stock issuable thereunder shall no longer be deemed to be
outstanding.
(e) Calculation of Consideration Received. (i) In case any shares of
-------------------------------------
Common Stock, Options or Convertible Securities shall be issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
shall be deemed to be the aggregate proceeds payable to the Corporation
therefor, prior to deduction of any expenses incurred and any underwriting
commission or concessions paid or allowed by the Corporation in connection
therewith.
(ii) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of consideration other than cash received by the Corporation shall be
deemed to be the fair value, determined in good faith by the Board of Directors.
(iii) In case any Options shall be issued in connection with the issue
or sale of other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued without
consideration.
(iv) In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value, determined in good faith by the Board of
Directors, of such portion of the net assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
22
<PAGE>
(v) In the event of any consolidation or merger of the Corporation in
which stock or other securities of any corporation are issued in exchange for
Common Stock of the Corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for stock or other securities
of any corporation, the Corporation shall be deemed to have issued a number of
shares of its Common Stock for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other corporation, and if
any such calculation results in adjustment of the Conversion Price the
determination of the number of shares of Common Stock receivable upon conversion
of the Preferred Stock immediately prior to such merger, consolidation or sale,
for purposes of Section 4.7, shall be made after giving effect to such
adjustment of the Conversion Price.
(vi) In case the Corporation shall declare a dividend or make any
other distribution upon any stock of the Corporation payable in Common Stock,
Options or Convertible Securities, any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(f) Record Date. For purposes of Sections 4.3 and 4.4, in case the
-----------
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of granting of
such right or subscription or purchase, as the case may be.
4.5 Subdivisions and Combinations. Except to the
-----------------------------
23
<PAGE>
extent Section 4.4(e)(vi) above applies, in the event that the Corporation shall
at any time subdivide (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding Common Stock into a greater number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
subdivision forthwith shall be proportionately reduced. Conversely, in the
event the outstanding shares of one or more classes of the Common Stock shall be
combined into a smaller number of shares (by reverse stock split or otherwise),
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
4.6 Dividends. In the event that the Corporation declares a dividend
---------
(other than a dividend payable in Common Stock, Options or Convertible
Securities, or a cash dividend payable out of earnings or earned surplus) upon
Common Stock, then at the option of the holders of a majority of the outstanding
shares of Preferred Stock,
(1) the Corporation shall pay over to each holder, on the dividend
payment date, the cash, stock or other securities and other property which
holder would have received if such holder had converted all of his or its
shares of Preferred Stock into Common Stock and had been the record holder
of such Common Stock on the date on which a record is taken for the purpose
of such dividend, or, if a record is not taken, the date as of which the
holders of Common Stock of record entitled to such dividend are to be
determined, or
(2) the Conversion Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal to the
amount of such dividend payable per share of Common Stock, in the case of a
cash dividend, or by the fair value of such dividend per share (as
reasonably determined by the Board of Directors of the Corporation), in the
case of any other dividend, such reduction to be effective on the date as
of which a record is taken for purposes of such dividend, 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
24
<PAGE>
(3) in the case of a dividend consisting of stock or securities
(other than Common Stock, Options or Convertible Securities) or other
property distributable to holders of Common Stock, the holder of Preferred
Stock may elect that, in lieu of (1) or (2) above, lawful and adequate
provisions shall be made (including without limitation any necessary
reduction in the Conversion Price) whereby such holder of Preferred Stock
shall thereafter have the right to purchase and/or receive, on the terms
and conditions specified in this Certificate of Designations and in
addition to the shares of Common Stock receivable immediately prior to the
declaration of such dividend upon conversion of his or its shares of
Preferred Stock, such shares of stock, securities or property as are
distributable with respect to outstanding shares of Common Stock equal to
the number of shares of Common Stock receivable immediately prior to such
declaration upon conversion of his or its shares of Preferred Stock, to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of shares receivable
upon such conversion) shall thereafter be applicable, as nearly as may be,
in relation to such shares of stock, securities or property.
For the purposes of this Section 4.6, "dividend" shall mean any distribution to
--------
the holders of Common Stock as such, and a dividend shall be considered payable
out of earnings or earned surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as reasonably determined by the Board
of Directors of the Corporation.
4.7 Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. If any capital reorganization or reclassification of the capital stock of
- ----
the Corporation, or any consolidation or merger of the Corporation with or into
another corporation, or any sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
25
<PAGE>
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
26
<PAGE>
the foregoing provisions, such holder may be entitled to acquire or receive.
4.8 Notice of Adjustment. Immediately upon any adjustment of the
--------------------
Conversion Price, the Corporation shall send written notice thereof to all
holders of Preferred Stock, which notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock acquirable and receivable upon conversions of
all shares of Preferred Stock held by each such holder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.9 Other Adjustment-Related Notices. In the event that at any time:
--------------------------------
(a) the Corporation shall declare a dividend (or any other
distribution) upon its Common Stock payable otherwise than in cash out of
earnings or earned surplus;
(b) the Corporation shall offer for subscription pro rata to the
holders of any class of its Common Stock any additional shares of stock of any
class or other rights;
(c) there shall be any capital reorganization, or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all of its assets to, another
corporation; or
(d) there shall be any voluntary or involuntary dissolution,
liquidation, winding up or similar distribution of the Corporation;
then, in connection with any such event, the Corporation shall give by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:
(i) at least 30 days' prior written notice of the date on which the
books of the Corporation shall close
27
<PAGE>
or a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall
be entitled thereto) or for determining rights to vote in respect of such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or similar distribution; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding up or
similar distribution, at least 30 days' prior written notice of the date
when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding up or similar distribution).
4.10 Certain Events. If any event occurs as to which the other
--------------
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of the Preferred Stock
in accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such conversion rights as aforesaid.
4.11 Disputes. In the event that there is any dispute as to (a) the
--------
computation of the price or the number of shares of Common Stock required to be
issued upon conversion of Preferred Stock, or (b) the computation of the
Redemption Price under Section 3.5 or 3.7, in either case in which holders of 50
percent or more of the Preferred Stock shall join, the holders and the
Corporation will retain an independent and nationally recognized accounting firm
to conduct at the expense of the Corporation an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
28
<PAGE>
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.
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.
--------------------------------
Except as otherwise provided by law, by agreement among the
stockholders, or as otherwise provided in this Certificate of Designations,
Preferred Stock shall entitle
29
<PAGE>
the holders thereof to no voting rights.
Section 7. Registration of Transfer.
------------------------
The Corporation shall keep at its principal office (or such other
place as the Corporation reasonably designates) a register for the registration
of shares of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing the aggregate number of shares represented by the
surrendered certificate, subject to the requirements of applicable securities
laws. Each such new certificate shall be registered in such name and shall
represent such number of shares as shall be requested by the holder of the
surrendered certificate, shall be substantially identical in form to the
surrendered certificate, and the holders of the shares represented by such new
certificate shall be entitled to receive all theretofore payable but unpaid
dividends on the shares represented by the surrendered certificate.
Section 8. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing one
or more shares of the Preferred Stock and, in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the registered holder is an institutional investor
its own agreement of indemnity, without bond, shall be satisfactory), or, in the
case of any such mutilation, upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares represented by such
lost, stolen, destroyed
30
<PAGE>
or mutilated certificate, and the shares represented by such new certificate
shall be entitled, among other things, to receive all theretofore payable but
unpaid dividends on the shares represented by the lost, stolen, destroyed or
mutilated certificate.
Section 9. Restrictions on Corporate Action.
--------------------------------
So long as the shares of Common Stock receivable upon conversion of
the Preferred Stock Outstanding represent at least five percent (5%) of the
Common Stock outstanding, determined on a fully-diluted basis, and in addition
to any other approvals or consents required by law, without the prior
affirmative vote or written consent of the holders of at least a majority of all
shares of the Preferred Stock Outstanding at the time:
(a) The Corporation shall not increase the number of shares of the
Preferred Stock which the Corporation is authorized to issue, or issue
additional shares of Preferred Stock except pursuant to Section 1.2(b).
(b) Unless the dividend payment and redemption obligations of the
Corporation with respect to the Preferred Stock have, at such time, been fully
satisfied, the Corporation shall not declare or pay any dividend or make any
other distribution on any Junior Securities other than dividends or
distributions payable solely in Junior Securities, or purchase, redeem, or
otherwise acquire for any consideration, or set aside as a sinking fund or other
fund for the redemption or repurchase of any Junior Securities or any warrants,
rights or options to purchase the same.
(c) The Corporation shall not cause or permit any Corporate Change to
occur.
Section 10. Closing Books.
-------------
The Corporation will not close its books against the transfer of any
share of Preferred Stock.
31
<PAGE>
Section 11. Definitions.
-----------
As used in this Certificate of Designations the following terms shall
have the following meanings, which meanings shall be equally applicable to the
singular and plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday or a
------------
day on which banks are permitted to close in New York, New York.
"Common Stock" means the Common Stock, par value $0.0001 per share, of
------------
the Corporation, and any capital stock of any class of the Corporation hereafter
authorized which shall not be limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution,
winding up or similar distribution of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the sum of
-------------------------------
(a) the number of shares of Common Stock actually outstanding at such time
(exclusive of any shares of Common Stock owned or held by or for the account of
the Corporation), plus (b) the number of shares of Common Stock into which
Outstanding shares of Preferred Stock are convertible at such time, plus (c) the
number of other shares of Common Stock deemed to be outstanding under Section 4
at such time.
"Conversion Price" means seven dollars and twenty-five cents ($7.25),
----------------
as such price may be adjusted from time to time pursuant to the provisions of
Section 4.
"Dividend Payment Date" means, with respect to Preferred Stock, the
---------------------
last day of March, June, September and December in each year (or if any such day
is not a Business Day the immediately preceding Business Day).
"Excluded Securities" means (a) Options or Convertible Securities
-------------------
issued and outstanding on the date of original issuance of the Preferred Stock,
and Common Stock
32
<PAGE>
issued upon exercise or conversion thereof, (b) Common Stock, Options or Common
Stock issued upon exercise of such Options, issued to employees of the
Corporation or any of its Subsidiaries pursuant to the stock option plans or
other incentive plans adopted by the Board of Directors and submitted for
approval by the Corporation's stockholders at its 1996 annual meeting of
stockholders, and (c) any Common Stock, Options, or Common Stock issued upon
exercise of such Options, issued to employees of the Corporation or any of its
Subsidiaries pursuant to the provisions of any other stock bonus or stock option
or other incentive plan or plans subsequently adopted by the Board of Directors,
except any Common Stock, Options, or Common Stock issued upon exercise of such
Options, issued thereunder to Joseph J. Bianco.
"GAAP" means generally-accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board.
"Junior Security" means the Corporation's Common Stock and any other
---------------
equity security of any kind which the Corporation or any Subsidiary shall at any
time issue or be authorized to issue other than Preferred Stock.
"Liquidation Value" of any share of Preferred Stock as of any
-----------------
particular date means an amount equal to the sum of $100.00 plus any accrued and
unpaid dividends on such share of Preferred Stock.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on such day on all domestic exchanges on which
such security may at the time be listed, or, if there shall have been no sales
on any such exchange on such day, the average of the highest bid and lowest
asked prices on all such exchanges at the end of such day, or, if on such day
such security shall not be so listed or trading thereon or on such exchange
shall be suspended, the closing price on such day of any such security traded on
the NASDAQ System or, if no such closing price is available, (i) the average of
the
33
<PAGE>
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or (ii) if on such day such security shall not be
quoted in the NASDAQ System, the average of the high and low bid and asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in the case of (i) or (ii) averaged over a period of 21 business days consisting
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day (unless otherwise provided herein). If at any
time such security is not listed on any domestic exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Market Price" shall
be the fair market value per share of Common Stock, which shall be reasonably
determined by the Board of Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination is to be made.
"Outstanding" when used with reference to shares of Preferred Stock as
-----------
of any particular time shall mean shares thereof issued and outstanding at such
time and shall not include any shares of Preferred Stock represented by any
certificate in lieu of which a new certificate has been executed and delivered
by the Corporation in accordance with Section 7 or Section 8, but shall include
only those shares represented by such new certificate.
"Person" means and includes an individual, a partnership, a
------
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
"Redemption Date" as to any share of Senior Preferred Stock means the
---------------
date specified in the notice of redemption delivered pursuant to Section 3.9;
provided that for purposes of Section 3.10, the Redemption Date shall be the
- --------
date on which the applicable Redemption Price is actually paid to the holder of
such share of Preferred Stock or deposited in trust for the benefit of such
holder pursuant to Section 3.12.
34
<PAGE>
"Redemption Price" as to any share of Preferred Stock means (a) for
----------------
purposes of Section 3.5 or 3.7, the Redemption Price specified therein, and (b)
in all other cases, the Liquidation Value of such share.
"Subsidiary" means any corporation at least 50% of the Voting Stock of
----------
every class of which is, at the time as of which any determination is being
made, owned by the Corporation either directly or through one or more
Subsidiaries.
"Voting Stock" means any shares of stock having general voting power
------------
in electing the board of directors (irrespective of whether or not at the time
stock of any other class or classes has or might have voting power by reason of
the happening of any contingency).
Section 12. Miscellaneous.
-------------
(a) The unenforceability or invalidity of any provision or provisions
of this Certificate of Designations shall not render invalid or unenforceable
any other provision or provisions herein contained.
(b) Section and paragraph headings herein are for convenience only
and shall not be construed as a part of this Certificate of Designations.
(c) All notices to holders of Preferred Stock required or permitted
hereunder shall be sent by overnight courier service, prepaid, addressed to each
such holder at the address for such holder shown on the books of the
Corporation.
* * * * * *
35
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed on this 16th day
of July, 1996, and the signature of the undersigned shall constitute the
affirmation and acknowledgment of the undersigned, under penalties of perjury,
that this Certificate is the act and deed of the undersigned and that the facts
stated in the Certificate are true.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Joseph J. Bianco
------------------------------
Joseph J. Bianco, Chairman
ATTEST:
/s/ Christopher J. Joyce
------------------------------
Christopher J. Joyce, Assistant Secretary
36
<PAGE>
EXHIBIT 7.4
INDUCEMENT AGREEMENT
--------------------
July 16, 1996
BT Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
BCI Growth IV, L.P.
Glenpointe Centre West
Teaneck, New Jersey 07666-6883
Dear Sirs:
This is in connection with the Preferred Stock Purchase Agreement dated as
of the date hereof (the "Purchase Agreement"), between Alliance Entertainment
------------------
Corp. (the "Company") and the Purchasers named therein. Unless otherwise
-------
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Purchase Agreement.
Pursuant to the Purchase Agreement, BT Capital Partners, Inc. ("BTC") and
---
BCI Growth, L.P. ("BCI") propose to purchase from the Company an aggregate of
---
422,500 shares of the Company's Series A Convertible Preferred Stock, par value
$0.01 per share ("Preferred Stock"), for an aggregate purchase price of
---------------
$42,250,000. The Preferred Stock is convertible into shares of the Company's
Common Stock, par value $0.0001 per share ("Common Stock").
------------
The undersigned (the "Management Stockholder") is the Chairman and Chief
----------------------
Executive Officer of the Company, and owns or has the right to acquire under
stock options at least 6,137,500 shares of its Common Stock. As a result, the
Management Stockholder will obtain a valuable benefit from BTC's investment in
the Preferred Stock. The Purchasers have informed the Management Stockholder
that they are not willing to make such investment without the
<PAGE>
page 2
assurance that he will continue to have a substantial economic stake in the
Company.
In order to induce the Purchasers to purchase the Preferred Stock, the
Management Stockholder hereby agrees with the Purchasers as follows:
1. Continued Ownership. The Management Stockholder agrees with BTC that:
-------------------
(a) Subject to paragraph 4(e) below, from and after the date hereof the
Management Stockholder will continue to own, beneficially and of record,
determined on a fully-diluted basis, taking into account options, warrants and
convertible securities held by him as though exercised or converted, (i) until
the Preferred Stock becomes convertible in accordance with Section 4.1(a) of the
Certificate of Designations, at least 6,138,000 shares of Common Stock, and (ii)
after the Preferred Stock becomes convertible in accordance with Section 4.1(a)
of the Certificate of Designations, at least 4,910,000 shares of Common Stock.
The numbers of shares set forth in this paragraph shall be appropriately
adjusted to take into account stock dividends, stock splits, recapitalizations,
exchanges or reorganizations of the Company's Common Stock.
(b) Notwithstanding the foregoing, the Management Stockholder may (i) sell
shares of Common Stock in an aggregate number sufficient to fund the $600,000
exercise price of options exercised by him prior to the date hereof in 1996, and
(ii) transfer shares of Common Stock pursuant any final order or decree of a
court in any action or proceeding in which the Management Stockholder is a
party.
2. Co-sale Rights. The Management Stockholder agrees with the Purchasers
--------------
that:
(a) In the event that the Management Stockholder proposes to transfer
shares of Common Stock in any transaction or series of related transactions in
which Common Stock (or options therefor) having at least 50% of
<PAGE>
page 3
the voting power of all Common Stock outstanding is to be transferred
(a "Sale of Control"), then the Management Stockholder (or his representative)
---------------
shall deliver to each of the Purchasers a written notice (the "Sale Notice") to
-----------
such effect, containing a description of the proposed transaction and the terms
thereof. Upon delivery of the Sale Notice each Purchaser shall have the right to
require the Management Stockholder to arrange for the sale to the proposed
transferee(s) of a percentage of such Purchaser's shares of Common Stock equal
to the percentage of the Management Stockholder's holdings of Common Stock
(including options therefor) that the Management Stockholder desires to sell or
transfer to the transferee(s), on terms and conditions at least as favorable to
the Purchaser as the terms and conditions set out in the Sale Notice.
(b) If the transferee(s) will not purchase all of the Common Stock which
the Management Stockholder and each
<PAGE>
page 4
Purchaser desire to sell or transfer pursuant to this paragraph 2, then the
number of shares which the Management Stockholder and each Purchaser shall be
permitted to sell or transfer to such transferee(s) shall be the same proportion
of the aggregate number of shares to be sold or transferred as the shares held
by the Management Stockholder or the Purchaser bear to all shares held by the
Management Stockholder and all of the Purchasers desiring to participate in the
sale or transfer to the transferee(s). The sales or transfers by the Purchasers
shall be for the same consideration and otherwise on the same terms and
conditions as specified in the Sale Notice.
(c) Each Purchaser may exercise its right under this paragraph 2 by written
notice to the Management Stockholder given within ten (10) days after the date
on which such Purchaser receives the Sale Notice.
3. Voting for Directors.
--------------------
(a) Voting By Management Stockholder. Subject to paragraph 4(e) below, at
--------------------------------
each meeting of the stockholders of the Company, and at such other times as may
be reasonably required, the Management Stockholder shall vote all Shares of
Common Stock held by him (or which he is otherwise entitled to vote) for, and
shall otherwise exert reasonable best efforts to cause (i) the election of the
directors of the Company designated by the Purchasers under Section 4.4 of the
Purchase Agreement, and (ii) the approval of the conversion of Preferred Stock
and the issuance of Common Stock pursuant to any such conversion, as
contemplated by Section 4.7 of the Purchase Agreement.
(b) Purchasers' Proxies. Each of the Purchasers, severally, does hereby
-------------------
irrevocably constitute and appoint the Management Stockholder its true and
lawful attorney, with full right of substitution, in its name, place and stead,
to vote the Common Stock owned by such Purchaser or standing in its name, as
such Purchaser's proxy, for the election of directors at any annual or special
meeting of Stockholders of the Company, as fully and with like effect
<PAGE>
page 5
as such Purchaser might or could have done if personally present, hereby
ratifying and confirming any vote that such attorney may cast for the election
of directors in such Purchaser's name, place or stead. Notwithstanding the
foregoing, within thirty (30) days after a Purchaser has been notified in
writing of any annual or special election of directors (such notice including an
accurate and complete identification of the directors to be elected), such
Purchaser may revoke this proxy, for purposes of such election, by giving
written notice of such revocation to the Management Stockholder. Except as
provided in the preceding sentence, this proxy, being coupled with an interest,
is irrevocable.
4. General Provisions.
------------------
(a) Successors and Assigns. The provisions of this agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
personal representatives, heirs, successors and assigns.
(b) Equitable Relief. The parties agree that legal remedies may be
----------------
inadequate to enforce the provisions of this agreement and that equitable
relief, including specific performance and injunctive relief, may be used to
enforce the provisions of this agreement.
(c) Governing Law. This agreement shall be construed in accordance with
-------------
and governed by the laws of the State of New York, except to the extent the
general corporation law of the Company's state of incorporation is required to
govern.
(d) Counterparts. This agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(e) Termination. This agreement shall terminate at any time agreed upon in
-----------
writing by the Management
<PAGE>
page 6
Stockholder and the holders of a majority of the shares of Preferred Stock held
by the Purchasers, or if no Preferred stock is outstanding, a majority of the
Common Stock held by the Purchasers. The obligations of the Management
Stockholder under paragraph 1(a) of this agreement shall terminate at such time
as either (i) BTC holds fewer than 2,900,000 shares of Common Stock (including
for this purpose Conversion Shares obtainable upon conversion of Preferred Stock
held by it), or (ii) the net proceeds of all sales of Common Stock by BTC
completed after the date of this agreement are, in the aggregate, $75,000,000 or
more. The obligations of the Management Stockholder under paragraph 3(a)(i) of
this agreement shall terminate at such time as the covenants contained in the
Purchase Agreement terminate pursuant to Section 8 of the Purchase Agreement.
<PAGE>
page 7
Please confirm our agreement on these matters by singing a copy of this
letter in the space provided below.
Sincerely,
/s/ Joseph J. Bianco
----------------------
Joseph J. Bianco
ACKNOWLEDGED AND
AGREED:
BT CAPITAL PARTNERS, INC.
By: /s/ Robert Marakovits
-----------------------
Title:
BCI GROWTH IV, L.P.
By: Glenpointe Associates, LLC
By: /s/ Stephen Eley
---------------------
General Partner
Managing Member
<PAGE>
EXHIBIT 7.5
VOTING AGREEMENT
----------------
THIS VOTING AGREEMENT, dated as of July 16, 1996 (this "Agreement"), is by
---------
and among the stockholders and option holders of Alliance Entertainment Corp., a
Delaware corporation (the "Company"), signing this Agreement at the end hereof
-------
(collectively, the "Stockholders", and individually, a "Stockholder").
------------ -----------
WHEREAS, each Stockholder is the record and beneficial owner of that number
of shares of Common Stock, par value $.0001 per share ("Common Stock"), of the
------------
Company, set forth opposite such Stockholder's name on Exhibit A attached
---------
hereto; and
WHEREAS, pursuant to a Preferred Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement"), between the Company and the Purchasers
------------------
named therein (the "Purchasers"), the Company has agreed to issue and sell to
----------
the Purchasers 422,500 shares of its Series A Convertible Preferred Stock, par
value $0.01 per share ("Preferred Stock"); and
---------------
WHEREAS, the Purchase Agreement requires the Company to use its best
efforts to obtain the approval of its stockholders with respect to the
conversion rights of the Preferred Stock, at the next regular or special meeting
of the stockholders of the Company (the "Meeting");
-------
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter contained, the Stockholders hereby agree as
follows:
1. Voting of Shares by Stockholders. Each Stockholder agrees to vote all
--------------------------------
of the shares of Common Stock and which are now or hereafter owned by such
Stockholder, beneficially or of record, or which he or it otherwise is entitled
to vote, including without limitation those shares
<PAGE>
identified on Exhibit A attached hereto, at the Meeting or at any other special
---------
or annual meeting of the stockholders of the Company, or by any written consent,
whereat or whereby the same are considered for approval by the stockholders of
the Company, for (a) the approval of the conversion rights of the Preferred
Stock, as set forth in the Certificate of Designations attached to the Purchase
Agreement, and (b) the approval of the Company's issuance of Common Stock
pursuant to any Purchaser's exercise of any such conversion rights.
2. Changes in Common Stock. In the event that subsequent to the date of
-----------------------
this Agreement any shares or other securities (other than any shares or
securities of another corporation issued to the stockholders of the Company
pursuant to a plan of merger) are issued on, or in exchange for, any of the
shares of the Common Stock or Preferred Stock held by the Stockholders by reason
of any stock divided, stock split, consolidation of shares, reclassification, or
consolidation involving the Company, such shares or securities shall be deemed
to be Common Stock for purposes of this Agreement.
3. Representations of Stockholders. Each Stockholder hereby represents
-------------------------------
and warrants that such Stockholder (i) owns and has the right to vote the number
of shares of the Common Stock set forth opposite his or its name on Exhibit A
---------
attached hereto, (ii) has full power to enter into this Agreement and has not,
prior to the date of this Agreement, executed or delivered any proxy or entered
into any other voting agreement or similar arrangement that would conflict with
the purposes or provisions of this Agreement, and (iii) will not take any action
inconsistent with the purposes and provisions of this Agreement.
4. Enforceability. Each Stockholder expressly agrees that this Agreement
--------------
shall be specifically enforceable in any court of competent jurisdiction in
accordance with its terms against each of the parties hereto.
5. Benefit. This Agreement shall be binding upon and inure to the benefit
-------
of the respective parties hereto and their successors and assigns. This
Agreement shall also
2
<PAGE>
inure to the benefit of the Purchasers and shall be fully enforceable by each of
them as though they were parties hereto.
6. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within the State of New York.
7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8. Notifications. Each of the parties agrees to notify the others
-------------
promptly of to any matter which could reasonably be expected to give rise to a
filing or other requirement by such other parties under applicable Federal or
state securities laws.
IN WITNESS WHEREOF, the Stockholders have executed this Agreement as of the
date first above written.
BT CAPITAL PARTNERS, INC.
By: /s/ Robert Marakovits
-----------------------
Title:
BCI GROWTH III, L.P.
By: /s/ Stephen Eley
-----------------------
General Partner
BCI GROWTH IV, L.P.
By: Glenpointe Associates, LLC
3
<PAGE>
By: /s/ Stephen Eley
------------------------
General Partner
Managing Member
BAIN CAPITAL, INC.
By: /s/ Robert C. Gay
------------------------
Title:
4
<PAGE>
/s/ Joseph J. Bianco /s/ Joseph J. Bianco
- --------------------- --------------------------
Joseph J. Bianco Joseph J. Bianco
Attorney-in-fact
and proxy for
/s/ Peter Kaufmann Alan Shapiro
- --------------------- Laurence Berstein
Peter Kaufmann Barry L. Goldin
Anil K. Narang
Jerry Bassin
/s/ R. Tobias Knobel
- ---------------------
R. Tobias Knobel
/s/ John H. Friedman /s/ Elliot B. Newman
- --------------------- --------------------------
John H. Friedman Elliot B. Newman
/s/ Robert O. Marx /s/ Terence Shand
- ---------------------- --------------------------
Robert O. Marx Terence Shand
5
<PAGE>
Exhibit A
---------
to
Voting Agreement
Shares Owned or Otherwise
Stockholder Entitled to Vote
- ----------- -------------------------
BT Capital Partners, Inc.
BCI Growth III, L.P.
BCI Growth IV, L.P.
Bain Capital, Inc.
Joseph J. Bianco
Peter Kaufmann
R. Tobias Knobel
John H. Friedman
Robert O. Marx
Elliot B. Newman
Terence Shand
6
