ALLIANCE ENTERTAINMENT CORP.
PURCHASE AGREEMENT
December 20, 1996
To the Purchasers (the "Purchasers")
named in Section 1 below
Dear Sirs:
The undersigned, ALLIANCE ENTERTAINMENT CORP., a Delaware
corporation (the "Company"), proposes to issue and sell to the Purchasers for
cash (i) 57,500 shares (the "Series B Shares") of its Series B Convertible
Preferred Stock, par value $0.01 per share ("Series B Preferred Stock"), and
(ii) notes in the aggregate principal amount of $10,000,000 exchangeable into
shares of Series B Preferred Stock (the "Convertible Notes"), subject to the
terms and conditions set forth herein. In addition, pursuant to Section 1.4
herein, WCI will be required to provide a standby purchase commitment in
connection with a rights offering (the "Rights Offering") to the holders of
Common Stock of the Company to subscribe for an aggregate of approximately
3,500,000 shares (the "Series C Shares," and collectively with the Series B
Shares, the "Shares") of its Series C Convertible Preferred Stock, par value
$0.01 per share (the "Series C Preferred Stock," and collectively with the
Series B Preferred Stock, the "Preferred Stock," and together with the
Convertible Notes, the "Securities"), subject to the terms and conditions set
forth herein.
The Securities will be issued pursuant to, and subject to,
the terms and conditions of this Agreement (the terms "this Agreement" or
"Purchase Agreement" as used herein or in any Exhibit hereto shall mean this
Agreement and the Exhibits hereto individually and collectively as they may from
time to time be modified or amended).
As used in this Agreement, the following terms shall have the
following meanings:
"Bank Agreement" shall mean the Third Amended and Restated
Credit Agreement dated as of July 25, 1995 among the Company, certain
Subsidiaries of the Company and the lenders named therein, as amended
from time to time.
"BTC" shall mean BT Capital Partners, Inc.
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York City are
authorized or required by law to close.
"Closing Dates" shall mean the Series B Closing Date, the
Convertible Note Closing Date and the Series C Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean the Company's Common Stock, par
value $0.0001 per share.
"Contingent Stock" shall mean the Tranche 1 Contingent Stock
and the Tranche 2 Contingent Stock as such terms are defined in the
Stock Acquisition and Merger Agreement.
"Conversion Shares" shall mean shares of Common Stock issued
or issuable upon conversion of Preferred Stock.
"Convertible Note Closing Date" shall mean the date of
the Convertible Note Closing.
"CVI" shall mean Cypress Ventures, Inc., a wholly owned
subsidiary of WCI.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"fully diluted" shall mean taking into account all outstanding
warrants and options to acquire Common Stock as though exercised, and
all outstanding securities convertible into Common Stock (including
without limitation the Preferred Stock) as though converted on the date
of determination, but not taking into account any Contingent Stock.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HSR Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976 or any successor law, together with the
regulations and rules issued thereunder.
"NYSE" shall mean the New York Stock Exchange.
"Public Debt Indenture" shall mean the Indenture dated as of
July 25, 1995 among the Company, certain Subsidiaries of the Company
and Bankers Trust Company, as trustee, as amended from time to time.
"Public Offering" shall mean any time a registration statement
filed under the Securities Act respecting a primary offering of Common
Stock (or securities convertible into, or exchangeable for, Common
Stock or rights to acquire Common Stock or such securities), which is
underwritten on a firmly committed basis, is declared effective and the
securities so registered are issued and sold.
"Rights" shall have the meaning set forth in Section 4.8.
"Rights Offering" shall have the meaning set forth in the
preamble of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall have the meaning set forth in the
preamble of this Agreement.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Series B and Convertible Notes Closing Date" shall mean the
date of the closing of the purchase and sale of the Series B Shares and
the Convertible Notes.
"Series B Certificate of Designations" shall mean the
certificate of designations establishing the terms of the Series B
Preferred Stock.
"Series B Preferred Stock" shall have the meaning set forth in
the preamble of this Agreement.
"Series B Shares" shall have the meaning set forth in the
preamble of this Agreement.
"Series C Certificate of Designations" shall mean the
certificate of designations establishing the terms of the Series C
Preferred Stock.
"Series C Closing" shall mean the closing of the purchase and
sale of the Series C Shares.
"Series C Closing Date" shall mean the date of the closing of
the purchase and sale of Series C Shares pursuant to the terms and
conditions of this Agreement.
"Series C Preferred Stock" shall have the meaning set forth in
the preamble of this Agreement.
"Series C Preferred Stock Notice" shall mean a written notice
delivered by the Company to the Purchasers in which the Company elects
to sell the Series C Shares to the Purchasers pursuant to Section
1.2(a) hereof.
"Series C Shares" shall have the meaning set forth in the
preamble of this Agreement.
"Stock Acquisition and Merger Agreement" shall mean the
Stock Acquisition and Merger Agreement, dated as of August 15,
1996 by and among ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, WCI, U.S. Equity Partners,
L.P., U.S. Equity Partners (Offshore), L.P., Red Ant Box,
Inc., the Company and Alliance Acquisition Co. Inc.
"Subsidiary" shall mean each corporation or other entity, if
any, of which the Company or another Subsidiary shall own at least
fifty percent (50%) of (x) the stock of any class having power under
ordinary circumstances to vote for the election of directors or (y) the
capital or equity, however named.
"WCI" shall mean ▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc.
In connection with the issuance of the Securities, the Company
agrees with each of the Purchasers and the Purchasers severally agree with the
Company as follows:
Section 1. Purchase and Sale of Securities.
1.1 Series B Preferred Stock. (a) Subject to the terms and
conditions of this Agreement, the Company agrees to issue and sell to each
Purchaser named below, and such Purchaser agrees to purchase from the Company,
on the Series B and Convertible Notes Closing Date, at an aggregate price of
$5,000,000, the number of shares of Series B Preferred Stock set forth opposite
such Purchaser's name below:
Name and Address
of Purchaser Number of Shares
Cypress Ventures, Inc. 57,500
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(b) Certificate of Designation. The Series B Preferred Stock
shall be issued pursuant to a certificate of designations substantially in the
form of Exhibit A hereto (the "Series B Certificate of Designations"), which
shall be in effect on the Series B and Convertible Notes Closing Date.
(c) Payment of Purchase Price. The purchase price for the
Series B Shares shall be payable on the Series B and Convertible Notes Closing
Date, in cash by wire transfer of immediately available funds pursuant to the
Company's written instructions. The Series B and Convertible Notes Closing Date
shall be December 20, 1996 or such later date as the parties mutually agree.
1.2 Convertible Notes. (a) Subject to the terms and conditions
of this Agreement, the Company agrees to issue and sell to each Purchaser, and
each Purchaser severally agrees to purchase from the Company, at a price of 100%
of the principal amount thereof on the Series B and Convertible Notes Closing
Date, the principal amount of Convertible Notes set forth opposite such
Purchaser's name below:
Name and Address Principal Amount of
of Purchasers Convertible Notes
Cypress Ventures, Inc. $2,500,000
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
BT Capital Partners, Inc. $7,500,000
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - 34th Floor
New York, New York 10006
(b) Form of Convertible Notes. The Convertible Notes
shall be issued in the form annexed hereto as Exhibit C.
(c) Payment of Purchase Price. The purchase price for the
Convertible Notes shall be payable on the Series B and Convertible Notes Closing
Date, in cash by wire transfer of immediately available funds pursuant to the
Company's written instructions. The Series B and Convertible Notes Closing Date
shall be the date that the conditions specified in Section 3.1 have been
satisfied, or such later date as may be mutually agreed upon by the parties
hereto.
1.3 Financing Fee. The Company agrees to pay on the
Series B and Convertible Notes Closing Date a financing fee of (i)
$225,000 to WCI and (ii) $225,000 to BTC.
1.4 Series C Preferred Stock. (a) Subject to the terms and
conditions of this Agreement, WCI agrees to act as lead manager of the Rights
Offering on a best efforts basis and shall purchase up to 1,750,000 shares of
Series C Stock at a price of $10.00 per Share, in the event the Rights Offering
is not fully subscribed. WCI's obligation to purchase Series C Shares is subject
to the conditions set forth in Section 3.2. BTC shall have the right, and WCI
agrees to cooperate with BTC in the event BTC elects prior to the commencement
of the Rights Offering, to purchase the sum of (i) 50% of the Series C Shares
that are not subscribed for in the Rights Offering, and (ii) 50% of the
aggregate number of shares subscribed for by BTC and WCI.
The subscription price and other material terms of the Rights
Offering shall be substantially as set forth in the Summary of Terms attached as
Schedule 1.4 hereto.
(b) Certificate of Designations. The Series C Preferred Stock
shall be issued pursuant to a certificate of designations substantially in the
form of Exhibit B hereto (the "Series C Certificate of Designations"), which
shall be in effect on the Series C Closing Date.
(c) Payment of Purchase Price. The purchase price for the
Series C Shares shall be payable on the Series C Closing Date, in cash by wire
transfer of immediately available funds pursuant to the Company's written
instructions. The Series C Closing Date shall be the date on which all the
conditions to closing set forth in Section 3.2 have been satisfied or waived.
(d) Financing Fee. The Company agrees to pay on the Series C
Closing Date a financing fee in the aggregate amount of $1,050,000 to be
allocated among WCI and BTC pro rata based upon the commitment to purchase
Series C Shares not subscribed for in the Rights Offering and the number of
shares purchased at the Series C Closing.
(e) Syndication. The Purchasers shall have the right to assign
their rights and obligations under this Agreement with respect to the purchase
of the Series C Shares, provided that (i) the assignees ("Substituted
Purchasers") agree to be bound by the terms and conditions contained in this
Agreement, including, without limitation, the representations and covenants
contained in Sections 6 and 7 herein, in form and substance reasonably
satisfactory to the Company and its counsel, and (ii) no such assignment shall
cause the Series C Preferred Stock to be subject to the registration
requirements of the Securities Act, and provided further that the Purchasers
shall not be relieved of their obligations to purchase the Series C Shares if
they assign their rights and obligations hereunder.
1.5 Registration Rights. (a) The Company agrees to use best
efforts to maintain with respect to the Conversion Shares and all other shares
of Common Stock held by the Purchasers on the Closing Date an effective
registration statement under the Securities Act and a current prospectus
relating thereto, and effective registration statements or qualifications under
the securities laws of each holder's state of residence, for a period of five
(5) years after the date hereof or, if later, until the Purchaser is no longer
an affiliate (as defined in the Exchange Act) of the Company. To the extent such
registration statements or qualifications are not maintained in effect, the
Purchasers and the Company shall have the rights and obligations set forth in
Exhibit D attached hereto with respect to registrations of the Company's
securities under the Securities Act.
(b) The rights of a Purchaser under Sections 2 and 3 of
Exhibit D shall cease to be exercisable after the later of (a) the fifth
anniversary of the date of this Agreement, and (b) any date as of which the
Purchasers have disposed of shares of Common Stock constituting 90% of the
Common Stock held by them (including Conversion Shares issuable upon conversion
of the Shares held by them) on the date hereof, in either case provided that the
Company shall continue to comply with the public information requirements for
the availability of Rule 144 under the Securities Act with respect to subsequent
sales by the Purchaser.
Section 2. Representations of the Company.
In order to induce the Purchasers to purchase the Securities,
the Company hereby represents and warrants to, and agrees with, the Purchasers
and their respective successors, endorsees and assigns that:
2.1 Certificate of Designations. The Company has filed the
Series B Certificate of Designations and the Series C Certificate of
Designations with the Secretary of State of the State of Delaware. The Series B
Certificate of Designations and the Series C Certificate of Designations and the
resolutions of the Company's Board of Directors contained therein are in full
force and effect.
2.2 Organizational Documents. The Company has delivered to the
Purchasers an accurate and complete copy of (a) its Certificate of Incorporation
and all amendments thereto, certified by the Secretary of State of the State of
Delaware, and (b) its By-laws and all amendments thereto, certified by its
Secretary or Assistant Secretary.
2.3 Existence and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Company is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction where failure to so
qualify or be in good standing as a foreign corporation could reasonably be
expected to have a material adverse effect on its business, operations,
prospects, properties or condition (financial or otherwise), or its ability to
perform its obligations hereunder.
2.4 Power and Authority. The Company has all corporate power
and authority necessary to own, operate or lease its properties and assets and
to conduct its business as now conducted by it. The Company has all corporate
power and authority necessary to issue the Securities, and to execute, deliver,
and perform its obligations under this Agreement (including without limitation
Exhibit D hereto) and the Securities (collectively, the "Transaction
Documents").
2.5 Corporate Action. The Company has taken all
corporate action required to authorize the issuance of the
Securities and the execution, delivery and performance of the
Transaction Documents.
2.6 Due Execution and Delivery. The Company has duly executed
and delivered each of the Transaction Documents, except that the Convertible
Notes, the Series B Shares and the Series C Shares shall not be executed and
delivered until their respective Closing Dates.
2.7 Consents; Governmental Approvals. No consent or approval
of any person, firm or corporation, and no consent, license, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required to be obtained or made by or on behalf of the Company in
connection with the offer, issuance and sale of the Securities, the execution,
delivery or performance of any of the Transaction Documents or the completion of
the transactions contemplated thereby, except for (a) filings with the SEC, the
NYSE and under state securities laws that may be required, (b) filings under the
HSR Act contemplated by Section 4.5, (c) consent of the banks under the Bank
Agreement to permit the issuance of the Convertible Notes and (d) approval of
the stockholders of the Company contemplated by Section 4.6.
2.8 Binding Effect. Each of the Transaction Documents is a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or limitations on the
availability of equitable remedies. The terms of the Series B Certificate of
Designations and the Series C Certificate of Designations applicable to the
Series B Shares and Series C Shares, respectively, and the Convertible Notes are
legal, valid and binding obligations of the Company, enforceable against it in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or limitations on the
availability of equitable remedies.
2.9 Absence of Conflicts. The issuance of the Securities and the execution,
delivery and performance of the Transaction Documents by the Company do not and
will not (a) conflict with or violate any provision of the Certificate of
Incorporation, as amended, or By-laws of the Company, (b) conflict with or
result in a violation, breach or default by the Company under (i) any provision
of any existing statute, law, rule or regulation binding on it or any order,
judgment, award, decree, license or authorization of any court or governmental
instrumentality, authority, bureau or agency binding on it, or (ii) any material
provision of any mortgage, indenture, lease or other contract, agreement,
instrument or undertaking to which it is a party or will be a party immediately
after the Series B and Convertible Notes Closing and the Series C Closing, or by
which or to which it or any of its property or assets is now or immediately
after such Closings will be bound or subject, or (c) result in the creation or
imposition of any lien, encumbrance or other charge on any of its properties or
assets.
2.10 No Defaults. None of the Company or its Subsidiaries is
in default under or in violation of (a) its Certificate of Incorporation, as
amended, or By-laws, (b) any agreement or instrument to which it is a party
relating to its indebtedness for borrowed money, (c) any other agreement or
instrument to which it is a party, (d) any statute, rule, writ, injunction,
judgment, decree, order or regulation of any court or governmental authority
having jurisdiction over it, or (e) any license, permit, certification or
approval requirement of any customer, supplier, governmental authority or other
person, in the case of (c), (d) or (e) above, in any way that could reasonably
be expected to have a material adverse effect on the present or prospective
business, operations, prospects, properties, assets or condition (financial or
otherwise) of such corporation, or the Company's ability to perform its
obligations under any of the Transaction Documents.
2.11 Capitalization and Stockholders. As of November 30, 1996, the
authorized capital stock of the Company consisted of: (i) 100,000,000 shares of
Common Stock, of which (A) 44,764,853 shares are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights, (B) no shares are held in the treasury of the
Company, (C) 13,966,551 shares are reserved for future issuance for the exercise
of outstanding stock options and (D) 1,670,773 shares are reserved for future
issuance for the exercise of warrants, and (ii) 10,000,000 shares of preferred
stock, of which 422,500 shares of Series A Convertible Preferred Stock
(initially convertible into 5,827,586 shares of Common Stock) are issued and
outstanding. Except for the Contingent Stock and as described in Schedule 2.11,
no shares of the capital stock or other equity securities of the Company are
authorized, issued or outstanding, or reserved for any other purpose, and there
are no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character (including, without
limitation, obligations to issue shares as the deferred purchase price for
acquisitions of stock or assets of third parties) to which the Company or any of
its Subsidiaries is a party relating to the issued or unissued capital stock or
other equity securities or ownership interests of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
issue or sell any shares of capital stock or other equity securities or
ownership interests of the Company or any of its Subsidiaries, by sale, lease,
license or otherwise. The Company has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote or which are
convertible into or exercisable for securities having the right to vote with the
stockholders of the Company on any matter. There are no outstanding contractual
obligations, commitments, understandings or arrangements of the Company or any
of its Subsidiaries to repurchase, redeem or otherwise acquire or make any
payment in respect of any shares of capital stock or other equity securities or
ownership interests of the Company or any of its Subsidiaries. There are no
preemptive or similar rights to purchase or otherwise acquire shares of capital
stock of the Company. Immediately after the Series B and Convertible Notes
Closing and the Series C Closing, all outstanding shares will be duly and
validly issued and outstanding and fully paid and nonassessable.
2.12 SEC Documents. (a) The Common Stock of the Company is
registered pursuant to Section 12(g) of the Exchange Act and the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in
addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC. The Company has delivered or made
available to the Purchasers true and complete copies of (i) its annual reports
on Form 10-K and quarterly reports on Form 10-Q for its 1994 and 1995 fiscal
years, (ii) proxy statements, information and solicitation materials filed by
the Company with the SEC since January 1, 1994, and (iii) each other report,
registration statement, proxy statement and other document filed with the SEC
since the filing of its most recent Form 10-K (all of the foregoing,
collectively, the "SEC Documents").
(b) As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder and other federal, state and
local laws, rules and regulations applicable to such SEC Documents, and none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
2.13 Financial Statements. The financial statements of the
Company included in the SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (a) as may be otherwise indicated in such financial statements or the
notes thereto or (b) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments which adjustments could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
financial condition of the Company and subject to adjustments as previously
disclosed to the Purchasers).
2.14 No Material Adverse Change. Since September 30, 1996, the
date through which the most recent quarterly report of the Company on Form 10-Q
has been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, there has been no material adverse change in the businesses,
properties, prospects, operations or financial condition of the Company and its
Subsidiaries, except as otherwise disclosed or reflected in other SEC Documents,
or otherwise disclosed to the Purchasers on or before the Series B and
Convertible Notes Closing Date with respect to facts existing prior to the
Series B and Convertible Notes Closing Date.
2.15 No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
Subsidiaries, or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company and which has not been
so publicly disclosed or announced, or otherwise disclosed to the Purchasers on
or before the Series B and Convertible Notes Closing Date with respect to facts
existing prior to the Series B and Convertible Notes Closing Date.
2.16 No General Solicitation. Neither the Company, nor any of
its affiliates, nor, to its knowledge, any person acting on its or their behalf
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Securities.
2.17 No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Securities under the Securities Act.
2.18 Brokers. The Company represents and warrants that it has
employed no brokers, agents or finders in carrying on the negotiations relating
to this Agreement or to the transactions herein contemplated.
2.19 Untrue or Misleading Statements. Neither this Agreement
nor any other Transaction Document or other agreement, certificate, instrument
or written statement furnished by or on behalf of the Company or, to the best of
the Company's knowledge, by any other person, firm or corporation, to the
Purchasers in connection with the transactions contemplated by this Agreement,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which such statements were made.
2.20 Receivables. Except to the extent, if any, reserved for
on the September 30, 1996 balance sheet (after giving effect to the previously
disclosed restructuring or other charges to be effected in the fourth quarter of
1996 and except with respect to transactions not material, singly or in the
aggregate, to the Company as a whole) all Receivables reflected on such balance
sheet:
(a) arose from the sale of inventory or services to
persons not affiliated with the Company and in the ordinary
course of business; and
(b) constitute or will constitute, as the case may be, valid
and collectible claims of the Company not subject to valid claims of
set-off or other defenses or counterclaims other than normal cash
discounts and product returns in the ordinary course of business.
2.21 Inventories. Subject to amounts reserved therefor on the
September 30, 1996 balance sheet (after giving effect to the previously
disclosed restructuring and other charges to be effected in the fourth quarter
of 1996 and except for amounts which are not, singly or in the aggregate,
material to the Company as a whole):
(a) the values at which all inventories are carried on the
September 30, 1996 balance sheet reflect the historical inventory
valuation policy of the Company and comply with generally accepted
accounting principles;
(b) the Company has good and marketable title to the
inventories included on the balance sheet;
(c) the Company is not under any obligation or liability with
respect to accepting returns of items of inventory or merchandise in
the possession of its customers other than in the ordinary course of
business; and
(d) the inventories are in good and merchantable condition in
all material respects, are suitable and usable for the purposes for
which they are intended and are in a condition such that they can be
sold in the ordinary course of business.
2.22 Fairness Opinion. The Company has received the opinion of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Incorporated as to the fairness to the Company, as of the date of
this Agreement, of the issuance of the Securities and the other transactions
contemplated hereby, from a financial point of view.
2.23 Customers. As of the date hereof, the Company has not
received any oral or written notice and has no reason to believe that any of the
Company's top ten customers in terms of gross revenues for the twelve months
ending December 31, 1996 has ceased, or will cease, to use the products,
equipment, goods or services of the Company or has substantially reduced, or
will substantially reduce, the use of such products, equipment, goods or
services at any time; provided, however, that in the event the Company shall
have received notice or have any reason to believe that such circumstances exist
on or after the Series B Closing Date but prior to the Series C Closing, it
shall promptly so inform the Purchasers in writing.
Section 3. Conditions Precedent.
3.1 Conditions Precedent for Series B and Convertible Notes
Closing. The obligation of WCI to purchase Series B Shares and WCI and BT
Capital Partners to purchase Convertible Notes hereunder on the Series B and
Convertible Notes Closing Date shall be subject to the satisfaction of each of
the following conditions precedent on or prior to such Series B and Convertible
Notes Closing Date:
(a) Representations. All representations and warranties made
in this Agreement and in any other agreement, certificate or instrument
furnished to the Purchasers in connection herewith shall be true and correct in
all material respects with the same force and effect as though such
representations and warranties had been made at the time of, and immediately
after giving effect to, the sale of Series B Shares.
(b) Officer's Certificate. The Company shall deliver to the
Purchasers a certificate of its President, Senior Executive Vice President or
Executive Vice President dated the Series B and Convertible Notes Closing Date,
in form and substance reasonably satisfactory to the Purchasers and their
counsel, certifying the satisfaction of the conditions in Section 3.1(a).
(c) No Material Adverse Change. The Purchasers shall be
satisfied that no event, circumstance or condition shall have occurred and be
continuing that could reasonably be expected to have a material adverse effect
on the Company's business, operations, prospects, properties or condition
(financial or otherwise), or its ability to perform its obligations hereunder.
(d) Suspension of Trading. Trading in the Company's Common
Stock shall not have been suspended by the SEC or any exchange on which it is
listed for trading (except for any suspension of trading of limited duration
agreed to by the Company solely to permit dissemination of material information
regarding the Company), and trading in securities generally as reported by such
exchange(s) shall not have been suspended or limited, other than a temporary
suspension in trading to provide for an orderly market.
(e) Voting Agreement. The parties thereto shall have
executed and delivered to the Purchasers a Voting Agreement
substantially in the forms of Exhibit E attached hereto.
(f) Legal Opinion. The Company shall have delivered to
the Purchasers the executed legal opinions of ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
and Messrs. ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to the Company, dated
the Series B and Convertible Notes Closing Date in form and
substance reasonably satisfactory to the Purchasers and their
counsel.
(g) Bank Agreement. The Bank Agreement shall have been
amended in form satisfactory to the Purchasers to permit the
issuance of the Convertible Notes.
(h) Fees. The Purchasers (or their agents) shall have received
the fees and other amounts payable on the Series B and Convertible Notes Closing
Date referred to in Section 9.5 and in Section 1.3.
(i) Board of Directors Representation. On or before the Series
B and Convertible Notes Closing Date, Messrs. Bassin, Hochman, Marx, Newman,
▇▇▇▇▇▇ and ▇▇▇▇▇ shall have resigned (effective upon the designation of their
successors) from the Board of Directors of the Company, and there shall have
been elected and qualified pursuant to the By-laws of the Company as successor
directors to such resigning directors on the Board of Directors of the Company
four persons designated by WCI and two persons designated by BTC, such persons
to be in addition to existing designees of BTC and WCI serving on the Board of
Directors.
(j) AT Employment Agreement. The Company and ▇▇▇▇▇ ▇▇▇▇▇▇
shall have executed an amendment to the AT Employment Agreement (as such term is
defined in the Stock Acquisition and Merger Agreement) in the form attached as
Exhibit F hereto.
(k) Restated By-laws. The By-laws of the Company shall
have been amended to read as set forth in Exhibit G hereto.
(l) Stock Acquisition and Merger Agreement. The Company, WCI
and ▇▇▇▇▇ ▇▇▇▇▇▇ shall have executed a waiver with respect to the Stock
Acquisition and Merger Agreement in the form attached as Exhibit H hereto.
(m) Additional Documents. Each Purchaser shall have received
all such agreements, documents, instruments, approvals, certificates, legal
opinions and information as such Purchaser shall reasonably request in
connection with this Agreement, the Shares and the transactions herein and
therein contemplated, all of which shall be in form and substance reasonably
satisfactory to the Purchasers and their counsel.
(n) Additional Matters. All other documents and legal
matters in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory to the Purchasers.
3.2 Conditions for Series C Closing. The obligation of WCI and
BTC to purchase Series C Shares hereunder on the Series C Closing Date shall be
subject to the satisfaction of each of the following conditions precedent on, or
prior to, the Series C Closing Date:
(a) Series B and Convertible Notes Closing. The Series
B and Convertible Notes Closing shall have occurred.
(b) Rights Offering. The Rights Offering shall have expired in
accordance with its terms and all Series C Shares subscribed for shall have been
purchased. The registration statement and any prospectus (and all amendments
thereto) relating to the Rights Offering shall not contain any untrue statement
of fact which, in the Purchaser's opinion, is material, or omit to state any
fact which, in the Purchaser's opinion, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) Subscriptions. Persons other than WCI shall have purchased
or shall purchase simultaneously with the Series C Shares at least 1,750,000
shares of the Series C Shares.
(d) Representations. All representations and warranties made
in this Agreement and in any other agreement, certificate or instrument
furnished to the Purchasers in connection herewith (except that representations
and warranties given as of a specific date need only be true and correct as of
the date specified) shall be true and correct in all material respects with the
same force and effect as though such representations and warranties had been
made at the time of, and immediately after giving effect to, the sale of the
Series C Shares on the Series C Closing Date.
(e) No Defaults Under Indebtedness. The Company shall
not be in default under the Bank Agreement or the Public Debt
Indenture on the Series C Closing Date after giving effect to the
Series C Closing.
(f) Additional Officer's Certificate. The Company shall
deliver to the Purchasers a certificate of its President, Senior Executive Vice
President or Executive Vice President dated the Series C Closing Date, in form
and substance reasonably satisfactory to the Purchasers and their counsel,
certifying the satisfaction of the condition in Section 3.3(c).
(g) Legal Opinion. The Company shall have delivered to the
Purchasers the executed legal opinion of Messrs. ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇,
counsel to the Company, dated the Series C Closing Date, in form and substance
reasonably satisfactory to the Purchasers and their counsel.
(h) Fees. The Purchasers (or their agents) shall have received
the fees and other amounts payable on the Series C Closing Date referred to in
Section 9.5 and in Section 1.3(d).
(i) Bank Agreement. The Bank Agreement shall have been
amended in a manner reasonably satisfactory to the Purchasers.
(j) No Material Adverse Change. On or after the date hereof,
the Purchasers shall be satisfied, in the exercise of their reasonable business
judgment, that no event, circumstance or condition has had, or shall have
occurred and be continuing that could reasonably be expected to have, a material
adverse effect on the Company's business, operations, properties or condition
(financial or otherwise) taken as a whole, or its ability to substantially
perform its obligations hereunder, under the Notes or with respect to the
Preferred Stock.
(k) Restructuring Plan. WCI shall be afforded an opportunity
to review and to have access to the Company's third party consultants involved
in the Company's restructuring plans. As promptly as practicable, WCI shall (i)
suggest any modifications to the Company's restructuring plans they feel are
advisable and (ii) in good faith notify the Company if the Purchasers do not
reasonably believe that the savings reflected in such restructuring plan are
reasonably achievable. The Company agrees to consider in good faith any
suggestions presented by WCI with respect to the restructuring plan.
(l) Market Conditions. Trading in the Company's securities or
in securities generally on the New York Stock Exchange or in the
over-the-counter market shall not have been suspended, other than a temporary
suspension of trading to provide for an orderly market, or a general banking
moratorium shall not have been declared by Federal or state authorities.
(m) No Bankruptcy Proceeding. There shall not be pending
against the Company or a substantial part of its property any voluntary or
involuntary insolvency proceeding under any bankruptcy law and no order shall
have been entered and be in effect with respect to the Company or any
substantial part of its property under any bankruptcy law.
(n) Additional Documents. Each Purchaser shall have received
all such agreements, documents, instruments, approvals, certificates, legal
opinions and information as such Purchaser shall reasonably request in
connection with this Agreement, the Shares and the transactions herein and
therein contemplated, all of which shall be in form and substance reasonably
satisfactory to the Purchasers and their counsel.
(o) Additional Matters. All other documents and legal
matters in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory to the Purchasers.
Section 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 Section 12(b) or 12(g) of the
Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under such Acts. The Company will take all action within its power to continue
the listing or trading of its Common Stock on the NYSE and will comply in all
respect with the Company's reporting, filing and other obligations under the
bylaws or rules of such exchange.
4.2 Financial Statements and Information. The Company will
furnish or cause to be furnished to each of the Purchasers (as long as such
Purchaser remains the beneficial owner of at least 25% of the Securities
purchased hereunder) the following financial statements and information:
(a) All reports and other written communications delivered by
the Company to its stockholders as such, and all registration statements (when
available to the public) and periodic reports filed by the Company or any
officer or director thereof with the SEC or any securities exchange, pursuant to
the Securities Act, the Exchange Act, or the rules of such securities exchange.
(b) With reasonable promptness, all financial statements or
reports (including comment letters to management) furnished to the Company by
its independent certified public accountants.
4.3 Use of Proceeds. The Company will use the proceeds
received from the sales of the Securities for general corporate
purposes.
4.4 Compliance with Applicable Law. The Company will comply,
and cause each Subsidiary to comply, with each statute, law, rule, regulation,
order or other governmental requirement, noncompliance with which (in any one
instance or in the aggregate) is likely to materially adversely affect (a) the
business, operations, property or financial condition of the Company or such
Subsidiary, or (b) the Company's ability to perform its obligations to the
Purchasers.
4.5 Pre-Merger Notification Act Compliance. If in connection
with any proposed conversion, exchange of the Convertible Notes or the issuance
or conversion of Preferred Stock the Company or a Purchaser determines that a
filing is required under the HSR Act, as promptly as practicable after
notification of the proposed conversion is received the Company will make all
such filings required by the HSR Act to be made in order to complete the
proposed conversion. The Purchasers will cooperate with the Company to the
extent reasonably necessary to complete such filings. The Company will pay all
filing fees required in connection with such filings. The issuance of Conversion
Shares resulting from such conversion may be delayed until two (2) days after
the expiration of the applicable waiting period following such filing(s).
4.6 Stockholder Approval. The Company shall exert its best
efforts to obtain the stockholders' approval and authorization of the issuance
of Common Stock upon conversion of the Series B Preferred Stock and the Series C
Preferred Stock as promptly as practicable after the Series B and Convertible
Notes Closing Date and the Series C Closing Date, respectively, all in
accordance with the terms of the Certificate of Designations, and all to the
extent necessary to satisfy the requirements of Rule 312.03 of the New York
Stock Exchange Listed Company Manual, as applied to the issuance of Common Stock
upon conversion of the Preferred Stock.
4.7 Further Assurances. The Company will execute and deliver
or cause to be executed and delivered such further instruments and do or cause
to be done such further acts as may be reasonably necessary to carry out its
obligations under this Agreement.
4.8 Rights Offering. The Company shall, as promptly as
practicable, use its best efforts to (a) file with the SEC and have
declared effective a Registration Statement covering (i) the
distribution to holders of the Company's common stock rights ("Rights") to
subscribe for and purchase an aggregate of 3,500,000 shares of Series C
Preferred Stock (the "Rights Offering"), (ii) the registration of the Series C
Preferred Stock issuable upon exercise of such Rights and (iii) the registration
of the Company common stock issuable upon conversion of such Series C Preferred
Stock; and (b) cause the Series C Preferred Stock and the common stock issuable
upon conversion thereof to be approved for listing on the NYSE. The Rights
Offering and the Rights shall have substantially the terms and conditions set
forth on Schedule 1 hereto.
4.9 Nomination of Certain Officers. For so long as WCI and BTC
hold 50% or more of the Securities issued to them pursuant to this Agreement,
WCI and BTC (or in the event WCI or BTC holds 50% or more of the Securities
purchased by it and the other does not hold 50% or more of the Securities
purchased by it, then such 50% or more holder alone) shall have the exclusive
power to nominate a candidate to be considered for the position of Executive
Vice President-Finance, subject to the consent of the Co-Chairman and Chief
Executive Officer of the Company, whose consent shall not be unreasonably
withheld. Such Co-Chairman and Chief Executive Officer shall not remove the
Executive Vice President - Finance without the approval of the Board of
Directors of the Company which shall be the only limitation of such Co-Chairman
and Chief Executive Officer's power to fire employees, and such Co-Chairman and
Chief Executive Officer shall retain the exclusive power to nominate a candidate
to be considered as the executive in charge of distribution operations or
logistics (or other similar position involving the supervision of the
warehousing and shipping of inventory), subject to the consent of WCI and BTC so
long as WCI and BTC hold 50% or more of the Securities issued to them pursuant
to the Purchase Agreement (or in the event WCI or BTC holds 50% or more of the
Securities purchased by it pursuant to the Purchase Agreement and the other does
not hold 50% or more of the Securities purchased by it pursuant to the Purchase
Agreement, then such 50% or more holder alone), which consent shall not be
unreasonably withheld.
4.10 Board of Directors Representation. In the event the
Series C Closing shall occur and BTC does not commit to purchase at least 50% of
the Series C Shares not subscribed for in the Rights Offering exclusive of
shares subscribed for by WCI and BTC, then BTC shall cause one of the persons
designated by BTC pursuant to Section 3.1(i) to serve on the Board of Directors
of the Company to resign, WCI shall designate a replacement and BTC shall cause
the other Directors designated by BTC to vote in favor of such replacement. In
the event the Series C Closing shall occur and BTC commits to purchase at least
50% of the Series C Shares, and WCI does not purchase at least 50% of the Series
C Shares not subscribed for in the Rights Offering exclusive of shares
subscribed for by WCI and BTC, then WCI shall cause one of the persons
designated by WCI pursuant to Section 3.1(i) to serve on the Board of Directors
of the Company to resign, BTC shall designate a replacement and WCI shall cause
the other directors designated by WCI to vote in favor of such replacement.
Section 5. Investment Representation.
5.1 Securities Act. Each Purchaser acknowledges that (a) the
Securities being acquired by such Purchaser are not being registered under the
Securities Act (other than the Series C Shares in connection with the Rights
Offering) on the ground that the issuance thereof is exempt from registration
under Section 4(2) of the Securities Act as not involving any public offering,
and (b) the Company's reliance on such exemption is predicated in part on the
representation hereby made to the Company by such Purchaser that it is
sophisticated in financial affairs and is able to evaluate the risks inherent in
investing in the Securities and is capable of bearing the economic loss of its
entire investment, and is acquiring its Securities for investment for its own
account, with no present intention of dividing its participation with others or
reselling or otherwise distributing the same, subject, nevertheless, to any
requirement of law that the disposition of its property shall at all times be
within its control. None of the Purchasers is aware of any particular occasion,
event or circumstance upon the occurrence or happening of which it intends to
dispose of its Securities.
5.2 Resales. None of the Purchasers will sell or transfer all
or any part of its Securities unless and until it shall first have given notice
to the Company describing such sale or transfer and furnished to the Company
either (i) an opinion, reasonably satisfactory to counsel for the Company, of
Shearman & Sterling, ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇▇ or other counsel skilled in securities
matters (selected by such Purchaser and reasonably satisfactory to the Company)
to the effect that the proposed sale or transfer may be made without
registration under the Securities Act, or (ii) an interpretive letter from the
staff of the SEC to the effect that no enforcement action will be recommended if
the proposed sale or transfer is made without registration under the Securities
Act, in either case accompanied by evidence that such transfer will be in
compliance with applicable state securities ("blue sky") laws; provided,
however, that the foregoing shall not apply with respect to (1) any transfer
pursuant to an effective registration statement under the Securities Act, or
pursuant to Rule 144 thereunder, or (2) any transfers between a Purchaser and
any institutional affiliate of such Purchaser for its own account.
5.3 Legends. The Company may place appropriate legends on the certificates
for the Securities and Conversion Shares concerning the restrictions set forth
in this Section 6 and may refuse to transfer any of the Securities or Conversion
Shares on its books should the holder thereof attempt to transfer any of them
otherwise than in compliance herewith and therewith. The Company agrees to
reissue certificates representing the Securities or, if applicable, the
Conversion Shares without the legend provided for above at such time as (i) the
holder thereof is permitted to dispose of such Securities or Conversion Shares
pursuant to Rule 144(k) under the Securities Act, (ii) the Securities or
Conversion Shares are sold to a purchaser or purchasers who (in the opinion of
counsel to such purchasers, in form and substance reasonably satisfactory to the
Company and its counsel) are able to dispose of such Securities or Conversion
Shares publicly without registration under the Securities Act, or (iii) such
securities are registered under the Securities Act.
Section 6. Transfers.
Subject only to compliance with the requirements of Section
5.2, each Purchaser shall be entitled to assign and transfer all or any part of
its Securities or Conversion Shares, or any interest or participation therein,
and its related rights under this Agreement; and upon the assignment or transfer
by such Purchaser of all or any part of its Securities or Conversion Shares or
its interest therein (except in a Public Offering, or a sale pursuant to Rule
144 under the Securities Act), the term "Purchaser" as used herein shall
thereafter include, to the extent of the interest so assigned or transferred,
the assignee or transferee of such interest. Notwithstanding the foregoing,
except for sales on the NYSE or otherwise made in the open market, or pursuant
to a Public Offering, Securities shall not be transferred to a competitor of the
Company without the prior consent of the Company's Board of Directors.
Section 7. Effectiveness of Agreement.
The covenants contained in this Agreement shall continue in
full force and effect with respect to the Purchasers until all Shares of
Preferred Stock and the Notes have been redeemed (and the redemption price
therefor paid in full) or have been converted, and all Conversion Shares have
been sold by the Purchasers in a Public Offering or pursuant to Rule 144 under
the Securities Act, except that (i) the covenants contained in Section 1.4 shall
terminate as provided in Section 1.4(b), and (ii) the covenants contained in
Sections 4.2(b) shall terminate at such time as the total number of shares of
Common Stock held by the Purchasers does not exceed [twenty-five (25)] percent
of the fully diluted outstanding shares of Common Stock of the Company purchased
by such Purchaser pursuant to this Agreement.
Section 8. Judicial Proceedings.
8.1 Jurisdiction. The Company irrevocably submits to the non-exclusive
jurisdiction of any New York State or Federal court sitting in the City of New
York over any suit, action or proceeding arising out of or relating to this
Agreement or any of the Securities or Conversion Shares. To the fullest extent
it may effectively do so under applicable law, the Company irrevocably waives
and agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.
8.2 Judgments. The Company agrees, to the fullest extent it
may effectively do so under applicable law, that a judgment in any suit, action
or proceeding of the nature referred to in Section 8.1 brought in any such court
shall, subject to such rights of appeal on issues other than jurisdiction as may
be available, be conclusive and binding upon the Company and may be enforced in
the courts of the United States of America or the State of New York (or any
other courts to the jurisdiction of which the Company is or may be subject) by a
suit upon such judgment.
8.3 Service. The Company consents to service of process in any
suit, action or proceeding of the nature referred to in Section 8.1 by mailing a
copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to its address specified in or designated pursuant to Section 9.1.
Such service (a) shall be deemed in every respect effective service of process
upon the Company in any such suit, action or proceeding and (b) shall, to the
fullest extent permitted by law, be taken and held to be valid personal service
upon and personal delivery to the Company.
8.4 Other Service or Jurisdiction. Nothing in this Section 8
shall affect the right of any of the Purchasers to serve process in any manner
permitted by law, or limit any right that any of the Purchasers may have to
bring proceedings against the Company in the courts of any jurisdiction or to
enforce in any lawful manner a judgment obtained in one jurisdiction in any
other jurisdiction.
8.5 Waiver of Jury Trial. THE COMPANY HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE NOW OR HEREAFTER TO A JURY TRIAL IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE SHARES OR
THE CONVERSION SHARES.
8.6 Remedies for Breach. Upon breach or default by the Company
with respect to any obligation hereunder, under the Shares or the Conversion
Shares, the Purchasers (or their agents) shall be entitled to protect and
enforce their rights at law, or in equity or by other appropriate proceedings
for specific performance of such obligation, or for an injunction against such
breach or default, or in aid of the exercise of any power or remedy granted
hereby or thereby or by law.
Section 9. Miscellaneous.
9.1 Notices. All notices, requests, demands or other
communications to or upon the respective parties hereto shall be in writing and
shall be deemed to have been given or made, and all financial statements,
information and the like required to be delivered hereunder shall be deemed to
have been delivered, five (5) days after deposited in the mails, registered or
certified with postage prepaid, addressed to the Company at ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attention: President, with a copy to the
counsel for the Company, ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and to the Purchasers at their respective addresses set
forth in Section 1 of this Agreement, or to such other address as any of them
shall specify in writing to the others. The Company shall maintain registers of
the holders of the Securities and the Conversion Shares which shall contain the
last address specified as provided in the preceding sentence. No other method of
giving notice is hereby precluded. Upon reasonable request of any Purchaser, the
Company will deliver to such Purchaser, at the Company's expense, additional
copies of all financial statements, information and the like required hereunder.
9.2 Cumulative Remedies, Etc. No failure or delay on the part
of any of the Purchasers in exercising any right, power or privilege hereunder,
and no course of dealing between the Company and the Purchasers, or any of them,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the simultaneous or later
exercise of any other right, power or privilege. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Purchasers, or any of them, would otherwise have. No notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Purchasers, or any of them, to take any other or
further action in any circumstances without notice or demand.
9.3 No Oral Changes; Assignment; Survival of Representations.
This Agreement may not be changed or terminated orally. This Agreement shall be
binding upon the Company and the Purchasers and their successors and assigns.
The Company shall not make any assignment of its rights under this Agreement or
subject this Agreement or its rights hereunder to any lien or security interest
of any kind whatsoever; and any such assignment, lien or security interest shall
be absolutely void and unenforceable as against the Purchasers. All agreements,
representations and warranties made herein or in writing otherwise in connection
herewith shall survive the issuance of the Securities.
9.4 Several Obligations. The Purchasers shall not be
jointly obligated hereunder; their obligations are several. The sales of
Securities to the Purchasers shall be deemed separate sales to each Purchaser.
9.5 Expenses. The Company agrees to pay and save the
Purchasers harmless against liability for the payment of all out-of-pocket
expenses arising in connection with the negotiation, preparation, execution,
delivery and enforcement of, and any amendment, supplement or modification to,
or waiver of any provision of, this Agreement or the Securities, and the
reasonable fees and disbursements of Shearman & Sterling and ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇▇,
such fees and disbursements in respect of such preparation, execution and
delivery to be paid by the Company on the Series B and Convertible Notes Closing
Date. Such other expenses shall be paid promptly by the Company as and when
payment thereof is requested by the Purchasers. The obligations provided for in
this Section 9.5 shall survive any termination of this Agreement.
9.6 Indemnification. The Company agrees to indemnify and hold
harmless each Purchaser, its subsidiaries, directors, officers and employees, to
the maximum extent permitted by law, from and against any and all liability
(including, without limitation, reasonable legal fees incurred in defending
against any such liability) under, arising out of or relating to this Agreement,
the Securities, the transactions contemplated hereby or thereby or in connection
herewith or therewith, and all action or failures to act and the transactions
contemplated thereby, including (to the maximum extent permitted by law) any
liability arising under Federal or state securities laws, except to the extent
such liability shall result from any act or omission on such Purchaser's part
constituting willful misconduct or gross negligence or the inaccuracy of
representations in Section 5. The obligations of the Company under this Section
9.6 shall survive and continue to be in full force and effect notwithstanding
the Shares not having been purchased, the redemption of the Shares or the
termination of this Agreement.
9.7 Publicity. Each party to this Agreement agrees not to
disclose the name of the other, the existence of this Agreement or the terms
hereof in any press release or other public disclosure, or in any proxy
statements, prospectus or other, similar materials filings with any governmental
entity, unless, required by law or in each such case, and the other party first
has reviewed and approved such usage, with such review and approval not to be
unreasonably delayed or withheld.
9.8 Governing Law. THIS AGREEMENT AND THE OTHER AGREEMENTS AND
INSTRUMENTS EXECUTED AS PROVIDED HEREIN, AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER, SHALL BE CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS.
9.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
9.10 Captions; Gender. The descriptive headings of the
Sections of this Agreement are inserted for convenience only and
shall not affect the meaning, construction or interpretation of any of the
provisions hereof. The use of the neuter form of a pronoun shall be deemed,
where appropriate, to include the masculine and feminine forms of such pronoun.
If you are in agreement with the foregoing, please sign in the
space provided below.
ALLIANCE ENTERTAINMENT CORP.
By:
Name:
Title:
The foregoing is hereby accepted
and agreed to as of the date
first above written.
Purchasers:
CYPRESS VENTURES, INC.
By:
Name:
Title:
▇▇▇▇▇▇▇▇▇▇▇ & CO., INC.
By:
Name:
Title:
BT CAPITAL PARTNERS, INC.
By:
Name:
Title:
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
OF
ALLIANCE ENTERTAINMENT CORP.
Pursuant to Section 151 of the Delaware General Corporation
Law (the "GCL"), ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"Corporation"), certifies as follows:
FIRST: Under the authority contained in Article FOURTH of the
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors of the Corporation has classified an aggregate of three hundred
thousand (300,000) shares of the authorized but unissued shares of preferred
stock of the Corporation into a series which shall be designated Series B
Convertible Preferred Stock.
SECOND: The following resolution was adopted by the Board of
Directors on December 19, 1996 and such resolution has not been modified and is
in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the
authorized but unissued shares of preferred stock of the Corporation, a series
of convertible preferred stock designated as Series B Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), and hereby fixes the
powers, designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series, as follows:
Section 01. Preferred Stock Dividends.
1.1 General Dividend Obligation. When, as and if declared by
the Board of Directors of the Corporation, the Corporation shall pay to the
holders of record of the Preferred Stock, out of the assets of the Corporation
available for the payment of dividends under the General Corporation Law of the
State of Delaware, preferential dividends at the times and in the amounts
provided for in this Section 1.
1.2 Payments of Dividends; Payments in Additional Shares. (a)
When declared by the Board of Directors of the Corporation, dividends on the
Preferred Stock shall be payable on whole shares of Preferred Stock on each
Dividend Payment Date (capitalized terms not otherwise defined herein being used
in this Certificate of Designations with the definitions set forth in Section
11).
(b) Dividends shall be paid only in additional whole shares of
Preferred Stock, having a Liquidation Value (exclusive of any accrued unpaid
dividends) equal in amount to the dividends payable, by mailing certificates for
such shares to each holder of record of Preferred Stock at such holder's address
as it appears on the Corporation's stock register at least five days prior to
the due date of each dividend or otherwise delivering such shares so as to be
received by such holder on the due date of such dividend. If any portion of a
dividend would result in the issuance of a fraction of a share of Preferred
Stock, such fraction shall be carried forward and accumulated with other
fractions and shall be paid on a subsequent Dividend Payment Date when such
accumulated fractions equal at least one whole share of Preferred Stock.
(c) If at any time dividends on the outstanding Preferred Stock
at the rate set forth herein shall not have been fully paid or declared and set
aside for payment, no dividends or other distributions shall be declared or paid
upon or set apart for payment on the shares of any other class of Junior
Securities.
1.3 Calculation of Dividends. Dividends on each share of
Preferred Stock shall be calculated cumulatively at the rate and in the manner
prescribed herein from and including the date of issuance of such share of
Preferred Stock, whether or not such dividends shall have been declared and
whether or not there shall be (at the time such dividends are calculated or
become payable or at any other time) profits, surplus or other funds or assets
of the Corporation legally available for the payment of dividends. For purposes
of this Section 1.3, the date on which the Corporation shall initially issue any
share of Preferred Stock shall be deemed to be its "date of issuance" regardless
of the number of times transfer of such share of Preferred Stock shall be made
on the stock register maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such share of Preferred
Stock (whether by reason of transfer of such share or for any other reason).
1.4 Dividend Rates. Dividends shall be cumulative, and shall
accrue on a daily basis on each Outstanding share of Preferred Stock at the rate
per annum (computed on the basis of a 360-day year having twelve thirty-day
months) of six percent (6%) of the Liquidation Value of each share of Preferred
Stock. To the extent not paid, on a Dividend Payment Date all unpaid dividends
accrued on each share of Preferred Stock Outstanding during such quarter (or
from and including the original date of issuance of such share in the case of
the initial quarter-end after the date of issuance) shall be added to the
Liquidation Value of such share and shall remain a part thereof until such
dividends are paid.
Section 2. Liquidation Preferences.
Subject to the holders' conversion rights provided below herein,
upon any liquidation (complete or partial), dissolution or winding up of the
Corporation, or any similar distribution of its assets to its stockholders which
results in a return of capital, whether voluntary or involuntary, the holders of
the Preferred Stock shall be entitled, before any distribution or payment is
made upon any Junior Securities of the Corporation, to be paid out of the assets
of the Corporation available for distribution to its stockholders (whether from
capital, surplus or earnings) an amount in cash equal to the sum of (i) the
aggregate Liquidation Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other distribution of assets, stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested, not less than
60 days prior to the payment date stated therein, to each record holder of any
share of Preferred Stock entitled thereto at the address for such record holder
shown on the Corporation's records. Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation, dissolution, winding up or similar distribution of the
Corporation within the meaning of any of the provisions of this Section 2. The
Preferred Stock shall rank pari passu with the Corporation's Series A
Convertible Preferred Stock.
Section 3. Redemptions of Preferred Stock.
3.1 Redemption Price. For each share of Preferred
Stock which is to be redeemed by the Corporation at any time and for any reason
in a redemption pursuant to this Section 3, the Corporation shall be obligated
on the Redemption Date, regardless of whether the Corporation shall be able or
legally permitted to make such payment on the Redemption Date, to pay to the
holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such share of Preferred Stock duly
endorsed in blank or accompanied by an appropriate form of assignment) the
Redemption Price for such share of Preferred Stock, payable in cash.
3.2 Redeemed or Otherwise Acquired Shares Not to
Be Reissued. Any shares of Preferred Stock redeemed
pursuant to this Section 3 or otherwise acquired by the
Corporation shall not be reissued, sold or transferred by
the Corporation and shall be retired.
3.3 Determination of Number of Each Holder's Shares to Be
Redeemed. The number of shares of Preferred Stock to be redeemed from each
holder thereof in each redemption under this Section 3 shall be determined by
multiplying the total number of shares of Preferred Stock to be redeemed times a
fraction, the numerator of which shall be the total number of shares of
Preferred Stock then held by such holder and the denominator of which shall be
the total number of shares of Preferred Stock then Outstanding, rounded if the
result is fractional to the nearest whole number of shares.
3.4 Optional Redemption by Corporation. (a) The Preferred Stock
may be redeemed in whole (but not in part), at the Redemption Price, at the
Corporation's option at any time after the seventh (7th) anniversary of the date
of original issuance of the Preferred Stock, on at least 30 days' notice.
3.5 Mandatory Redemption Based on Failure of Stockholders' Vote.
(a) In the event that the Preferred Stock has not become convertible in
accordance with Section 4.1(a) on or before July 26, 2005, then at any time
after such date (i) any holder of shares of Preferred Stock may require the
Corporation to redeem all or any portion of the Preferred Stock owned by such
holder, at the Redemption Price (as determined pursuant to this Section 3.5),
upon written notice to the Corporation requesting such redemption, or (ii) the
Corporation may, at its option, redeem the Preferred Stock then Outstanding in
whole (but not in part), at the Redemption Price (as determined pursuant to this
Section 3.5), upon written notice to the holders thereof. Notice of any such
election by the Corporation to redeem shall specify a redemption date not less
than 10 nor more than 30 days after the date of such notice.
(b) The Redemption Price for each holder's shares
of Preferred Stock redeemed pursuant to this Section 3.5
shall be the lesser of
(i) the amount which, on receipt by the holder, will cause the
holder to realize an Internal Rate of Return of thirty-five percent
(35%) with respect to its investment in such shares being redeemed, and
(ii) seventy-five percent (75%) of the Corporation's cumulative
EBITDA, for the period from the date of original issuance of the
Preferred Stock to the date of such redemption, multiplied by a
fraction, the numerator of which is the number of shares of Preferred
Stock to be redeemed from such holder and the denominator of which is
the aggregate number of shares of Preferred Stock issued by the
Corporation, provided that the Redemption Price per share of Preferred
Stock calculated pursuant to this paragraph (ii) shall in no event be
less than the Liquidation Value thereof.
3.6 Redemptions or Purchase by Corporation's Designee(s). In
lieu of any redemption of Preferred Stock by the Corporation permitted
hereunder, the Corporation may designate one or more purchasers who shall be
entitled to purchase the Preferred Stock from the holders thereof at the
applicable Redemption Price. Any such designee(s) shall have the rights and
obligations of the Corporation specified herein with respect to the redemption
of such shares.
3.7 Notice of Redemption. Except as otherwise expressly provided
herein, notice of any redemption of Preferred Stock, specifying the time and
place of redemption, the Redemption Price (in the case of a redemption under
Section 3.5, showing the computation thereof in reasonable detail) and the
Section and paragraph pursuant to which such redemption is being made, shall be
mailed by certified or registered mail, return receipt requested, to each holder
of record of shares of Preferred Stock to be redeemed, at the address for such
holder shown on the Corporation's records, not more than sixty (60) nor less
than thirty (30) days prior to the date on which such redemption is to be made.
The notice shall also specify the number of shares of Preferred Stock and the
certificate numbers thereof which are to be redeemed. With respect to
redemptions made pursuant to Section 3.4, upon mailing any such notice of
redemption the Corporation shall become obligated to redeem at the time of
redemption specified therein all shares of Preferred Stock therein specified.
In case less than all the shares of Preferred Stock represented by any
certificate are redeemed, a new certificate representing the unredeemed
shares of Preferred Stock shall be issued to the holder thereof without cost
to such holder. Notwithstanding any other provision of this Section 3, the
Corporation shall not be entitled to redeem any shares of Preferred Stock
in respect of which the holder of such Preferred stock has delivered to
Corporation a Conversion Notice after the delivery of notice by the
Corporation as provided in this paragraph but prior to the Redemption Date.
3.8 Rights After Redemption Date. Provided that the Redemption
Price is paid in full on the applicable Redemption Date, no share of Preferred
Stock shall be entitled to any dividends accrued after its Redemption Date, and
on such Redemption Date, except as otherwise provided herein or by law, all
rights of the holder of such share of Preferred Stock as a stockholder of the
Corporation, by reason of the ownership of such share, shall cease, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.
3.9 Other Redemptions. The Corporation shall neither redeem nor
otherwise acquire any shares of any class of Preferred Stock except (i) as
expressly authorized in this Certificate of Designations, or (ii) pursuant to
any offer of redemption made to the holders of Preferred Stock of such class pro
rata according to the shares held by them.
3.10 Deposit of Redemption Price. If on or before the date of
redemption specified in any notice of redemption of any share of Preferred
Stock, the Corporation shall irrevocably deposit the amount of the Redemption
Price thereof with a bank or trust company having an office in the City of New
York, designated in such notice of redemption, in trust for the benefit of the
holder of such share of Preferred Stock, such share of Preferred Stock shall be
deemed to have been redeemed on the date so specified, whether or not the
certificate for such share shall be surrendered for redemption and canceled.
Section 4. Conversion of Preferred Stock.
4.1 Conversion Procedures. (a) The Preferred Stock shall be
convertible into shares of Common Stock, in accordance with the terms of this
Section 4 after the receipt by the Corporation of a Conversion Notice as defined
in Section 4.1(c) hereof received at any time after the date that the issuance
of Common Stock upon such conversion is
approved by the holders of outstanding Common Stock, in compliance with Rule
312.03 of the New York Stock Exchange Listed Company Manual (or such approval
otherwise is not required) subject to the requirements of Section 4.1(b) hereof.
(b) A holder of shares of Preferred Stock may, at any time after
the requirements of Section 4.1(a) are satisfied, convert pursuant to this
Section 4 all or any part (in whole numbers of shares only) of the shares of
Preferred Stock held by such holder into such number of fully paid and
non-assessable whole shares of Common Stock as is obtained by multiplying the
number of shares of Preferred Stock so to be converted by the Liquidation Value
thereof and dividing the result by the Conversion Price then in effect. Such
right as to any particular share shall terminate at the close of business on the
day immediately prior to the date fixed for payment on the Preferred Stock upon
any liquidation, dissolution, winding up or similar distribution of the
Corporation.
(c) Each conversion of Preferred Stock shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holder or holders of the Preferred Stock) at any time during its usual
business hours, which shall be accompanied by a written notice by the holder of
such Preferred Stock (a "Conversion Notice") stating that such holder desires to
convert shares, or a stated number of shares, represented by a certificate or
certificates specifically described therein. Such Conversion Notice shall also
specify the name or names (with addresses) and denominations in which the
certificate or certificates for Common Stock shall be issued and shall include
instructions for delivery thereof. The Conversion Price shall be determined as
of the close of business on the date the certificate representing the Preferred
Stock and the Conversion Notice is received by the Corporation. Such conversion
shall be deemed to have been effected as of the close of business on the date on
which the certificate representing the Preferred Stock and the Conversion Notice
for such shares shall have been received by the Corporation, and as of such date
(the "Conversion Date") the rights of the holder of such Preferred Stock (or
specified portion thereof) as such holder shall cease and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
(d) As soon as possible after the Conversion Date (and in no
event more than 30 days after the Conversion Date), subject to Section 4.2(c),
with respect to the certificate(s) specified in (i) and (ii) below, the
Corporation shall deliver to the converting holder or, with respect to the
certificate(s) specified in (i) below, as specified by such converting holder:
(i) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion registered
in such name or names and such denomination or denominations as the
converting holder shall have specified;
(ii) a certificate representing any shares of Preferred Stock
which shall have been represented by the certificate or certificates
which shall have been delivered to the Corporation in connection with
such conversion but which shall not have been converted; and
(iii) a payment of cash in an amount equal to the value of any
fractional share of Common Stock that otherwise would be issuable in
connection with the Preferred Stock converted.
4.2 Authorization and Issuance of Common Stock.
The Corporation covenants and agrees that:
(a) The Corporation will at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuing upon the conversion of the Preferred Stock as provided in
this Section 4, such number of shares of Common Stock as shall then be issuable
upon the conversion of all Outstanding shares of Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issuable
shall, when issued, be duly and validly issued, fully paid and non-assessable
and free from all taxes, liens, and charges. The Corporation will take all such
action as may be necessary to assure that all shares of Common Stock may be so
issued without violation of any applicable law or regulation or any requirements
of any domestic stock exchange upon which any shares of Common Stock may be
listed.
(b) The Corporation will not take any action which results in any
adjustment of the number of shares of Common Stock acquirable upon conversion of
a share of Preferred Stock if after such action the total number of shares of
Common Stock issuable upon conversion of the Preferred Stock then Outstanding,
together with the total number of shares of Common Stock then Outstanding and
the total number of shares of Common Stock reserved for any purpose other than
issuance upon conversion of Common Stock, would exceed the total number of
shares of Common Stock then authorized by the Corporation's Certificate of
Incorporation, as amended.
(c) If any shares of Common Stock required to be reserved for
purposes of conversions of shares of Preferred Stock under this Certificate of
Designations require registration with, or approval of, any governmental
authority under any federal or state law (other than any registration under the
Securities Act of 1933, as then in effect, or any similar federal statute then
in force, or any state securities law, required by reason of any transfer
involved in such conversion), or listing on any domestic securities exchange,
before such shares may be issued upon conversion, the Corporation will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved for listing or listed on such domestic
securities exchange, as the case may be.
(d) The issuance of certificates for shares of Common Stock upon
conversion of shares of the Preferred Stock shall be made without charge to the
holders of such shares for any issuance tax in respect thereof, or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Preferred Stock converted.
(e) The Corporation will not close its books against the
transfer of any share of Preferred Stock or of any share of Common Stock issued
or issuable upon the conversion of such shares in any manner which interferes
with the timely conversion of such shares.
4.3 Conversion Price. (a) The initial Conversion Price shall be
one dollar and twenty-five cents ($1.25). In order to prevent dilution of the
conversion rights granted hereunder, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 4.
(b) If and whenever the Corporation shall issue or sell, or shall in
accordance with Section 4.4 be deemed to have issued or sold, any shares of
Common Stock for a consideration per share that is less than 95% of the Market
Price on the date of such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price shall, subject to Section 4.4, be reduced to the
price (calculated to the nearest $0.001) determined by multiplying the
Conversion Price in effect immediately prior to the time of such issue or sale
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale multiplied by the Market Price immediately prior to such issue or sale plus
(ii) the consideration received by the Corporation upon such issue or sale, and
the denominator of which shall be the product of (iii) the total number of
shares of Common Stock Deemed Outstanding immediately after such issue or sale,
multiplied by (iv) the Market Price immediately prior to such issue or sale.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
made in an amount less than $0.001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.001 per share or more.
(c) Notwithstanding the provisions of this Section 4.3 and
Section 4.4, no adjustment of the Conversion Price shall be required as a result
of the sale or issuance of Common Stock, at prices less than 95% of the Market
Price then in effect, (i) upon conversion of any of the Preferred Stock or the
Corporation's Series C Convertible Preferred Stock, par value $0.01 per share
(the "Series C Preferred Stock") or the exchange of the Corporation's 6%
Exchangeable Notes due December 31, 2001, (ii) in connection with Excluded
Securities, or (iii) the issuance of the Series C Preferred Stock.
4.4 Effect of Certain Events on Conversion Price.
For purposes of determining the adjusted Conversion Price
under Section 4.3, the following shall be applicable:
(a) Issuance of Rights or Options. In case at any time the Corporation
shall in any manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such Options or the rights to
convert or exchange such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than 95% of the Market
Price, determined as of the date of granting of such Options), then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall (as of
the date of grant of such Options) be deemed to be outstanding and to have been
issued for such price per share. No adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities, except as
otherwise provided in Section 4.4(c).
(b) Issuance of Convertible Securities. In case the Corporation shall in
any manner issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than 95% of the Market Price,
determined as of the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding and to
have been issued for such price per share. Except as otherwise provided in
Section 4.4(c), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Conversion Price have been made or are to be made pursuant to other provisions
of this Section 4.4, no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.
(c) Change in Option or Conversion Price. If the purchase price
provided for in any Option referred to in Section 4.4(a), the additional
consideration, if any, payable upon conversion or exchange of any Convertible
Securities referred to in Section 4.4(a) or (b), or the rate at which any
Convertible Securities referred to in Section 4.4(a) or (b) are convertible into
or exchangeable for Common Stock, shall change at any time (other than under or
by reason of provisions designed to protect against dilution of the type set
forth in this Section 4.4 or in Sections 4.3 and 4.5), then the Conversion Price
in effect at the time of such change shall forthwith be adjusted to the
Conversion Price which would have been in effect at such time had such Option or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price provided for in
any Option referred to in Section 4.4(a), the additional consideration, if any,
payable upon conversion or exchange of any Convertible Securities referred to in
Section 4.4(a) or (b), or the rate at which any Convertible Securities referred
to in Section 4.4(a) or (b), are convertible into or exchangeable for Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution of the type set forth in
this Section 4.4 or Sections 4.3 and 4.5, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder would be reduced.
(d) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities (without any exercise of such Option or
right), the Conversion Price then in effect hereunder shall forthwith be
adjusted to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer be deemed
to be outstanding.
(e) Calculation of Consideration Received. (i) In case any
shares of Common Stock, Options or Convertible Securities shall be issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the aggregate proceeds payable to the Corporation
therefor, prior to deduction of any expenses incurred and any underwriting
commission or concessions paid or allowed by the Corporation in connection
therewith.
(ii) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of consideration other than cash received by the Corporation shall be
deemed to be the fair value, determined in good faith by the Board of Directors.
(iii) In case any Options shall be issued in connection with the
issue or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration.
(iv) In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value, determined in good faith by the Board of
Directors, of such portion of the net assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
(v) In the event of any consolidation or merger of the Corporation in which
stock or other securities of any corporation are issued in exchange for Common
Stock of the Corporation or in the event of any sale of all or substantially all
of the assets of the Corporation for stock or other securities of any
corporation, the Corporation shall be deemed to have issued a number of shares
of its Common Stock for stock or securities of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated
and for a consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Conversion Price the determination
of the number of shares of Common Stock receivable upon conversion of the
Preferred Stock immediately prior to such merger, consolidation or sale, for
purposes of Section 4.7, shall be made after giving effect to such adjustment of
the Conversion Price.
(vi) In case the Corporation shall declare a dividend or make
any other distribution upon any stock of the Corporation payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(f) Record Date. For purposes of Sections 4.3 and 4.4, in case
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of granting of
such right or subscription or purchase, as the case may be.
4.5 Subdivisions and Combinations. Except to the extent Section
4.4(e)(vi) above applies, in the event that the Corporation shall at any time
subdivide (by any stock split, stock dividend or otherwise) one or more classes
of its outstanding Common Stock into a greater number of shares of Common Stock,
the Conversion Price in effect immediately prior to such subdivision forthwith
shall be proportionately reduced. Conversely, in the event the outstanding
shares of one or more classes of the Common Stock shall be combined into a
smaller number of shares (by reverse stock split or otherwise), the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
4.6 Dividends. In the event that the Corporation declares a
dividend (other than a dividend payable in Common Stock, Options or Convertible
Securities, or a cash dividend payable out of earnings or earned surplus) upon
Common Stock, then at the option of the holders of a majority of the outstanding
shares of Preferred Stock,
(1) the Corporation shall pay over to each holder, on the
dividend payment date, the cash, stock or other securities and other
property which holder would have received if such holder had converted
all of his or its shares of Preferred Stock into Common Stock and had
been the record holder of such Common Stock on the date on
which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock of
record entitled to such dividend are to be determined, or
(2) the Conversion Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal to the
amount of such dividend payable per share of Common Stock, in the case
of a cash dividend, or by the fair value of such dividend per share (as
reasonably determined by the Board of Directors of the Corporation), in
the case of any other dividend, such reduction to be effective on the
date as of which a record is taken for purposes of such dividend, or if
a record is not taken, the date as of which holders of record of Common
Stock entitled to such dividend are determined, or
(3) in the case of a dividend consisting of stock or securities
(other than Common Stock, Options or Convertible Securities) or other
property distributable to holders of Common Stock, the holder of
Preferred Stock may elect that, in lieu of (1) or (2) above, lawful and
adequate provisions shall be made (including without limitation any
necessary reduction in the Conversion Price) whereby such holder of
Preferred Stock shall thereafter have the right to purchase and/or
receive, on the terms and conditions specified in this Certificate of
Designations and in addition to the shares of Common Stock receivable
immediately prior to the declaration of such dividend upon conversion of
his or its shares of Preferred Stock, such shares of stock, securities
or property as are distributable with respect to outstanding shares of
Common Stock equal to the number of shares of Common Stock receivable
immediately prior to such declaration upon conversion of his or its
shares of Preferred Stock, to the end that the provisions hereof
(including without limitation provisions for adjustments of the
Conversion Price and of the number of shares receivable upon such
conversion) shall thereafter be applicable, as nearly as may be, in
relation to such shares of stock, securities or property.
For the purposes of this Section 4.6, "dividend" shall mean any distribution to
the holders of Common Stock as such, and a dividend shall be considered payable
out of earnings or earned surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as reasonably determined by the Board
of Directors of the Corporation.
4.7 Reorganization, Reclassification, Consolida tion, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Corporation, or any consolidation or merger of the Corporation with or into
another corporation, or any sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
(as determined reasonably and in good faith by the Board of Directors of the
Corporation) shall be made whereby each of the holders of the Preferred Stock
shall thereafter have the right to acquire and receive upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore acquirable and receivable upon
the conversion of such holder's shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore acquirable and receivable upon conversion of such
shares had such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provision shall be made with
respect to such holder's rights and interests to the end that the provisions of
this Section 4 (including without limitation provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock acquirable and
receivable upon the exercise of the conversion rights granted in this Section 4)
shall thereafter be applicable in relation to any shares of stock, securities or
assets thereafter deliverable upon the conversion of such holder's shares
(including, in the case of any such consolidation, merger or sale in which the
successor corporation or purchasing corporation is other than the Corporation,
an immediate adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale if the value
so reflected is less than the Conversion Price in effect immediately prior to
such consolidation, merger or sale). The Corporation shall not effect any
consolidation, merger or sale, unless the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire or receive.
4.8 Notice of Adjustment. Immediately upon any adjustment of the
Conversion Price, the Corporation shall send written notice thereof to all
holders of Preferred Stock, which notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock acquirable and receivable upon conversions of
all shares of Preferred Stock held by each such holder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.9 Other Adjustment-Related Notices. In the
event that at any time:
(a) the Corporation shall declare a dividend (or
any other distribution) upon its Common Stock payable
otherwise than in cash out of earnings or earned
surplus;
(b) the Corporation shall offer for subscription
pro rata to the holders of any class of its Common Stock
any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(d) there shall be any voluntary or involuntary
dissolution, liquidation, winding up or similar
distribution of the Corporation;
then, in connection with any such event, the Corporation shall give by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:
(i) at least 30 days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, winding up or similar distribution; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding up or similar
distribution, at least 30 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or similar distribution).
4.10 Certain Events. If any event occurs as to which the other
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of the Preferred Stock
in accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such conversion rights as aforesaid.
4.11 Disputes. In the event that there is any dispute as to (a)
the computation of the price or the number of shares of Common Stock required to
be issued upon conversion of Preferred Stock, or (b) the computation of the
Redemption Price under Section 3.6, in either case in which holders of 50
percent or more of the Preferred Stock shall join, the holders and the
Corporation will retain an independent and nationally recognized accounting firm
to conduct at the expense of the Corporation an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
determination of such nationally recognized accounting firm shall, in the
absence of manifest error, be binding upon the holders of the Preferred Stock
and the Corporation. If there shall be a dispute as to the selection of such
nationally recognized accounting firm, such firm shall be appointed by the
American Institute of Certified Public Accountants ("AICPA") if willing,
otherwise the American Arbitration Association ("AAA"), upon application by the
Corporation or any holder or holders of at least 50 percent of the outstanding
Preferred Stock with notice to the others. If the price, number of shares of
Common Stock or Redemption Price as determined by such accounting firm is five
percent (5%) or more higher or lower than the price, number of shares of Common
Stock or Redemption Price computed by the Corporation, the expenses of such
accounting firm and, if any, AICPA and AAA, shall be borne completely by the
Corporation. In all other cases, they shall be borne by the disputing holders of
Preferred Stock.
Section 5. Purchase Rights.
If at any time or from time to time the Corporation shall grant,
issue or sell any Options, Convertible Securities or rights to purchase property
(any "Purchase Rights") pro rata to the record holders of Common Stock and such
grant, issuance or sale does not result in an adjustment of the Conversion Price
under Section 4.4, then each holder of Preferred Stock shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable and receivable (directly or upon subsequent
conversion, assuming unrestricted convertibility) upon conversion immediately
prior to the time or times at which the Corporation, granted issued or sold such
Purchase Rights.
Section 6. Voting Rights of Preferred Stock. (a) Except as
otherwise provided by law, by agreement among the stockholders, or as otherwise
provided in this Certificate of Designations, Preferred Stock shall entitle the
holders thereof to no voting rights.
(b) The Preferred Stock shall be entitled to vote with the
holders of Common Stock on any and all matters presented to the holders of
Common Stock for a stockholders' vote at any time after the satisfaction of the
conditions set forth in Section 4.1(a) hereof. After the Preferred Stock is
entitled to vote on matters presented to holders of Common Stock, a share of
Preferred Stock shall possess that number of votes equal to the number of shares
of Common Stock that such share of Preferred Stock is convertible into on the
applicable record date.
Section 7. Registration of Transfer.
The Corporation shall keep at its principal office (or such other place as
the Corporation reasonably designates) a register for the registration of shares
of Preferred Stock. Upon the surrender of any certificate representing Preferred
Stock at such place, the Corporation shall, at the request of the registered
holder of such certificate, execute and deliver (at the Corporation's expense) a
new certificate or certificates in exchange therefor representing the aggregate
number of shares represented by the surrendered certificate, subject to the
requirements of applicable securities laws. Each such new certificate shall be
registered in such name and shall represent such number of shares as shall be
requested by the holder of the surrendered certificate, shall be substantially
identical in form to the surrendered certificate, and the holders of the shares
represented by such new certificate shall be entitled to receive all theretofore
payable but unpaid dividends on the shares represented by the surrendered
certificate.
Section 8. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of the Preferred Stock and, in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the registered holder is an
institutional investor its own agreement of indemnity, without bond, shall be
satisfactory), or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares represented by such lost, stolen, destroyed or mutilated certificate, and
the shares represented by such new certificate shall be entitled, among other
things, to receive all theretofore payable but unpaid dividends on the shares
represented by the lost, stolen, destroyed or mutilated certificate.
Section 9. Restrictions on Corporate Action.
So long as any shares of the Preferred Stock remain outstanding
and in addition to any other approvals or consents required by law, without the
prior affirmative vote or written consent of the holders of at least a majority
of all shares of the Preferred Stock Outstanding at the time:
(a) The Corporation shall not increase the number of shares of
the Preferred Stock which the Corporation is authorized to issue, or issue
additional shares of Preferred Stock except pursuant to Section 1.2(b).
(b) Unless the dividend payment and redemption obligations of
the Corporation with respect to the Preferred Stock have, at such time, been
fully satisfied, the Corporation shall not declare or pay any dividend or make
any other distribution on any Junior Securities other than dividends or
distributions payable solely in Junior Securities, or purchase, redeem, or
otherwise acquire for any consideration, or set aside as a sinking fund or other
fund for the redemption or repurchase of any Junior Securities or any warrants,
rights or options to purchase the same.
Section 10. Closing Books.
The Corporation will not close its books against the transfer of
any share of Preferred Stock.
Section 11. Definitions.
As used in this Certificate of Designations the following terms
shall have the following meanings, which meanings shall be equally applicable to
the singular and plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday
or a day on which banks are permitted to close in New York, New York.
"Common Stock" means the Common Stock, par value $0.0001 per
share, of the Corporation, and any capital stock of any class of the Corporation
hereafter authorized which shall not be limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution, winding up or similar distribution of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the
sum of (a) the number of shares of Common Stock actually outstanding at such
time (exclusive of any shares of Common Stock owned or held by or for the
account of the Corporation), plus (b) the number of shares of Common Stock into
which Outstanding shares of Preferred Stock are convertible at such time, plus
(c) the number of other shares of Common Stock deemed to be outstanding under
Section 4 at such time.
"Consolidated Interest Expense" means (without
duplication), for any period, the sum of:
(i) the interest expense of the Corporation and
its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP;
(ii) all fees, commissions, discounts and other charges of the
Corporation and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, with respect to letters of
credit and bankers' acceptances and the costs (net of benefits)
associated with interest hedging obligations;
(iii) amortization or write-off of debt discount
and deferred financing costs (other than deferred
financing costs incurred on or prior to the Closing Date) in connection
with any Long Term Debt of the Corporation and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP; and
(iv) interest capitalized by the Corporation and its
Subsidiaries during such period determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the
aggregate net income for such period, on a consolidated basis, determined in
accordance with GAAP ("Net Income"), of the Corporation and its Subsidiaries;
provided, however, that (i) the Net Income (if positive) of any person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
Corporation or a Subsidiary by such person during such period, (ii) the Net
Income (if positive) of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) extraordinary gains, losses and non-cash restructuring charges
shall be excluded, (iv) the Net Income (if positive) of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of such Net Income is not at the time of
determination permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (v) net after tax gains (but not net
after tax losses) from sales of assets other than current assets or from the
disposition of any property or assets other than in the ordinary course of
business shall be excluded, (vi) any after tax gains (but not losses) from
currency exchange transactions not in the ordinary course of business consistent
with past practice shall be excluded, and (vii) the cumulative effect of any
change in accounting principles shall be excluded.
"Conversion Price" means one dollar and twenty-five cents
($1.25), as such price may be adjusted from time to time pursuant to the
provisions of Section 4.
"Dividend Payment Date" means, with respect to Preferred Stock,
the last day of March, June, September and December in each year (or if any such
day is not a Business Day the immediately preceding Business Day).
"EBITDA" shall mean, with respect to any period, Consolidated Net Income of
the Corporation for such period plus, in each case to the extent deducted in
computing such Consolidated Net Income, the sum of (without duplication) (i)
Consolidated Interest Expense for such period, (ii) the provision for taxes
based on net income of the Corporation and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, and (iii) the
depreciation and amortization expense of such the Corporation and its
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP.
"Excluded Securities" means (a) Options or Convertible
Securities issued and outstanding on the date of original issuance of the
Preferred Stock, and Common Stock issued upon exercise or conversion thereof,
(b) Common Stock, Options or Common Stock issued upon exercise of such Options,
issued to employees of the Corporation or any of its Subsidiaries pursuant to
the stock option plans or other incentive plans adopted by the Board of
Directors and submitted for approval by the Corporation's stockholders at its
1996 annual meeting of stockholders, and (c) any Common Stock, Options, or
Common Stock issued upon exercise of such Options, issued to employees of the
Corporation or any of its Subsidiaries pursuant to the provisions of any other
stock bonus or stock option or other incentive plan or plans subsequently
adopted by the Board of Directors.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Internal Rate of Return" means the annual rate (assuming
quarterly compounding) which if used to discount to present value the payments
in cash or cash equivalents made or received by the holder of Preferred Stock,
during the period from the date of calculation back to the initial issuance of
such shares, would cause the net present value (on such date) of such investment
to equal zero (0). In calculating an Internal Rate of Return:
(A) each payment received in cash or cash equivalents by a
holder (or its predecessors in interest) of shares attributable to such
shares or any sale thereof for cash shall be treated as a cash inflow
with a positive value, and each cash disbursement made by the holder (or
its predecessors in interest) directly attributable to such shares shall
be treated as a cash outflow with a negative value;
(B) each such payment or disbursement shall be discounted from
the date actually made to the date of the holder's initial investment in
shares; and
(C) indemnity payments, financing fees (including without
limitation the financing fee paid in connection with the original
issuance of Preferred Stock) and payments in reimbursement of
out-of-pocket expenses received by the holders of shares shall not be
treated as cash inflows and therefore shall be disregarded.
"Junior Security" means the Series C Convertible Preferred Stock, the
Corporation's Common Stock and any other equity security of any kind which the
Corporation or any Subsidiary shall at any time issue or be authorized to issue
other than preferred stock.
"Liquidation Value" of any share of Preferred Stock as of any
particular date means an amount equal to the sum of $100.00 plus any accrued and
unpaid dividends on such share of Preferred Stock.
"Long-Term Debt" shall mean (without duplication) (A) all
indebtedness for borrowed money or evidenced by notes, bonds, debentures or
similar evidences of indebtedness, all obligations for the deferred and unpaid
purchase price of any property, service or business (other than trade accounts
payable and accrued liabilities incurred in the ordinary course of business and
constituting current liabilities), (B) all capitalized lease obligations, (C)
letters of credit and all obligations of relating thereto, (D) all obligations
in respect of interest rate swap agreements, currency swap agreements and other
similar agreements designed to hedge against fluctuations in interest rates or
foreign exchange rates, and (E) all Preferred Stock (and convertible preferred
stock of any other class) if and so long as the Market Price of Common Stock is
less than the Conversion Price (or conversion price of any such other class of
convertible preferred stock) from time to time in effect; in each case
determined on a consolidated basis in accordance with GAAP.
"Market Price" means as to any security the average of the closing prices
of such security's sales on such day on all domestic exchanges on which such
security may at the time be listed, or, if there shall have been no sales on any
such exchange on such day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on such day such
security shall not be so listed or trading thereon or on such exchange shall be
suspended, the closing price on such day of any such security traded on the
NASDAQ System or, if no such closing price is available, (i) the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, on such day, or (ii) if on such day such security shall not be
quoted in the NASDAQ System, the average of the high and low bid and asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in the case of (i) or (ii) averaged over a period of 21 business days consisting
of the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day (unless otherwise provided herein). If at any
time such security is not listed on any domestic exchange or quoted in the
NASDAQ System or the domestic over-the-counter market, the "Market Price" shall
be the fair market value per share of Common Stock, which shall be reasonably
determined by the Board of Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination is to be made.
"Outstanding" when used with reference to shares of Preferred
Stock as of any particular time shall mean shares thereof issued and outstanding
at such time and shall not include any shares of Preferred Stock represented by
any certificate in lieu of which a new certificate has been executed and
delivered by the Corporation in accordance with Section 7 or Section 8, but
shall include only those shares represented by such new certificate.
"Person" means and includes an individual, a partnership, a
corporation, a trust, a joint venture, an unincorporated organization and a
government or any department or agency thereof.
"Redemption Date" as to any share of Preferred Stock means the
date specified in the notice of redemption delivered pursuant to Section 3.7;
provided that for purposes of Section 3.8, the Redemption Date shall be the date
on which the applicable Redemption Price is actually paid to the holder of such
share of Preferred Stock or deposited in trust for the benefit of such holder
pursuant to Section 3.10.
"Redemption Price" as to any share of Preferred Stock means (a)
for purposes of Section 3.5, the Redemption Price specified therein, and (b) in
all other cases, the Liquidation Value of such share.
"Subsidiary" means any corporation at least 50% of the Voting
Stock of every class of which is, at the time as of which any determination is
being made, owned by the Corporation either directly or through one or more
Subsidiaries.
"Voting Stock" means any shares of stock having
general voting power in electing the board of directors (irrespective of whether
or not at the time stock of any other class or classes has or might have voting
power by reason of the happening of any contingency).
Section 12. Miscellaneous.
(a) The unenforceability or invalidity of any provision or
provisions of this Certificate of Designations shall not render invalid or
unenforceable any other provision or provisions herein contained.
(b) Section and paragraph headings herein are for convenience
only and shall not be construed as a part of this Certificate of Designations.
(c) All notices to holders of Preferred Stock required or
permitted hereunder shall be sent by overnight courier service, prepaid,
addressed to each such holder at the address for such holder shown on the books
of the Corporation.
* * * * * *
IN WITNESS WHEREOF, this Certificate has been signed on this day
of December, 1996, and the signature of the undersigned shall constitute the
affirmation and acknowledgment of the undersigned, under penalties of perjury,
that this Certificate is the act and deed of the undersigned and that the facts
stated in the Certificate are true.
ALLIANCE ENTERTAINMENT CORP.
By:
-----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Co-Chairman
ATTEST:
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▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Assistant Secretary
EXHIBIT B
CERTIFICATE OF DESIGNATIONS
OF
ALLIANCE ENTERTAINMENT CORP.
Pursuant to Section 151 of the Delaware General Corporation
Law (the "GCL"), ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the
"Corporation"), certifies as follows:
FIRST: Under the authority contained in Article FOURTH of the
Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors of the Corporation has classified an aggregate of seven million
(7,000,000) shares of the authorized but unissued shares of preferred stock of
the Corporation into a series which shall be designated Series C Convertible
Preferred Stock.
SECOND: The following resolution was adopted by the Board of
Directors on December 19, 1996 and such resolution has not been modified and is
in full force and effect on the date hereof:
RESOLVED, that the Board of Directors hereby creates, from the
authorized but unissued shares of preferred stock of the Corporation, a series
of convertible preferred stock designated as Series C Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), and hereby fixes the
powers, designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
the shares of such series, as follows:
Section 1. Preferred Stock Dividends.
1.1 General Dividend Obligation. When, as and if declared by the Board of
Directors of the Corporation, the Corporation shall pay to the holders of record
of the Preferred Stock, out of the assets of the Corporation available for the
payment of dividends under the General Corporation Law of the
State of Delaware, preferential dividends at the times and in the amounts
provided for in this Section 1.
1.2 Payments of Dividends; Payments in Additional Shares. (a) When declared
by the Board of Directors of the Corporation, dividends on the Preferred Stock
shall be payable on whole shares of Preferred Stock on each Dividend Payment
Date (capitalized terms not otherwise defined herein being used in this
Certificate of Designations with the definitions set forth in Section 11).
(b) Dividends shall be paid only in additional whole shares of
Preferred Stock, having a Liquidation Value (exclusive of any accrued unpaid
dividends) equal in amount to the dividends payable, by mailing certificates for
such shares to each holder of record of Preferred Stock at such holder's address
as it appears on the Corporation's stock register at least five days prior to
the due date of each dividend or otherwise delivering such shares so as to be
received by such holder on the due date of such dividend. If any portion of a
dividend would result in the issuance of a fraction of a share of Preferred
Stock, such fraction shall be carried forward and accumulated with other
fractions and shall be paid on a subsequent Dividend Payment Date when such
accumulated fractions equal at least one whole share of Preferred Stock.
(c) If at any time dividends on the outstanding Preferred Stock
at the rate set forth herein shall not have been fully paid or declared and set
aside for payment, no dividends or other distributions shall be declared or paid
upon or set apart for payment on the shares of any other class of Junior
Securities.
1.3 Calculation of Dividends. Dividends on each share of
Preferred Stock shall be calculated cumulatively at the rate and in the manner
prescribed herein from and including the date of issuance of such share of
Preferred Stock, whether or not such dividends shall have been declared and
whether or not there shall be (at the time such dividends are calculated or
become payable or at any other time) profits, surplus or other funds or assets
of the Corporation legally available for the payment of dividends. For purposes
of this Section 1.3, the date on which the Corporation shall initially issue any
share of Preferred Stock shall be deemed to be its "date of issuance" regardless
of the number of times transfer of such share of Preferred Stock shall be made
on the stock register maintained by or for the Corporation and regardless of the
number of certificates which may be issued to evidence such share of Preferred
Stock (whether by reason of transfer of such share or for any other reason).
1.4 Dividend Rates. Dividends shall be cumulative, and shall
accrue on a daily basis on each Outstanding share of Preferred Stock at the rate
per annum (computed on the basis of a 360-day year having twelve thirty-day
months) of six percent (6%) of the Liquidation Value of each share of Preferred
Stock. To the extent not paid, on a Dividend Payment Date all unpaid dividends
accrued on each share of Preferred Stock Outstanding during such quarter (or
from and including the original date of issuance of such share in the case of
the initial quarter-end
after the date of issuance) shall be added to the Liquidation Value of such
share and shall remain a part thereof until such dividends are paid.
Section 2. Liquidation Preferences.
Subject to the holders' conversion rights provided below herein,
upon any liquidation (complete or partial), dissolution or winding up of the
Corporation, or any similar distribution of its assets to its stockholders which
results in a return of capital, whether voluntary or involuntary, the holders of
the Preferred Stock shall be entitled, before any distribution or payment is
made upon any Junior Securities of the Corporation, to be paid out of the assets
of the Corporation available for distribution to its stockholders (whether from
capital, surplus or earnings) an amount in cash equal to the sum of (i) the
aggregate Liquidation Value of all shares of Preferred Stock then Outstanding,
plus (ii) all accrued unpaid dividends on such shares, and shall not be entitled
to any further payment. Written notice of such liquidation, dissolution, winding
up or other distribution of assets, stating a payment date, the amount of the
payment and the place where the amounts distributable shall be payable, shall be
mailed by certified or registered mail, return receipt requested, not less than
60 days prior to the payment date stated therein, to each record holder of any
share of Preferred Stock entitled thereto at the address for such record holder
shown on the Corporation's records. Neither the consolidation nor merger of the
Corporation into or with any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation, dissolution, winding up or similar distribution of the
Corporation within the meaning of any of the provisions of this Section 2. The
Preferred Stock shall rank junior to the Corporation's Series A and Series B
Convertible Preferred Stock.
Section 3. Redemptions of Preferred Stock.
3.1 Redemption Price. For each share of Preferred Stock which is
to be redeemed by the Corporation at any time and for any reason in a redemption
pursuant to this Section 3, the Corporation shall be obligated on the Redemption
Date, regardless of whether the Corporation shall be able or legally permitted
to make such payment on the Redemption Date, to pay to the holder thereof (upon
surrender by such holder at the Corporation's principal office of the
certificate representing such share of Preferred Stock duly endorsed in blank or
accompanied by an appropriate form of assignment) the Redemption Price for such
share of Preferred Stock, payable in cash.
3.2 Redeemed or Otherwise Acquired Shares Not to be Reissued.
Any shares of Preferred Stock redeemed pursuant to this Section 3 or otherwise
acquired by the Corporation shall not be reissued, sold or transferred by the
Corporation and shall be retired.
3.3 Determination of Number of Each Holder's Shares to be
Redeemed. The number of shares of Preferred Stock to be redeemed from each
holder thereof in each redemption under this Section 3 shall be determined by
multiplying the total number of shares of Preferred Stock to be redeemed times a
fraction, the numerator of which shall be the total number of shares of
Preferred Stock then held by such holder and the denominator of which shall be
the total number of shares of Preferred Stock then Outstanding, rounded if the
result is fractional to the nearest whole number of shares.
3.4 Optional Redemption by Corporation. 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 , , on at least 30 days' notice; provided, however, that the
Corporation may not exercise such right of redemption unless the Market Price of
the Common Stock as reported in the Wall Street Journal for 20 out of any 30
consecutive trading days prior to the notice of redemption delivered pursuant to
Section 3.7 shall exceed dollars ($ ) per share (subject to adjustment for stock
dividends, stock splits and reverse stock splits) and unless the issuance of the
shares of Common Stock upon conversion of the Preferred Stock at the time of the
redemption would not cause a "Change of Control" to occur within the meaning of
Section 1.01 of the Indenture.
3.5 Redemption Upon Corporate Change. (a) At any time if a
Corporate Change is to occur and the holders of Preferred Stock refuse to
provide any vote or written consent required to authorize such Corporate Change,
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 3.5 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.
(b) If a Corporate Change is proposed to occur and the Corporation would be
prevented from fulfilling its redemption obligations under this Section 3.5 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 3.5(a).
3.6 Redemptions or Purchase by Corporation's Designee(s). In
lieu of any redemption of Preferred Stock by the Corporation permitted
hereunder, the Corporation may designate one or more purchasers who shall be
entitled to purchase the Preferred Stock from the holders thereof at the
applicable Redemption Price. Any such designee(s) shall have the rights and
obligations of the Corporation specified herein with respect to the redemption
of such shares.
3.7 Notice of Redemption. Except as otherwise expressly provided
herein, notice of any redemption of Preferred Stock, specifying the time and
place of redemption, the Redemption Price and the section and paragraph pursuant
to which such redemption is being made, shall be mailed by certified or
registered mail, return receipt requested, to each holder of record of shares of
Preferred Stock to be redeemed, at the address for such holder shown on the
Corporation's records, not more than sixty (60) nor less than thirty (30) days
prior to the date on which such redemption is to be made. The notice shall also
specify the number of shares of Preferred Stock and the certificate numbers
thereof which are to be redeemed. With respect to redemptions made pursuant to
Section 3.4, upon mailing any such notice of redemption the Corporation shall
become obligated to redeem at the time of redemption specified therein all
shares of Preferred Stock therein specified. In case less than all the shares of
Preferred Stock represented by any certificate are redeemed, a new certificate
representing the unredeemed shares of Preferred Stock shall be issued to the
holder thereof without cost to such holder. Notwithstanding any other provision
of this Section 3, the Corporation shall not be entitled to redeem any shares of
Preferred Stock in respect of which the holder of such Preferred Stock has
delivered to the Corporation a Conversion Notice after the delivery of notice by
the Corporation as provided in this paragraph but prior to the Redemption Date.
3.8 Rights After Redemption Date. Provided that the Redemption
Price is paid in full on the applicable Redemption Date, no share of Preferred
Stock shall be entitled to any dividends accrued after its Redemption Date, and
on such Redemption Date, except as otherwise provided herein or by law, all
rights of the holder of such share of Preferred Stock as a stockholder of the
Corporation, by reason of the ownership of such share, shall cease, except the
right to receive the Redemption Price of such share upon presentation and
surrender of the certificate representing such share, and such share shall not
after such Redemption Date be deemed to be Outstanding.
3.9 Other Redemptions. The Corporation shall neither redeem nor
otherwise acquire any shares of any class of Preferred Stock except (i) as
expressly authorized in this Certificate of Designations, or (ii) pursuant to
any offer of redemption made to the holders of Preferred Stock of such class pro
rata according to the shares held by them.
3.10 Deposit of Redemption Price. If on or before the date of
redemption specified in any notice of redemption of any share of Preferred
Stock, the Corporation shall irrevocably deposit the amount of the Redemption
Price thereof with a bank or trust company having an office in the City of New
York, designated in such notice of redemption, in trust for the benefit of the
holder of such share of Preferred Stock, such share of Preferred Stock shall be
deemed to have been redeemed on the date so specified, whether or not the
certificate for such share shall be surrendered for redemption and canceled.
Section 4. Conversion of Preferred Stock.
4.1 Conversion Procedures. (a) The Preferred Stock shall be
convertible into shares of Common Stock, in accordance with the terms of this
Section 4.
(b) A holder of shares of Preferred Stock may at any time
convert pursuant to this Section 4 all or any part (in whole numbers of shares
only) of the shares of Preferred Stock held by such holder into such number of
fully paid and non-assessable whole shares of Common Stock as is obtained by
multiplying the number of shares of Preferred Stock so to be converted by the
Liquidation Value thereof and dividing the result by the Conversion Price then
in effect. Such right as to any particular share shall terminate at the close of
business on the day immediately prior to the date fixed for payment on the
Preferred Stock upon any liquidation, dissolution, winding up or similar
distribution of the Corporation.
(c) Each conversion of Preferred Stock shall be effected by the
surrender of the certificate or certificates representing the shares to be
converted at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holder or holders of the Preferred Stock) at any time during its usual
business hours, which shall be accompanied by a written notice by the holder of
such Preferred Stock (a "Conversion Notice") stating that such holder desires to
convert shares, or a stated number of shares, represented by a certificate or
certificates specifically described therein. Such Conversion Notice shall also
specify the name or names (with addresses) and denominations in which the
certificate or certificates for Common Stock shall be issued and shall include
instructions for delivery thereof. The Conversion Price shall be determined as
of the close of business on the date the certificate representing the Preferred
Stock and the Conversion Notice is received by the Corporation. Such conversion
shall be deemed to have been effected as of the close of business on the date on
which the certificate representing the Preferred Stock and the Conversion Notice
for such shares shall have been received by the Corporation, and as of such date
(the "Conversion Date") the rights of the holder of such Preferred Stock (or
specified portion thereof) as such holder shall cease and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
(d) As soon as possible after the Conversion Date (and in no
event more than 30 days after the Conversion Date), subject to Section 4.2(c),
with respect to the certificate(s) specified in (i) and (ii) below, the
Corporation shall deliver to the converting holder or, with respect to the
certificate(s) specified in (i) below, as specified by such converting holder:
(i) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion registered
in such name or names and such denomination or denominations as the
converting holder shall have specified;
(ii) a certificate representing any shares of Preferred Stock
which shall have been represented by the certificate or certificates
which shall have been delivered to the Corporation in connection with
such conversion but which shall not have been converted; and
(iii) a payment of cash in an amount equal to the value of any
fractional share of Common Stock that otherwise would be issuable in
connection with the Preferred Stock converted.
4.2 Authorization and Issuance of Common Stock. The
Corporation covenants and agrees that:
(a) The Corporation will at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
issuing upon the conversion of the Preferred Stock as provided in this Section
4, such number of shares of Common Stock as shall then be issuable upon the
conversion of all Outstanding shares of Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issuable shall, when
issued, be duly and validly issued, fully paid and non-assessable and free from
all taxes, liens, and charges. The Corporation will take all such action as may
be necessary to assure that all shares of Common Stock may be so issued without
violation of any applicable law or regulation or any requirements of any
domestic stock exchange upon which any shares of Common Stock may be listed.
(b) The Corporation will not take any action which results in
any adjustment of the number of shares of Common Stock acquirable upon
conversion of a share of Preferred Stock if after such action the total number
of shares of Common Stock issuable upon conversion of the Preferred Stock then
Outstanding, together with the total number of shares of Common Stock then
Outstanding and the total number of shares of Common Stock reserved for any
purpose other than issuance upon conversion of Common Stock, would exceed the
total number of shares of Common Stock then authorized by the Corporation's
Certificate of Incorporation, as amended.
(c) If any shares of Common Stock required to be reserved for
purposes of conversions of shares of Preferred Stock under this Certificate of
Designations require registration with, or approval of, any governmental
authority under any federal or state law (other than any registration under the
Securities Act of 1933, as then in effect, or any similar federal statute then
in force, or any state securities law, required by reason of any transfer
involved in such conversion), or listing on any domestic securities exchange,
before such shares may be issued upon conversion, the Corporation will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved for listing or listed on such domestic
securities exchange, as the case may be.
(d) The issuance of certificates for shares of Common Stock upon
conversion of shares of the Preferred Stock shall be made without charge to the
holders of such shares for any issuance tax in respect thereof, or other cost
incurred by the Corporation in connection with such conversion and the related
issuance of shares of Common Stock, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Preferred Stock converted.
(e) The Corporation will not close its books against the
transfer of any share of Preferred Stock or of any share of Common Stock issued
or issuable upon the conversion of such shares in any manner which interferes
with the timely conversion of such shares.
4.3 Conversion Price. (a) The initial Conversion Price shall be ($ ). In
order to prevent dilution of the conversion rights granted hereunder, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this Section 4.
(b) If and whenever the Corporation shall issue or sell, or
shall in accordance with Section 4.4 be deemed to have issued or sold, any
shares of Common Stock for a consideration per share that is less than 95% of
the Market Price on the date of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall, subject to Section 4.4, be reduced to
the price (calculated to the nearest $0.001) determined by multiplying the
Conversion Price in effect immediately prior to the time of such issue or sale
by a fraction, the numerator of which shall be the sum of (i) the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale multiplied by the Market Price immediately prior to such issue or sale plus
(ii) the consideration received by the Corporation upon such issue or sale, and
the denominator of which shall be the product of (iii) the total number of
shares of Common Stock Deemed Outstanding immediately after such issue or sale,
multiplied by (iv) the Market Price immediately prior to such issue or sale.
Notwithstanding the foregoing, no adjustment of the Conversion Price shall be
made in an amount less than $0.001 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.001 per share or more.
(c) Notwithstanding the provisions of this Section 4.3 and
Section 4.4, no adjustment of the Conversion Price shall be required as a result
of the sale or issuance of Common Stock, at prices less than 95% of the Market
Price then in effect, (i) upon conversion of any of the Preferred Stock or the
Corporation's Series B Convertible Preferred Stock, par value $0.01 per share or
the exchange of the Corporation's 6% Exchangeable Notes Due December 31, 2001,
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 95% of
the Market Price, determined as of the date of granting such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall (as of
the date of grant of such Options) be deemed to be outstanding and to have been
issued for such price per share. No adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities, except as
otherwise provided in Section 4.4(c).
(b) Issuance of Convertible Securities. In case the Corporation
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than 95% of the
Market Price, determined as of the date of such issue or sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
(as of the date of the issue or sale of such Convertible Securities) be deemed
to be outstanding and to have been issued for such price per share. Except as
otherwise provided in Section 4.4(c), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common stock upon conversion or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of
any Options for which adjustments of the Conversion Price have been made or are
to be made pursuant to other provisions of this Section 4.4, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(c) Change in Option or Conversion Price. If the purchase price
provided for in any Option referred to in Section 4.4(a), the additional
consideration, if any, payable upon conversion or exchange of any Convertible
Securities referred to in Section 4.4(a) or (b), or the rate at which any
Convertible Securities referred to in Section 4.4(a) or (b) are convertible into
or exchangeable for Common Stock, shall change at any time (other than under or
by reason of provisions designed to protect against dilution of the type set
forth in this Section 4.4 or in Sections 4.3 and 4.5), then the Conversion Price
in effect at the time of such change shall forthwith be adjusted to the
Conversion Price which would have been in effect at such time had such Option or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. If the purchase price provided for in
any Option referred to in Section 4.4(a), the additional consideration, if any,
payable upon conversion or exchange of any Convertible Securities referred to in
Section 4.4(a) or (b), or the rate at which any Convertible Securities referred
to in Section 4.4(a) or (b), are convertible into or exchangeable for Common
Stock, shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution of the type set forth in
this Section 4.4 or Sections 4.3 and 4.5, then in case of the delivery of Common
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder would be reduced.
(d) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities (without any exercise of such
Option or right), the Conversion Price then in effect hereunder shall forthwith
be adjusted to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued, and the Common Stock issuable thereunder shall no longer be
deemed to be outstanding.
(e) Calculation of Consideration Received. (i) In case any
shares of Common Stock, Options or Convertible Securities shall be issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the aggregate proceeds payable to the Corporation
therefor, prior to deduction of any expenses incurred and any underwriting
commission or concessions paid or allowed by the Corporation in connection
therewith.
(ii) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of consideration other than cash received by the Corporation shall be
deemed to be the fair value, determined in good faith by the Board of Directors.
(iii) In case any Options shall be issued in connection with the
issue or sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration.
(iv) In case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value, determined in good faith by the Board of
Directors, of such portion of the net assets and business of the non-surviving
corporation as shall be attributable to such Common Stock, Options or
Convertible Securities, as the case may be.
(v) In the event of any consolidation or merger of the
Corporation in which stock or other securities of any corporation are issued in
exchange for Common Stock of the Corporation or in the event of any sale of all
or substantially all of the assets of the Corporation for stock or other
securities of any corporation, the Corporation shall be deemed to have issued a
number of shares of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated and for a consideration equal to the fair market
value on the date of such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment of the Conversion
Price the determination of the number of shares of Common Stock receivable upon
conversion of the Preferred Stock immediately prior to such merger,
consolidation or sale, for purposes of Section 4.7, shall be made after giving
effect to such adjustment of the Conversion Price.
(vi) In case the Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in Common Stock, Options
or Convertible Securities, any Common Stock, Options or Convertible Securities,
as the case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
(f) Record Date. For purposes of Sections 4.3 and 4.4, in case
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other distribution
payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe
for or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of granting of
such right or subscription or purchase, as the case may be.
4.5 Subdivisions and Combinations. Except to the extent Section
4.4(e)(vi) above applies, in the event that the Corporation shall at any time
subdivide (by any stock split, stock dividend or otherwise) one or more classes
of its outstanding Common Stock into a greater number of shares of Common Stock,
the Conversion Price in effect immediately prior to such subdivision forthwith
shall be proportionately reduced. Conversely, in the event the outstanding
shares of one or more classes of the Common Stock shall be combined into a
smaller number of shares (by reverse stock split or otherwise), the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
4.6 Dividends. In the event that the Corporation declares a
dividend (other than a dividend payable in Common Stock, Options or Convertible
Securities, or a cash dividend payable out of earnings or earned surplus) upon
Common Stock, then at the option of the holders of a majority of the outstanding
shares of Preferred Stock,
(1) the Corporation shall pay over to each holder, on the dividend payment
date, the cash, stock or other securities and other property which holder would
have received if such holder had converted all of his or its shares of Preferred
Stock into Common Stock and had been the record holder of such Common Stock on
the date on which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock of record
entitled to such dividend are to be determined, or
(2) the Conversion Price in effect immediately prior to the declaration of
such dividend shall be reduced by an amount equal to the amount of such dividend
payable per share of Common Stock, in the case of a cash dividend, or by the
fair value of such dividend per share (as reasonably determined by the Board of
Directors of the Corporation), in the case of any other dividend, such reduction
to be effective on the date as of which a record is taken for purposes of such
dividend, or if a record is not taken, the date as of which holders of record of
Common Stock entitled to such dividend are determined, or
(3) in the case of a dividend consisting of stock or securities (other than
Common Stock, Options or Convertible Securities) or other property distributable
to holders of Common Stock, the holder of Preferred Stock may elect that, in
lieu of (1) or (2) above, lawful and adequate provisions shall be made
(including without limitation any necessary reduction in the Conversion Price)
whereby such holder of Preferred Stock shall thereafter have the right to
purchase and/or receive, on the terms and conditions specified in this
Certificate of Designations and in addition to the shares of Common Stock
receivable immediately prior to the declaration of such dividend upon conversion
of his or its shares of Preferred Stock, such shares of stock, securities or
property as are distributable with respect to outstanding shares of Common Stock
equal to the number of shares of Common Stock receivable immediately prior to
such declaration upon conversion of his or its shares of Preferred Stock, to the
end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price and of the number of shares receivable upon
such conversion) shall thereafter be applicable, as nearly as may be, in
relation to such shares of stock, securities or property.
For the purposes of this Section 4.6, "dividend" shall mean any distribution to
the holders of Common Stock as such, and a dividend shall be considered payable
out of earnings or earned surplus (other than revaluation or paid-in surplus)
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend as reasonably determined by the Board
of Directors of the Corporation.
4.7 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Corporation, or any consolidation or merger of the Corporation with or into
another corporation, or any sale of all or substantially all of the
Corporation's assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
(as determined reasonably and in good faith by the Board of Directors of the
Corporation) shall be made whereby each of the holders of the Preferred Stock
shall thereafter have the right to acquire and receive upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock of the Corporation immediately theretofore acquirable and receivable upon
the conversion of such holder's shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore acquirable and receivable upon conversion of such
shares had such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provision shall be made with
respect to such holder's rights and interests to the end that the provisions of
this Section 4 (including without limitation provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock acquirable and
receivable upon the exercise of the conversion rights granted in this Section 4)
shall thereafter be applicable in relation to any shares of stock, securities or
assets thereafter deliverable upon the conversion of such holder's shares
(including, in the case of any such consolidation, merger or sale in which the
successor corporation or purchasing corporation is other than the Corporation,
an immediate adjustment of the Conversion Price to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale if the value
so reflected is less than the Conversion Price in effect immediately prior to
such consolidation, merger or sale). The Corporation shall not effect any
consolidation, merger or sale, unless the successor corporation (if other than
the Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire or receive.
4.8 Notice of Adjustment. Immediately upon any adjustment of the
Conversion Price, the Corporation shall send written notice thereof to all
holders of Preferred Stock, which notice shall state the Conversion Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock acquirable and receivable upon conversions of
all shares of Preferred Stock held by each such holder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.9 Other Adjustment-Related Notices. In the event
that at any time:
(a) the Corporation shall declare a dividend (or any
other distribution) upon its Common Stock payable otherwise
than in cash out of earnings or earned surplus;
(b) the Corporation shall offer for subscription pro
rata to the holders of any class of its Common Stock any
additional shares of stock of any class or other rights;
(c) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(d) there shall be any voluntary or involuntary
dissolution, liquidation, winding up or similar distribution
of the Corporation;
then, in connection with any such event, the Corporation shall give by first
class mail, postage prepaid, addressed to the holders of Preferred Stock at the
address for each such holder as shown on the books of the Corporation:
(i) at least 30 days' prior written notice of the date on which
the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights (and specifying the
date on which the holders of Common Stock shall be entitled thereto) or
for determining rights to vote in respect of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding up or similar distribution; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding up or
similar distribution, at least 30 days' prior written notice of the date
when the same shall take place (and specifying the date on which the
holders of 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, in
either case in which holders of 50 percent or more of the Preferred Stock shall
join, the holders and the Corporation will retain an independent and nationally
recognized accounting firm to conduct at the expense of the Corporation an audit
of the computations pursuant to the terms hereof involved in such dispute,
including the financial statements or other information upon which such
computations were based. The determination of such nationally recognized
accounting firm shall, in the absence of manifest error, be binding upon the
holders of the Preferred Stock and the Corporation. If there shall be a dispute
as to the selection of such nationally recognized accounting firm, such firm
shall be appointed by the American Institute of Certified Public Accountants
("AICPA") if willing, otherwise the American Arbitration Association ("AAA"),
upon application by the Corporation or any holder or holders of at least 50
percent of the outstanding Preferred Stock with notice to the others. If the
price, number of shares of Common Stock or Redemption Price as determined by
such accounting firm is five percent (5%) or more higher or lower than the
price, number of shares of Common Stock or Redemption Price computed by the
Corporation, the expenses of such accounting firm and, if any, AICPA and AAA,
shall be borne completely by the Corporation. In all other cases, they shall be
borne by the disputing holders of Preferred Stock.
Section 5. Purchase Rights.
If at any time or from time to time the Corporation shall grant,
issue or sell any Options, Convertible Securities or rights to purchase property
(any "Purchase Rights") pro rata to the record holders of Common Stock and such
grant, issuance or sale does not result in an adjustment of the Conversion Price
under Section 4.4, then each holder of Preferred Stock shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if it had held the number
of shares of Common Stock acquirable and receivable (directly or upon subsequent
conversion, assuming unrestricted convertibility) upon conversion immediately
prior to the time or times at which the Corporation, granted issued or sold such
Purchase Rights.
Section 6. Voting Rights of Preferred Stock.
(a) Except as otherwise provided by law, by agreement among the
stockholders, or as otherwise provided in this Certificate of Designations,
Preferred Stock shall entitle the holders thereof to no voting rights.
(b) The Preferred Stock shall be entitled to vote with the
holders of Common Stock on any and all matters presented to the holders of
Common Stock for a stockholders' vote at any time.
A share of Preferred Stock shall possess that number of votes equal to the
number of shares of Common Stock that such share of Preferred Stock is
convertible into on the applicable record date.
Section 7. Registration of Transfer.
The Corporation shall keep at its principal office (or such
other place as the Corporation reasonably designates) a register for the
registration of shares of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing the aggregate number of shares represented by the
surrendered certificate, subject to the requirements of applicable securities
laws. Each such new certificate shall be registered in such name and shall
represent such number of shares as shall be requested by the holder of the
surrendered certificate, shall be substantially identical in form to the
surrendered certificate, and the holders of the shares represented by such new
certificate shall be entitled to receive all theretofore payable but unpaid
dividends on the shares represented by the surrendered certificate.
Section 8. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of the Preferred Stock and, in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the registered holder is an
institutional investor its own agreement of indemnity, without bond, shall be
satisfactory), or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares represented by such lost, stolen, destroyed or mutilated certificate, and
the shares represented by such new certificate shall be entitled, among other
things, to receive all theretofore payable but unpaid dividends on the shares
represented by the lost, stolen, destroyed or mutilated certificate.
Section 9. Restrictions on Corporate Action.
So long as at least 1,750,000 shares of Preferred Stock remain Outstanding
and in addition to any other approvals or consents required by law, without the
prior affirmative vote or written consent of the holders of at least a majority
of all shares of the Preferred Stock Outstanding at the time, the Corporation
shall not make any Restricted Payment if such Restricted Payment, together with
the aggregate of all other Restricted Payments made on or after the Issuance
Date, exceeds the sum of (A) $ , (B) % of the Consolidated Net Income of the
Corporation accrued on a cumulative basis for the period (taken as one
accounting period) beginning on the first day of the first fiscal quarter
commencing after the Issuance Date and ending on the last day of the last fiscal
quarter immediately preceding the fiscal quarter in which such Restricted
Payment occurs (or, if aggregate cumulative Consolidated Net Income for such
period is a deficit, minus 100% of such deficit), (C) % of the aggregate net
cash proceeds received by the Company after the Issuance Date from the issuance
or sale of capital stock of the Corporation (other than such capital stock
issued or sold to a Subsidiary of the Corporation and other than Redeemable
Stock), (D) the aggregate net cash proceeds received on or after the Issuance
Date by the Corporation from the issuance or sale of debt securities of the
Corporation (other than to a Subsidiary of the Corporation) that have
subsequently been converted into or exchanged (other than by a Subsidiary of the
Corporation) for capital stock of the Corporation (other than Redeemable Stock)
plus the aggregate cash received by the Corporation at the time of such
conversion or exchange, and (E) % of the aggregate net cash proceeds received by
the Company as dividends or distributions from its subsidiaries after the
Issuance Date.
The foregoing provisions of this Section 9 shall not prohibit
(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of this Section 9; (ii) the acquisition by the Corporation of
Equity Interests of the Corporation or any of its Subsidiaries in exchange for,
or with the proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Corporation) for cash of, Equity Interests (other than
Redeemable Stock) of the Corporation; or (iii) the repurchase, redemption or
other acquisition or retirement of any Equity Interests of the Corporation or
any Subsidiary of the Corporation for amounts not to exceed $ in the aggregate
during any 12 month period from employees of the Corporation or any Subsidiary
of the Corporation in connection with the termination of such employees'
employment with the Corporation or any Subsidiary of the Corporation.
Section 10. Closing Books.
The Corporation will not close its books against the transfer of
any share of Preferred Stock.
Section 11. Definitions.
As used in this Certificate of Designations the following terms
shall have the following meanings, which meanings shall be equally applicable to
the singular and plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday
or a day on which banks are permitted to close in New York, New York.
"Common Stock" means the Common Stock, par value $0.0001 per
share, of the Corporation, and any capital stock of any class of the Corporation
hereafter authorized which shall not be limited to a fixed sum or percentage of
par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution, winding up or similar distribution of the Corporation.
"Common Stock Deemed Outstanding" means, at any given time, the
sum of (a) the number of shares of Common Stock actually outstanding at such
time (exclusive of any shares of Common Stock owned or held by or for the
account of the Corporation), plus (b) the number of shares of Common Stock into
which Outstanding shares of Preferred Stock are convertible at such time, plus
(c) the number of other shares of Common Stock deemed to be outstanding under
Section 4 at such time.
"Consolidated Interest Expense" means (without
duplication), for any period, the sum of:
(i) the interest expense of the Corporation and its
Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP;
(ii) all fees, commissions, discounts and other charges of the
Corporation and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, with respect to letters of
credit and bankers' acceptances and the costs (net of benefits)
associated with interest hedging obligations;
(iii) amortization or write-off of debt discount and deferred
financing costs (other than deferred financing costs incurred on or
prior to the Closing Date) in connection with any Long Term Debt of the
Corporation and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; and
(iv) interest capitalized by the Corporation and its
Subsidiaries during such period determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the
aggregate net income for such period, on a consolidated basis, determined in
accordance with GAAP ("Net Income"), of the Corporation and its Subsidiaries;
provided, however, that (i) the Net Income (if positive) of any person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
Corporation or a Subsidiary by such person during such period, (ii) the Net
Income (if positive) of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) extraordinary gains, losses and non-cash restructuring charges
shall be excluded, (iv) the Net Income (if positive) of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary of such Net Income is not at the time of
determination permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary, (v) net after tax gains (but not net
after tax losses) from sales of assets other than current assets or from the
disposition of any property or assets other than in the ordinary course of
business shall be excluded, (vi) any after tax gains (but not losses) from
currency exchange transactions not in the ordinary course of business consistent
with past practice shall be excluded, and (vii) the cumulative effect of any
change in accounting principles shall be excluded.
"Conversion Price" means two dollars and twenty-five cents
($2.25), such price may be adjusted from time to time pursuant to the provisions
of Section 4.
"Corporate Change" means (i) the sale, exchange or transfer of
all or substantially all of the Corporation's assets, or (ii) any transaction or
series of related transactions in which one (1) or more persons (other than a
holder of Preferred Stock or an affiliate thereof) shall directly or indirectly
acquire ownership of or control over capital stock (not including shares held or
controlled by them on the date of original issuance of the Preferred Stock) of
the Corporation (or securities exchangeable for or convertible into such stock)
entitled to elect fifty percent (50%) or more of the Corporation's Board of
Directors and representing at least fifty percent (50%) of the number of shares
of Common Stock Outstanding.
"Dividend Payment Date" means, with respect to Preferred Stock,
the last day of March, June, September and December in each year (or if any such
day is not a Business Day the immediately preceding Business Day).
"EBITDA" shall mean, with respect to any period, Consolidated
Net Income of the Corporation for such period plus, in each case to the extent
deducted in computing such Consolidated Net Income, the sum of (without
duplication) (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.
"Equity Interest" means (a) capital stock, warrants, options or
other rights to acquire capital stock (but excluding any debt security which is
convertible into, or exchangeable for, capital stock), and (b) limited and
general partnership interests, interests in limited liability companies, joint
venture interests and other ownership interests in any Person.
"Excluded Securities" means (a) Options or Convertible
Securities issued and outstanding on the date of original issuance of the
Preferred Stock, and Common Stock issued upon exercise or conversion thereof,
(b) Common Stock, Options or Common Stock issued upon exercise of such Options,
issued to employees of the Corporation or any of its Subsidiaries pursuant to
the stock option plans or other incentive plans adopted by the Board of
Directors and submitted for approval by the Corporation's stockholders at its
1996 annual meeting of stockholders, and (c) any Common Stock, Options, or
Common Stock issued upon exercise of such Options, issued to employees of the
Corporation or any of its Subsidiaries pursuant to the provisions of any other
stock bonus or stock option or other incentive plan or plans subsequently
adopted by the Board of Directors.
"GAAP" means generally-accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial
Accounting Standards Board.
"Indenture" means the Indenture dated as of July 25, 1995
between the Corporation and Bankers Trust Company, as Trustee, relating to the
Corporation's 11-1/4% Senior Subordinated Notes due 2005, as amended from time
to time.
"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 financing fee paid in connection with the original
issuance of Preferred Stock) and payments in reimbursement of
out-of-pocket expenses received by the holders of shares shall not be
treated as cash inflows and therefore shall be disregarded.
"Issuance Date" shall mean the date of initial issuance
of the Preferred Stock.
"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.
"Long-Term Debt" shall mean (without duplication) (A) all indebtedness for
borrowed money or evidenced by notes, bonds, debentures or similar evidences of
indebtedness, all obligations for the deferred and unpaid purchase price of any
property, service or business (other than trade accounts payable and accrued
liabilities incurred in the ordinary course of business and constituting current
liabilities), (B) all capitalized lease obligations, (C) letters of credit and
all obligations of relating thereto, (D) all obligations in respect of interest
rate swap agreements, currency swap agreements and other similar agreements
designed to hedge against fluctuations in interest rates or foreign exchange
rates, and (E) all Preferred Stock (and convertible preferred stock of any other
class) if and so long as the Market Price of Common Stock is less than the
Conversion Price (or conversion price of any such other class of convertible
preferred stock) from time to time in effect; in each case determined on a
consolidated basis in accordance with GAAP.
"Market Price" means as to any security the average of the
closing prices of such security's sales on such day on all domestic exchanges on
which such security may at the time be listed, or, if there shall have been no
sales on any such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or, if on such
day such security shall not be so listed or trading thereon or on such exchange
shall be suspended, the closing price on such day of any such security traded on
the NASDAQ System or, if no such closing price is available, (i) the average of
the representative bid and asked prices quoted in the NASDAQ System as of 4:00
P.M., New York time, on such day, or (ii) if on such day such security shall not
be quoted in the 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.
"Redeemable Stock" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, in whole or in part.
"Redemption Date" as to any share of Preferred Stock means the
date specified in the notice of redemption delivered pursuant to Section 3.7;
provided that for purposes of Section 3.8, the Redemption Date shall be the date
on which the applicable Redemption Price is actually paid to the holder of such
share of Preferred Stock or deposited in trust for the benefit of such holder
pursuant to Section 3.10.
"Redemption Price" as to any share of Preferred Stock means the
Liquidation Value of such share.
"Restricted Payment" shall mean any dividend or other
distribution on any Junior Securities other than dividends or distributions
payable solely in Junior Securities, or the amount paid to purchase, redeem, or
otherwise acquire for any consideration, or to 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.
"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.
* * * * * *
IN WITNESS WHEREOF, this Certificate has been signed on this day
of , 1997, 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.
9
By:
------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Co-Chairman
ATTEST:
---------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Assistant
Secretary
EXHIBIT C
The Securities represented by this certificate have not been
registered under the Securities Act of 1933. Such Securities have been
acquired for investment and may not be pledged or hypothecated, and
may not be sold or transferred, except in compliance with the
registration requirements of the Securities Act of 1933, or upon
delivery to Alliance Entertainment Corp. of an opinion of counsel to
the Securityholder, in form and substance satisfactory to said
corporation and its counsel, that registration under such Act is not
required.
No. R-1 $
ALLIANCE ENTERTAINMENT CORP.
6% Exchangeable Note due December 31, 2001
ALLIANCE ENTERTAINMENT CORP., a Delaware corporation, promises to pay to or
registered assigns the principal sum of Dollars, on December 31, 2001.
Interest Payment Dates: March 31, June 30, September 30 and
December 31
Record Dates: March 1, June 1, September 1 and December 1
Additional provisions of this Security are set forth on the reverse side of this
Security.
IN WITNESS WHEREOF, ALLIANCE ENTERTAINMENT CORP. has caused
this instrument to be duly signed.
ALLIANCE ENTERTAINMENT CORP.
By:______________________________
By:_____________________________
Dated: December , 1996
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[REVERSE OF SECURITY]
ALLIANCE ENTERTAINMENT CORP.
6% Exchangeable Note due December 31, 2001
1. Interest. ALLIANCE ENTERTAINMENT CORP., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this
Security at 6% per annum from and including the date of issuance of this
Security until maturity or exchange. The Company will pay interest on each
interest payment date, beginning March 31, 1997. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. Interest shall be paid in
additional Securities having a principal amount equal in amount to the interest
payable, by mailing additional Securities to each Securityholder's address as it
appears on the Company's register at least five days prior to each interest
payment date or otherwise delivering such Securities so as to be received by
such holder on the interest payment date. Interest on principal amount shall be
calculated cumulatively at the rate and in the manner prescribed herein from and
including the date of issuance of the Security for such principal amount. For
purposes of this Section 1, the date on which the Company shall initially issue
a Security shall be deemed to be its "date of issuance" regardless of the number
of times transfer of such Security shall have been made on the register
maintained by or for the Company and regardless of the number of Securities
which may be issued to evidence such principal amount (whether by reason of
transfer of such principal amount or for any other reason).
2. Method of Payment. The Company will pay interest on the
Securities (except defaulted interest) to the persons who are the registered
holders of the Securities at the close of business on the March 1, June 1,
September 1 or December 1 next preceding the interest payment date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company,
however, may pay principal by its check payable in such money. On December 31,
2001 the Company shall pay in cash to the holders of Securities an amount equal
to the outstanding principal amount and any accrued interest thereon.
3. Registrar and Agents. Initially, the Company
will act as Registrar, Paying Agent, Exchange Agent and agent
for service of notices and demands. The Company may change any
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Registrar, co-registrar, Paying Agent, Exchange Agent and agent for service of
notices and demands without the prior consent of the holders but upon notice to
the holders. The Company or any of its Subsidiaries may act as Registrar,
co-registrar, Exchange Agent or Paying Agent.
4. Limitations. The Securities are general
unsecured obligations of the Company limited to $10,000,000
principal amount.
5. Exchange. A holder of a Security may exchange such Security for
shares of the Company's Series B Convertible Preferred Stock, par value $0.01
per share (the "Series B Preferred Stock"), at any time before the close of
business on the fifth business day prior to December 1, 2001. The exchange price
is $100.00 principal amount per share of Series B Preferred Stock. To determine
the number of shares issuable upon exchange of a Security, divide the principal
amount and accrued interest to be converted by the exchange price in effect on
the exchange date and round to the nearest 1/100th share.
To exchange a Security, a holder must (1) complete and sign the
exchange notice on the back of the Security, (2) surrender the Security to the
Exchange Agent or Registrar, (3) furnish appropriate endorsements and transfer
documents if required by the Registrar or Exchange Agent, and (4) pay any
transfer or similar tax if required. Except as provided below, no adjustment is
to be made on conversion for interest accrued hereon or for dividends on shares
of Series B Preferred Stock issued on conversion. Following an election by a
holder to exchange Securities, the Company's delivery to the holder of the fixed
number of shares of Series B Preferred Stock of the Company into which the
Security is exchangeable shall be deemed to satisfy the Company's obligation to
pay the principal amount of the Security. The Series B Preferred Stock of the
Company so delivered shall be treated as issued in payment of accrued interest
first and then of principal. A holder may exchange a portion of a Security if
the portion is $1,000 principal amount or an integral multiple thereof. In the
event of exchange of this Security in part only, a new Security or Securities
for the unexchanged portion hereof will be issued in the name of the holder
hereof upon the cancellation hereof.
If the Company is a party to a consolidation or merger or a transfer
or lease of all or substantially all of its assets, the right to exchange a
Security into Series B
-4-
Preferred Stock may be changed into a right to exchange it into securities, cash
or other assets of the Company or another person into which the Series B
Preferred Stock was exchanged or converted as a result of such consolidation,
merger, transfer or lease.
No amendment of the certificate of designations with respect to the
Series B Preferred Stock shall be made without the consent of holders of a
majority in interest of the Securities.
6. Events of Default. In addition to the failure to pay principal or
interest all Events of Default under the Indenture (the "Indenture") of the
Company dated July 25, 1995 with respect to the $125,000,000 principal amount of
11-1/4% Senior Subordinated Notes due 2005, as the Indenture was in effect on
July 25, 1995, are hereby incorporated by reference and shall be deemed to be
events of default under this Security. No subsequent waiver, amendment or
modification, or expiration of the Indenture or the 11-1/4% Senior Subordinated
Notes shall affect the meaning of "event of default" under this Security.
7. Acceleration. If an event of default occurs and is continuing,
the holders of 25% of the principal amount (the "Requesting Holders") of the
Securities then outstanding, by written notice to the Company, may declare all
unpaid principal amount, if any, and accrued interest on the Securities, to be
immediately due and payable. NOTWITHSTANDING ANY OTHER PROVISION HEREIN, THE
RIGHT TO DECLARE PRINCIPAL AND INTEREST IMMEDIATELY DUE PURSUANT TO THIS
PARAGRAPH SHALL NOT BE TRANSFERABLE AND NO TRANSFEREE OF THE SECURITIES MAY BE
CONSIDERED A REQUESTING HOLDER.
8. Mandatory Exchange. (a) In the event the Company shall determine
that the payment of interest on the principal amount of the Securities would
violate any provision of the Indenture, the Company shall provide the holder
with written notice accompanied by a certificate of the chief financial officer
of the Company satisfactory to the holder to such effect. The Company may then
exchange a principal amount of the Securities which the Company reasonably
believes is necessary to be in compliance with the Indenture for Series B
Preferred Stock having a liquidation value equal to the principal amount of the
Securities to be exchanged.
-5-
(b) Upon the good faith request of the Company, which may not exceed
$2,000,000 principal amount in the aggregate without the consent of the holders
of the securities, a portion of the outstanding Securities shall be exchanged
for Series B Preferred Stock (such amount allocated on a pro rata basis among
the holders of Securities) in an aggregate amount the Company believes in good
faith is necessary to exchange in order to appropriately increase the
availability of additional borrowings permitted under Section 5.08(vi) of the
Indenture; provided, however, that the Company shall only make such a request to
the holders of Securities on or after the date that the condition set forth in
Section 3.2(i) of the Purchase Agreement dated as of December 20, 1996 by and
among the Company and the Purchasers named therein, has been satisfied by the
Company.
9. Denominations, Transfer, Exchange. The Securities are in
registered form without coupons in denominations of $1,000 principal amount and
integral multiples thereof. A holder may register the transfer of or exchange
Securities. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law.
10. Persons Deemed Owners. The registered holder of
a Security shall be treated as the owner of it for all
purposes.
11. Unclaimed Money. If money for the payment of
principal or interest on any Securities remains unclaimed for
two years, any Paying Agent other than the Company will pay the
money back to the Company at its request. After that, holders
may look only to the Company for payment.
12. Merger or Consolidation. The Company may not consolidate with,
or merge into, or transfer or lease all or substantially all of its assets to,
another person unless the person is a corporation and such corporation assumes
all the obligations of the Company under the Securities at the time thereof.
13. Amendment and Waiver. Subject to certain
exceptions, the Securities may be amended with the consent to
the holders of at least a majority in principal amount of the
Securities then outstanding and any existing default in
compliance with any provision hereof may be waived with the
consent of the holders of a majority in principal amount of the
-6-
Securities then outstanding. Without the consent of or notice to any
Securityholder, the Company may amend the Securities to, among other things,
provide for uncertificated Securities, to cure any ambiguity, defect or
inconsistency or make any other change that does not adversely affect the rights
of any Securityholder.
14. Successors. When a successor assumes all the
obligations of its predecessor under the Securities the
predecessor will be released from those obligations.
15. No Recourse Against Others. No shareholder, director, officer or
incorporator, as such, past, present or future, of the Company or any successor
corporation shall have any liability for any obligation of the Company under the
Securities or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
16. Abbreviations. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entirety), JT TEN (= joint tenants with rights of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
-7-
ASSIGNMENT FORM
If you as the holder want to assign this Security, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Security to
(INSERT ASSIGNEE'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
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--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
agent
to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
--------------------------------------------------------------------------------
Date:
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Your signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other
side of this Security)
Signature Guarantee:
-----------------------------------------------------------
(by national bank, trust company or member
firm of national securities exchange or
the National Association of Securities
Dealers, Inc.)
EXCHANGE NOTICE
To exchange this Security into Series B Preferred Stock of the Company, check
the box:
---
/--/
To exchange only part of this Security, state the principal amount to be
exchanged (which must be a minimum of $1,000 or any multiple thereof):
---------------------
$
---------------------
If you want the stock certificate made out in another person's name, fill in the
form below:
(INSERT OTHER PERSON'S SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER)
-----------------------------------------
-----------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(Print or type other person's name, address and zip code)
Date:
---------------------------------------------------------------------------
Your signature:
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(Sign exactly as your name appears on the other
side of this Security)
Exhibit D
to
Preferred Stock Purchase Agreement
among Alliance Entertainment Corp.
and the Purchasers named therein
Registration Rights
1. Definitions. As used in this Exhibit D, the
following terms shall have the following meanings:
"Common Stock" means Common Stock, par value $0.0001 per
share, of the Company, including without limitation the Conversion Shares.
"Conversion Shares" means shares of Common Stock issued or
issuable upon conversion of Preferred Stock.
"Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $0.01 per share, or Series C Convertible Preferred
Stock, par value $0.01 per share.
"Pro Rata" means, with respect to the shares of Common Stock
that a Registering Stockholder has requested be included in an underwritten
public offering, but which are to be excluded in part from such offering as
provided in this Exhibit D, the same proportion of the aggregate number of
shares of Common Stock to be excluded from such offering as the aggregate number
of shares of Common Stock held by such Registering Stockholder bears to the
aggregate number of shares of Common Stock held by all Registering Stockholders
whose shares are to be excluded in part.
"Purchase Agreement" means the Purchase Agreement dated as of
December 20, 1996, among the Company and the Purchasers named therein, to which
this Exhibit D is attached.
"Registrable Securities" means, collectively, (i)
Common Stock of the Company issued to Stockholders and (ii)
Common Stock issued or issuable by way of stock dividend or stock split or
upon the exercise of stock options or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise with respect to Registrable Securities. Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have been sold
pursuant to Rule 144 (or any successor provision) under the Securities Act or
(iii) such securities shall have been otherwise transferred, new certificates
therefor not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such securities shall not
require the registration or qualification of such securities under the
Securities Act or any similar state law then in effect.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with this Exhibit D and the completion of
transactions relating thereto including, without limitation, all registration
and filing fees, all fees and expenses of complying with securities or blue sky
laws, all printing expenses, the fees and disbursements of the Company's
independent public accountants, including the expenses of any special audits,
reviews, compilations or other reports or information required by or incident to
such performance and compliance, and any fees or expenses of counsel for the
Company and of one special counsel to represent the holders on whose behalf
Registrable Securities are being registered, but excluding any underwriting
discounts and commissions with respect to such Registrable Securities, which
shall be borne by the holder on whose behalf such Registrable Securities are
being registered.
"Stockholder" means a Purchaser or any other holder of
Common Stock or Preferred Stock.
Unless otherwise defined herein, capitalized terms used in this Exhibit D have
the meanings assigned to them in the Purchase Agreement.
2. Registration on Request. (a) Upon the written request of
either WCI, CVI or BTC, (each a "Requesting Stockholder"), requesting that the
Company effect the registration under the Securities Act of all or part of the
Conversion Shares held by such Requesting Stockholder and specifying the
intended method or methods of disposition of such Conversion Shares, the Company
will promptly give written notice of such requested registration by registered
or certified mail, return receipt requested, to all Stockholders holding
Registrable Securities and thereupon will use its best efforts to effect, at the
earliest possible date, the registration, under the Securities Act, subject to
Section 2(d), of
(i) the Conversion Shares which the Company has been
so requested to register by such Requesting Stockholder,
for disposition as stated in such request, and
(ii) all other Registrable Securities which the
Company has been requested to register by Stockholders holding
Registrable Securities (which Stockholders, together with the
Requesting Stockholders, are referred to herein as "Registering
Stockholders") by written request delivered to the Company within
thirty (30) days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition of such
Registrable Securities),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities to be so
registered, provided that (A) if the Company shall have previously effected a
registration of which notice has been given to all Stockholders holding
Registrable Securities pursuant to Section 3, in which either Requesting
Stockholder wishing to do so was permitted to sell all Registrable Securities
they desired to sell, the Company shall not be required by either Requesting
Stockholder to effect a registration pursuant to this Section 2 until a period
of 90 days shall have elapsed from the effective date of the most recent such
previous registration, and (B) the Company shall not be obligated to effect more
than two such registrations for CVI and WCI together and two such registrations
for BTC. Each registration requested pursuant to this Section 2 shall be
effected by the filing of a registration statement on Form S-1, Form S-2 or Form
S-3 (or any other form which the Company is qualified to use).
(b) The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities
effected by the Company pursuant to this Section 2.
(c) The Company will not register securities for sale for the
account of any Person other than (i) the Company, and (ii) holders of
Registrable Securities. The Company will not grant to any Person the right to
request a registration of securities except pursuant to Section 2(a); provided,
however, the Company has granted such rights pursuant to the Stock Acquisition
and Merger Agreement dated as of August 15, 1996 and Exhibit I thereto. The
Company may grant incidental rights to participate in registrations comparable
to those granted in Section 3.
(d) If the registration so requested by the Requesting Stockholder involves
an underwritten offering of the securities so being registered, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction, and the managing underwriter of such underwritten offering shall
advise the Company in writing that, in its opinion, the distribution of all or a
specified portion of the Registrable Securities which the Registering
Stockholders have requested to register under Section 2(a)(i) or (ii) will cause
the total number of securities to be distributed to exceed the number which can
be sold in an orderly manner within a price range acceptable to the holders of a
majority of the Registrable Securities initially requesting the registration,
then the Company will promptly furnish each Registering Stockholder a copy of
the opinion of the managing underwriter, will register the shares of Common
Stock which the Registering Stockholders have requested pursuant to Section
2(a)(i) or (ii) in an amount not to exceed the maximum number of shares that the
managing underwriter deems advisable and, to the extent necessary so that the
aggregate number of shares to be registered does not exceed the maximum amount
the managing underwriter deems advisable, will first reduce the number of shares
that each Registering Stockholder, other than a Requesting Stockholder, has
requested to register pursuant to Section 2(a)(ii), Pro Rata, and then, to the
extent necessary, reduce the number of shares that the Requesting Stockholder
has requested to register pursuant to Section 2(a)(i) or (ii), Pro Rata.
(e) If requested by the underwriters for any underwritten
offering of Registrable Securities on behalf of a holder or holders of
Registrable Securities pursuant to a registration requested under this Section
2, the Company will enter into an underwriting agreement with such underwriters
for such offering, such agreement to contain such representations and warranties
by the Company and such other terms and provisions as are customarily contained
in underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution provisions to the effect and to
the extent provided in Section 6.
(f) If, at any time after requesting registration pursuant to
Section 2(a) and prior to the effective date of the registration statement filed
in connection with such registration request, any Requesting Stockholder shall
determine for any reason not to register such Registrable Securities, such
Requesting Stockholder may, at its election, give written notice of such
determination to the Company. The Company shall then be relieved of its
obligations to register any Registrable Securities in connection with such
Requesting Stockholder's registration request (but not its obligation to pay the
Registration Expenses in connection therewith as provided in Section 2(b)),
without prejudice, however, to the rights pursuant to Section 2(a) of any other
Registering Stockholders to request that such registration be effected.
(g) In connection with the first request for registration pursuant to
Section 2(a), the Company may, within fifteen (15) days after its receipt of
such request, give the Requesting Stockholder notice that it is the good faith
intention of the Company to register securities under the Securities Act for
sale for its own account. Thereafter, the provisions of Section 3 shall govern,
and the Requesting Stockholders' registration request under Section 2(a) shall
be deemed rescinded. The Requesting Stockholders shall again be entitled to
request such registration under Section 2(a), but not sooner than the earliest
of (i) ninety (90) days after the effective date of the Company's registration,
(ii) the Company's determination (of which the Company shall promptly notify the
holders of Registrable Securities) not to proceed with its registration of
securities, and (iii) the Company's failure to use best efforts to effect the
registration of its securities.
(h) In connection with any request for registration pursuant
to Section 2(a), the Company may, on one occasion only, upon a good-faith
determination by the Company's Board of Directors that such a registration would
interfere with the completion of a proposed corporate transaction, notify the
Requesting Stockholder that it intends to defer such registration for up to one
hundred twenty (120) days. In such event the Requesting Stockholder may rescind
their registration request, and shall again be entitled to request such
registration under Section 2(a), but not sooner than the end of the period of
deferral determined by the Company.
3. Incidental Registrations. (a) If, at any time, the Company
proposes to register any of its securities under the Securities Act, whether or
not for sale for its own account, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time give prompt written notice to all holders
of Registrable Securities of its intention to do so, describing such securities
and specifying the form and manner and the other relevant facts involved in such
proposed registration, and upon the written request of any such holder delivered
to the Company within thirty (30) days after the giving of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered, provided that:
(i) if, at any time after giving such written notice of its intention to
register any of its securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such securities, the Company may,
at its election, give written notice of such determination to each holder of
Registrable Securities and thereupon shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection therewith
as provided in Section 3(b)), without prejudice however to the rights of any
Requesting Stockholder to request that such registration be effected as a
registration under Section 2(a);
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities so being registered, whether or not for
sale for the account of the Company, to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and the managing
underwriter of such underwritten offering shall advise the Company in writing
that, in its opinion, the distribution of all or a specified portion of the
Registrable Securities which the Registering Stockholders have requested the
Company to register in accordance with this Section 3(a) concurrently with the
securities being distributed by such underwriters will cause the total number of
securities to be distributed to exceed the number which can be sold in an
orderly manner within a price range acceptable to the Company or the holders of
the other securities to be distributed, as the case may be, then the Company
will promptly furnish each such holder of Registrable Securities with a copy of
such opinion and may deny, by written notice to each such holder accompanying
such opinion, the registration of all or a specified portion of such Registrable
Securities (in case of a denial as to a portion of such Registrable Securities,
such portion to be allocated Pro Rata among such holders; provided that, if such
registration as initially proposed by the Company was in whole or in part
requested by holders of securities of the Company pursuant to demand
registration rights the Company will include in such registration to the extent
of the amount of securities which the managing underwriter advises the Company
can be sold in such offering, (x) first, such securities held by the holders
initiating such registration and, if applicable, any securities proposed by the
Company to be sold for its own account, allocated in accordance with the
priorities then existing among the Company and such holders, and (y) second, any
Registrable Securities requested to be included in such registration by
Requesting Holders and any other securities of the Company proposed to be
included in such registration (1) as between such Registrable Securities and
such other securities, pro rata on the basis of the numbers of such Registrable
Securities and such other securities, respectively, (2) as among such
Registrable Securities, pro rata on the basis of the number of Registrable
Securities requested to be included by such holders and (3) as among such other
securities, allocated among the holders thereof in accordance with the
priorities then existing among the Company and the holders of such other
securities and any securities so excluded shall be withdrawn from and shall not
be included in such incidental registration; and
(iii) the Company shall not be obligated to effect any registration of
Registrable Securities under this Section 3 incidental to the registration of
any of its securities in connection with dividend reinvestment plans or stock
option or other employee benefit plans.
(b) The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities
requested pursuant to this Section 3.
4. Registration Procedures. (a) If and whenever
the Company is required to use its best efforts to effect the
registration of any Registrable Securities under the Securities
Act as provided in Section 2 or 3, the Company will as
expeditiously as possible:
(i) prepare and promptly file with the Commission a
registration statement with respect to such Registrable Securities (in
any event, use its best efforts to file such registration statement
within sixty (60) days after the end of the period within which
requests for registration may be delivered to the Company) and use its
best efforts to cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities and
other securities covered by such registration statement until the
earlier of such time as all of such Registrable Securities and other
securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in
such registration statement or the expiration of nine (9) months after
such registration statement becomes effective;
(iii) furnish to each seller of such Registrable Securities,
without charge, such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus
included
in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under the securities or blue sky laws of such
jurisdictions as each seller (or in an underwritten offering, the
managing underwriter) shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to subject itself to taxation in any
such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(v) furnish to each seller of Registrable Securities by
means of such registration a signed counterpart, addressed to such
seller, of (A) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement speaking both as of the effective date
of the registration statement and the date of the closing under the
underwriting agreement)and (B) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have certified the Company's
financial statements included in such registration statement, covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, as such seller may
reasonably request;
(vi) immediately notify each seller of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing, and prepare and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such Registrable Securities or other securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(vii) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its securities
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months beginning with the
first day of the first month of the first fiscal quarter after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder; and
(viii) use its best efforts to list such securities on the New
York Stock Exchange and each securities exchange on which the Common
Stock of the Company is then listed, if such securities are not already
so listed and if such listing is then permitted under the rules of such
exchange, and, if necessary, provide a transfer agent and registrar for
such Registrable Securities not later than the effective date of such
registration statement.
The Company may require each such holder of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
or by the Commission in connection therewith.
(b) If the Company at any time proposes to register any of its
securities under the Securities Act (other than pursuant to a request made under
Section 2), and such securities are to be distributed by or through one or more
underwriters, the Company will make reasonable efforts, if requested by any
holder of Registrable Securities who requests incidental registration of
Registrable Securities in connection therewith pursuant to Section 3, to arrange
for such underwriters to include such Registrable Securities among those
securities to be distributed by or through such underwriters, provided that, for
purposes of this sentence, reasonable efforts shall not require the Company to
reduce the amount or sale price of such securities proposed to be so
distributed. In all registrations under Section 2 or Section 3 hereof, the
holders of Registrable Securities on whose behalf Registrable Securities are to
be distributed by underwriters shall be parties to any underwriting agreement
and the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters, shall also be made
to and for the benefit of such holders of Registrable Securities.
(c) Whenever a registration requested pursuant to Section 2 is
for an underwritten offering, the holders of a majority of the Registrable
Securities included in such registration shall have the right to select the
managing underwriter to administer the offering subject to the approval of the
Company, such approval not to be unreasonably withheld. If the Company at any
time proposes to register any of its securities under the Securities Act for
sale for its own account and such securities are to be distributed by or through
one or more underwriters, the managing underwriter shall be selected by the
Company and approved by the holders of Registrable Securities requesting
registration thereof, such approval not to be unreasonably withheld.
(d) If any registration pursuant to Section 2 or 3 shall be
made in connection with an underwritten public offering, each holder of
Registrable Securities agrees by acquisition of such Registrable Securities, if
so required by the managing underwriters, not to effect any public sale or
distribution of Registrable Securities (other than as part of such underwritten
public offering) within the period of time between seven days prior to the
effective date of such registration statement and one hundred twenty (120) days
after the effective date of such registration statement.
5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to be so
registered and their underwriters, if any, and their respective counsel and
accountants, the opportunity to review and comment upon such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the reasonable
opinion of such holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
6. Indemnification; Contribution. (a) In the event of any registration of
any securities of the Company under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless in the case of any registration
statement filed pursuant to Section 2 or 3, the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each officer and director of each underwriter, each other person who
participates as an underwriter in the offering or sale of such securities and
each other person, if any, who controls such holder or any such underwriter
within the meaning of the Securities Act against any losses, claims, damages,
liabilities and expenses, joint or several, to which such holder or any such
director or officer or participating or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings or investigations in respect
thereof) arise out of or are based upon (x) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus (unless, with respect to the indemnification of the
officers and directors of each underwriter and each other person participating
as an underwriter, any such statement is corrected in a subsequent prospectus
and the underwriters are given the opportunity to circulate the corrected
prospectus to all persons receiving the preliminary prospectus), final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (y)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(z) any violation by the Company of any securities laws, and the Company will
reimburse such holder and each such director, officer, participating person and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the Company shall not
be liable to any seller, director, officer, participating person or controlling
person in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company in an instrument executed by or under the direction of such seller,
director, officer, participating person or controlling person for use in the
preparation thereof, which information was specifically stated to be for use in
the registration statement, prospectus, offering circular or other document.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director, officer,
participating person or controlling person and shall survive the transfer of
such securities by such seller. The Company shall agree to provide for
contribution relating to such indemnity as shall be reasonably requested by any
seller of Registrable Securities or the underwriters.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2(a), that the Company shall have received an undertaking satisfactory to it
from the prospective sellers of such securities and their underwriters, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 6) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, but only if
such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such sellers or their underwriters specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such sellers. Anything
contained herein to the contrary notwithstanding, the maximum liability of each
prospective seller in the case of each prospective seller shall be limited to an
amount equal to the net proceeds actually received by such prospective seller
from the sale of such Registrable Securities.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action or proceeding involving a claim referred to in
the preceding subdivisions of this Section 6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 6 except to the extent that the
indemnifying party's rights are prejudiced, or liabilities and obligations under
this Section 6 are increased, as a result of such failure to give notice. In
case any such action is brought against an indemnified party, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof unless
(i) the indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (ii) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (iii)
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other person represented by
such counsel in such proceeding or the indemnified party shall have reasonably
concluded that there may be legal defenses available to it which are different
from or additional to those available to the indemnifying party (in which case
the indemnifying party shall not have the right to direct the defense of such
action on behalf of the indemnified party). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The indemnifying party shall not be liable for any settlement of any
proceeding effected without the written consent of such indemnifying party
(which consent shall not be unreasonably withheld), but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify each indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) Indemnification and contribution similar to that specified
in this Section 6 (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or other qualification of such Registrable Securities under any
federal or state law or regulation or governmental authority other than the
Securities Act.
(e) The rights and obligations of the parties under this
Section 6 shall survive any termination of the Purchase Agreement.
EXHIBIT E
VOTING AGREEMENT
Voting Agreement, dated as of December 20, 1996 (this "Agreement"), among
▇▇▇▇▇▇ ▇▇▇▇▇▇ ("▇▇▇▇▇▇"), ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Capital, Inc., BCI Growth III,
L.P., BCI Growth IV, L.P. ("BCI IV"), BT Capital Partners, Inc. ("BTC"), U.S.
Equity Partners, L.P., U.S. Equity Partners (Offshore), L.P., Cypress Ventures,
Inc. ("CVI") and ▇▇▇▇▇▇▇▇▇▇▇ & Co. Inc. ("WCI"; individually a "Participating
Party", and collectively the "Participating Parties") and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇.
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(individually a "Terminating Party", and collectively with the Participating
Parties, "Parties"), each of which are record or beneficial owners of Common
Stock, par value $.0001 per share ("Common Stock"), of Alliance Entertainment
Corp., a Delaware corporation (the "Company").
WHEREAS, pursuant to a Purchase Agreement dated as of December 20, 1996,
among WCI, BTC and the Company (the "Purchase Agreement"), CVI will receive
shares of Series B Convertible Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), and WCI has entered into a standby purchase
commitment in connection with a rights offering for Series C Convertible
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"), of
the Company,
WHEREAS, the Participating Parties are the owners of, or by proxy or
otherwise exercise irrevocable voting control over shares of Common Stock of the
Company as set forth in Attachment A hereto,
WHEREAS, the Parties wish to terminate that certain Voting Agreement dated
as of August 15, 1996 (the "August 15th Voting Agreement") among the
stockholders and optionholders thereto and that certain Voting Agreement dated
as of July 16, 1996 (the "July 16th Voting Agreement") among the stockholders
and optionholders thereto; and
WHEREAS, BTC and BCI IV desire to revoke their proxy granted to ▇▇▇▇▇▇
pursuant to Section 3(b) of that certain Inducement Agreement dated July 16,
1996 (the "Inducement Agreement") among BTC, BCI IV and ▇▇▇▇▇▇.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter contained, the Parties hereby agree
as follows:
1. Termination of Prior Voting Agreements. The July 16th Voting Agreement
and the August 15th Voting Agreement (other than paragraph 4 of the August 15th
Voting Agreement which paragraph shall remain in full force and effect) are
hereby terminated and are no longer in force or effect.
2. Voting of Shares by Parties. Each Participating Party agrees to vote all
of the shares of Common Stock which are now or hereafter owned by such
Participating Party, beneficially or of record, or which he or it is entitled to
vote by proxy or otherwise, including without limitation those shares identified
on Attachment A hereto, at any special or annual meeting of the stockholders of
the Company, or by any written consent, whereat or whereby the same are
considered for approval by the stockholders of the Company, for (a) the approval
of the conversion rights and the voting rights of the Series B Preferred Stock
and the Series C Preferred Stock, as set forth in the certificates of
designations attached thereto, and the issuance of the Series B Preferred Stock
and the Series C Preferred Stock pursuant to the Purchase Agreement, and (b) the
approval of the Company's issuance of Common Stock pursuant to any Participating
Party's exercise of any such conversion rights.
3. Termination of Proxy. BTC and BCI IV hereby terminate and revoke their
proxy granted to ▇▇▇▇▇▇ pursuant to Section 3(b) of the Inducement Agreement.
4. Changes in Common Stock. In the event that subsequent to the date of
this Agreement any shares or other securities (other than any shares or
securities of another corporation issued to the stockholders of the Company
pursuant to a plan of merger) are issued on, or in exchange for, any of the
shares of the Common Stock or Preferred Stock held by the Participating Parties
by reason of any stock divided, stock split, consolidation of shares,
reclassification, or consolidation involving the Company, such shares or
securities shall be deemed to be Common Stock for purposes of this Agreement.
5. Representations of Participating Parties. Each Participating Party
hereby represents and warrants that, after the termination of the July 16th
Voting Agreement and the August 15th Voting Agreement pursuant to Section 1
hereof, (i) such Participating Party owns and/or has the right to vote the
number of shares of the Common Stock set forth opposite his or its name on
Attachment A hereto, (ii) such Participating Party has full power to enter into
this Agreement and has not, prior to the date of this Agreement, executed or
delivered any proxy or entered into any other voting agreement or similar
arrangement that would conflict with the purposes or provisions of this
Agreement, (iii) such Participating Party will not take any action inconsistent
with the purposes and provisions of this Agreement and (iv) this Agreement
is a valid, binding and enforceable obligation of such Participating Party.
6. Enforceability. Each Party expressly agrees that this Agreement shall be
specifically enforceable in any court of competent jurisdiction in accordance
with its terms against each of the Parties hereto.
7. Benefit. This Agreement shall be binding upon and inure to the benefit
of the respective Parties hereto and their successors.
8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date first above written.
Participating Parties:
/s/▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ CAPITAL, INC.
By:
-----------------------------
Name:
Title:
BCI GROWTH III, L.P.
By:
-----------------------------
Name:
Title:
BCI GROWTH IV, L.P.
By:
-----------------------------
Name:
Title:
BT CAPITAL PARTNERS, INC.
By:
-----------------------------
Name:
Title:
U.S. EQUITY PARTNERS, L.P.,
by its general partner,
W.P. Management Partners, L.L.C.
By:
-------------------------
Name:
Title:
U.S. EQUITY PARTNERS (OFFSHORE),
L.P., by its general partner,
W.P. Management Partners, L.L.C.
By:
--------------------------
Name:
Title:
▇▇▇▇▇▇▇▇▇▇▇ & CO., INC.
By:
--------------------------
Name:
Title:
CYPRESS VENTURES, INC.
By:
--------------------------
Name:
Title:
Terminating Parties:
---------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
R. ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
EXHIBIT F
AMENDMENT TO EMPLOYMENT AGREEMENT OF ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
THIS AMENDMENT is entered into as of December 20, 1996, by and between
ALLIANCE ENTERTAINMENT CORP., a Delaware corporation (the "Company"), and ▇▇▇▇▇
▇. ▇▇▇▇▇▇ (the "Executive").
R E C I T A L S:
WHEREAS, the Company and the Executive have entered into an Employment
Agreement (the "Agreement"), dated as of the 15th day of August, 1996, between
the Company and the Executive; and
WHEREAS, in connection with the execution and delivery of a Purchase
Agreement dated as of December 20, 1996 among the Company, Cypress Ventures,
Inc., ▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc. and BT Capital Partners, Inc., the Company and the
Executive desire to amend the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties, the parties agree that the third sentence of Section
1 of the Agreement is hereby amended to read as follows:
"The Executive shall have full authority over the day-to-day operations of
the Company and all of its subsidiaries and over all officers and employees
of the Company, including, without limitation, the power to hire and,
subject to contractual commitments, fire employees; provided, however, that
(i) so long as ▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc. ("WCI") and BT Capital Partners,
Inc. ("BTC") hold 50% or more of the securities issued to them pursuant to
the Purchase Agreement dated as of December 20, 1996 (the "Purchase
Agreement") among the Company, Cypress Ventures, Inc., WCI, BTC, (or
in the event WCI or BTC holds 50% or more of the securities purchased by it
pursuant to the Purchase Agreement and the other does not hold 50% or more
of the securities purchased by it pursuant to the Purchase Agreement, then
such 50% or more holder alone) shall have the exclusive power to
nominate a candidate to be considered for the position of Executive Vice
President - Finance subject to the Executive's consent, which consent
shall not be unreasonably withheld, (ii) the Executive shall not remove
the Executive Vice President - Finance without the approval of the Board
of Directors of the Company which shall be the only limitation on the
Executive's power to fire employees, and (iii) Executive shall retain the
exclusive power to nominate a candidate to be considered as the executive
in charge of distribution operations or logistics (or other similar
position involving the supervision of the warehousing and shipping of
inventory), subject to the consent of WCI and BTC, so long as WCI and BTC
hold 50% or more of the securities issued to them pursuant to the Purchase
Agreement (or in the event WCI or BTC holds 50% or more of the securities
purchased by it pursuant to the Purchase Agreement and the other does not
hold 50% or more of the securities purchased by it pursuant to the
Purchase Agreement, then such 50% or more holder alone), which consent
shall not be unreasonably withheld."
The parties hereby agree that the above amendment of the third
sentence of Section 1 shall not be an event or occurrence which constitutes
"Good Reason" as defined in Section 5.3.2 of the Agreement.
This Amendment shall be effective as of the date hereof.
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
the Agreement as of the date first above written.
EMPLOYEE: ALLIANCE ENTERTAINMENT CORP.
________________ By: ____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name:
Title:
EXHIBIT G
REVISED & RESTATED
BY-LAWS
OF
ALLIANCE ENTERTAINMENT CORP.
Effective December 20, 1996
TABLE OF CONTENTS
Page
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office........................... 1
SECTION 2. Other Offices........................................ 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting....................................... 1
SECTION 2. Special Meetings..................................... 1
SECTION 3. Notice of Meetings................................... 1
SECTION 4. Quorum and Adjournments.............................. 2
SECTION 5. Organization......................................... 2
SECTION 6. Proxies and Voting of Shares......................... 3
SECTION 7. Voting List of Stockholders.......................... 3
SECTION 8. Notice of Stockholder Business and
Nominations ......................................... 4
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of
Directors............................................ 6
SECTION 2. Number, Tenure and Qualifications.................... 7
SECTION 3. Vacancies............................................ 7
SECTION 4. Removal.............................................. 8
SECTION 5. Regular Meetings; Notice............................. 8
SECTION 6. Special Meetings..................................... 8
SECTION 7. Notice of Special Meetings........................... 8
SECTION 8. Quorum............................................... 9
SECTION 9. Organization......................................... 9
SECTION 10. Compensation of Directors............................ 9
SECTION 11. Committees........................................... 10
SECTION 12. Written Consents..................................... 11
SECTION 13. Conference Telephone Meetings........................ 12
ARTICLE IV
OFFICERS
SECTION 1. Number and Election.................................. 12
SECTION 2. Term of Office and Qualification..................... 12
SECTION 3. Other Officers....................................... 12
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Page
SECTION 4. The Co-Chairmen of the Board......................... 13
SECTION 5. The Vice Chairman.................................... 13
SECTION 6. The Deputy Chairman.................................. 13
SECTION 7. The President........................................ 13
SECTION 8. Vice Presidents...................................... 13
SECTION 9. The Comptroller...................................... 14
SECTION 10. Assistant Comptrollers............................... 14
SECTION 11. The Secretary........................................ 14
SECTION 12. Assistant Secretaries................................ 14
SECTION 13. The Treasurer........................................ 15
SECTION 14. Assistant Treasurers................................. 15
SECTION 15. Compensation......................................... 15
SECTION 16. Bonds................................................ 16
SECTION 17. Removal.............................................. 16
SECTION 18. Vacancies............................................ 16
ARTICLE V
NOTICES
SECTION 1. Manner of Giving..................................... 16
SECTION 2. Waiver of Notice..................................... 16
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance.................................... 17
SECTION 2. Transfers of Stock................................... 17
SECTION 3. Lost, Stolen and Destroyed
Certificates......................................... 17
SECTION 4. Fixing of Record Date................................ 18
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc............................ 18
SECTION 2. Execution of Contracts, Deeds, Etc................... 19
SECTION 3. Loans................................................ 19
ARTICLE VIII
CORPORATE SEAL 19
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Page
ARTICLE IX
FISCAL YEAR 19
ARTICLE X
VOTING OF STOCK HELD 19
ARTICLE XI
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE
SECTION 1. Indemnification...................................... 20
SECTION 2. Insurance............................................ 22
ARTICLE XII
AMENDMENTS 23
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BY-LAWS OF
ALLIANCE ENTERTAINMENT CORP.
ARTICLE I
OFFICES
SECTION 1. Delaware Registered Office. The
registered office of the Corporation in the State of Delaware
shall be located at ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇-▇▇▇, ▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
SECTION 2. Other Offices. The Corporation may have an office or
offices at such other places in the United States or elsewhere as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before said meeting shall be held on such date and
at such hour and place, within or without the State of Delaware, as shall be
fixed by the Board of Directors with respect to each such meeting and as shall
be stated in the notice thereof.
SECTION 2. Special Meetings. Special meetings of stockholders, for
any purpose or purposes may, except as otherwise prescribed by law or in the
Certificate of Incorporation, be called at any time by either Co-Chairman or by
the Board of Directors to be held on such date and at such hour and such place,
within or without the State of Delaware, as shall be stated in the notice
thereof.
SECTION 3. Notice of Meetings. Except as otherwise provided or
permitted by law or in the Certificate of Incorporation or in these By-laws,
written notice of all meetings of stockholders stating the place, date and hour
of the meeting, and in the case of a special meeting, the purpose or purposes
thereof, shall be given by a Co-Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, the Secretary or an Assistant Secretary
to each stockholder of record having voting power in respect of the business to
be transacted thereat, either by serving such notice upon him personally or by
mailing or telegraphing or telecopying the same to him at his address as it
appears on the
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records of the Corporation, at least ten days but not more than sixty days
before the date of the meeting, and the Secretary or an Assistant Secretary or
the transfer agent or agents of the Corporation shall make affidavit as to the
giving of such notice.
SECTION 4. Quorum and Adjournments. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
by proxy, shall be required to and shall constitute a quorum at all meetings of
the stockholders for the transaction of business, except as otherwise provided
by law, by the Certificate of Incorporation or by these By-laws. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting of the time and place of the adjourned
meeting, until a quorum shall be present or represented. At such adjourned
meeting any business may be transacted which might have been transacted at the
original meeting. If a quorum be present at any meeting of stockholders and the
meeting is adjourned to reconvene either at a later time on the same date or at
a later date, no notice need be given other than announcement at the meeting,
provided that if any adjournment, whether a quorum is present or not, is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting. When a quorum is
present at any meeting, the vote of the holders of a majority of the stock
having voting power present in person or by proxy shall decide any question
brought before such meeting unless the question is one upon which by express
provision of law or of the Certificate of Incorporation or of these By-laws a
larger or different vote is required, in which case such express provision shall
govern and control the decision of such question. The stockholders present or
represented at any duly called and held meeting at which a quorum is present or
represented may continue to do business until adjournment, notwithstanding the
withdrawal of such number as to leave less than a quorum.
SECTION 5. Organization. Each meeting of stockholders shall be presided
over by a Co-Chairman (and, as between the two Co-Chairmen, the Co-Chairman who
shall also be the Chief Executive Officer of the Company, if both Co-Chairmen
shall be present) or, in the absence of both Co-Chairmen, by
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the Vice Chairman, or in the absence of a Co-Chairman and the Vice Chairman so
designated, by any other person selected to preside by a majority of the Board
of Directors. The Secretary, or in his absence an Assistant Secretary, or in the
absence of both the Secretary and an Assistant Secretary any person designated
by the person presiding at the meeting, shall act as secretary of the meeting.
SECTION 6. Proxies and Voting of Shares. At any meeting of
stockholders, each stockholder entitled to vote any shares on any matter to be
voted upon at such meeting may exercise such voting right either in person or by
proxy appointed by an instrument in writing, which shall be filed with the
secretary of the meeting before being voted. Such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting (unless a new record
date is set by the Board of Directors), but shall not be valid after the final
adjournment thereof. All questions regarding the qualification of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by two inspectors of election who shall be appointed by the Board of Directors
or if not so appointed, then by the presiding officer of the meeting. No proxy
shall be voted on after three years from its date unless said proxy provides for
a longer period. Except as otherwise expressly required by statute, the vote on
any question need not be by written ballot.
SECTION 7. Voting List of Stockholders. The officer who shall have
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order
and showing the address and the number of shares registered in the name of each
such stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where said meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders referred to above or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
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SECTION 8. Notice of Stockholder Business and
Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 3 of these By-laws, (b) by or at the direction of the Board
of Directors or (c) by any stockholder of the Corporation who is entitled to
vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) and this By-law and who was a
stockholder of record at the time such notice was delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than seventy days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting commencing with the 1995
annual meeting, provided however, that in the event that the date of an annual
meeting is advanced by more than thirty days, or delayed by more than seventy
days, from the first anniversary date of the previous year's annual meeting,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
-5-
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least eighty
days prior to the first anniversary of the preceding year's annual meeting (or,
in the event of the Corporation's first annual meeting in 1995, not later than
the close of business on the tenth day following the day on which public
announcement is made of the meeting and of the nominees proposed to be
nominated), a stockholder's notice required by this By-law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
3 of these By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this By-law shall be delivered to the Secretary at the
principal executive offices of the
-6-
Corporation not earlier than the ninetieth day prior to such special meeting and
not later than the close of business on the later of the seventieth day prior to
such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible to serve as director and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the Co-Chairman of the Board presiding over the
meeting, or any other person properly presiding over the meeting, shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-law and, if any proposed nomination or business is not in compliance
with this By-law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow ▇▇▇▇▇ News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
SECTION 1. Power and Duties of the Board of Directors. The business
and affairs of the Corporation shall be managed by or under the direction of the
Board of Directors.
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The Board may adopt such rules and regulations for that purpose and for the
conduct of its meetings as it may deem proper. The Board shall exercise and
shall be vested with the powers of the Corporation insofar as not inconsistent
with law, the Certificate of Incorporation or these By-laws.
SECTION 2. Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the whole
Board but shall consist of not more than thirteen nor less than three directors.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock, shall be divided, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the 1996
annual meeting of stockholders, the term of office of the second class to expire
at the 1997 annual meeting of stockholders and the term of office of the third
class to expire at the 1998 annual meeting of stockholders. Each director shall
hold office until his or her successor shall have been duly elected and
qualified. At each annual meeting of stockholders, commencing with the 1996
annual meeting, (i) directors elected to succeed those directors whose terms
then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
SECTION 3. Vacancies. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, even though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's
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successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the whole Board shall shorten the term of
any incumbent director.
SECTION 4. Removal. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power then outstanding, voting
together as a single class.
SECTION 5. Regular Meetings; Notice. Regular meetings of the Board
of Directors shall be held at such time and place either within or outside of
the State of Delaware, as may be determined by resolution of the Board. No
notice of a regular meeting need by given (any practice or custom to the
contrary notwithstanding) and any business may be transacted at a regular
meeting, held as aforesaid, subject only to the requirements of Section 2 of
this Article III.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may, unless otherwise expressly provided by law, be called from time
to time by either Co-Chairman, the President or by a written call signed by a
majority of the whole Board of Directors and filed with the Secretary. Each
special meeting of the Board shall be held at such time and place, either within
or outside of the State of Delaware, as shall be designated in the notice of
such meeting.
SECTION 7. Notice of Special Meetings. Notice of a special meeting
of the Board of Directors, stating the place, date and hour thereof, shall,
except as otherwise expressly provided by law or as provided in Section 2 of
Article VII hereof, be given by mailing or telegraphing or telecopying the same
to each director at his residence or business address at any time on or before
the second day before the day of the meeting or by delivering the same to him
personally or telephoning the same to him personally at his residence or
business address not later than the day before the day of the meeting, unless,
in case of exigency, the Co-Chairman who shall be the Chief Executive Officer of
the Company, or in such Co-Chairman's absence a Vice Chairman or the Secretary,
shall prescribe a shorter notice to each director at his residence or business
address. Except as otherwise required by statute or these By-laws, no notice or
waiver of notice of a special meeting of the Board need state the purpose or
purposes of such
-9-
meeting, and any business may be transacted thereat, any
practice or custom to the contrary notwithstanding.
SECTION 8. Quorum. A majority of the total number of directors at
the time in office but in no event less than one-third of that total number or
less than two directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, except that when a Board of
one director is authorized pursuant to the Certificate of Incorporation or these
By-laws, then one director shall constitute a quorum. If less than quorum be
present at the meeting, the directors present may adjourn the meeting and the
meeting may be held as adjourned without further notice. If a quorum be present
at a meeting and the meeting is adjourned to reconvene either at a later time on
the same date or at a later date, no notice need be given other than
announcement at the meeting. Except as otherwise provided by law, by the
Certificate of Incorporation or by these By-laws, when a quorum is present at
any meeting of the Board of Directors, a majority of the directors present at
such meeting shall decide any question brought before such meeting and the
action of such majority shall be deemed to be the action of the Board.
SECTION 9. Organization. Each meeting of the Board of Directors
shall be presided over by a Co-Chairman (and, as between the two Co-Chairmen, by
the Co-Chairman who shall also be the Chief Executive Officer of the Company, if
both Co-Chairmen shall be present), or in the absence of both Co-Chairmen, by
the Vice Chairman, or in the absence of both, by any director selected to
preside by vote of a majority of the directors present. The Secretary, or in his
absence, an Assistant Secretary, or in the absence of both the Secretary and an
Assistant Secretary, any person designated by the person presiding over the
meeting, shall act as secretary of the meeting.
SECTION 10. Compensation of Directors. The Board may, from time to
time in its discretion, by resolution or resolutions passed by a majority of the
whole Board, fix the amounts which shall be payable to the members thereof for
their services in such capacity and provide for the reimbursement of the
reasonable expenses of such members, all of which shall be in addition to any
fees, salaries or other compensation which may be paid or payable to such
members in any other capacity. Members of special or standing committees may be
allowed like reimbursement and compensation for attending committee meetings.
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SECTION 11. Committees. (A) The Board of Directors may, by
resolution or resolutions adopted by a majority of the whole Board, designate an
Executive Committee and one or more other committees. Except as otherwise
provided by these By-laws each committee shall consist of one or more of the
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in said resolution or resolutions, shall have
and may exercise the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Such other
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. No committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation. Unless expressly authorized by resolution or
resolutions adopted by a majority of the whole Board, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock. All committees shall keep regular minutes of their proceedings and
report the same to the Board when required.
(B) Finance Committee. Notwithstanding the immediately preceding paragraph,
the Board of Directors of the Corporation shall appoint a Finance Committee. The
Finance Committee shall consist of the two Co-Chairmen of the Corporation and
two other directors, one of whom shall be the nominee to the Board of Directors
of BT Capital Partners, Inc. and the other nominee shall be a nominee of
▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc. ("WCI") (provided, that if the Co-Chairman who is not
the Chief Executive Officer shall no longer be a Co-Chairman, at all times
thereafter the Finance Committee shall only consist of the Co-Chairman of the
Board who is the Chief Executive Officer and the two other directors). The
Finance Committee
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shall review all proposals to issue securities of the Corporation and to make
acquisitions or to refinance the Corporation's bank debt in whole, or to
increase bank debt by more than 25%, and the Finance Committee shall make
recommendations to the Board of Directors on such proposals. Any proposal to
issue equity securities of the Corporation for cash or debt in an amount which,
together with all other equity securities of the Corporation issued for cash or
debt during the previous 12-month period, would exceed $10 million shall require
the unanimous recommendation of the Finance Committee prior to consideration by
the Board of Directors. Any proposal regarding a merger or acquisition (a) in
which the consideration being paid by the Corporation shall exceed $50 million
or (b) involving the issuance of equity securities as consideration the amount
of which, together with all other equity securities of the Corporation issued in
connection with mergers or acquisitions during the previous 12-month period,
exceeds $1,000,000 x P/.12, where P is equal to the greater of $6.00 or the
price of the equity security being issued (computed as the average of the
closing price for the five trading days preceding such determination), shall
require the unanimous recommendation of the Finance Committee prior to
consideration by the Board of Directors.
In the event that either (i) WCI or any direct or indirect wholly
owned subsidiary of WCI or any limited partnership of which any such subsidiary
is the general partner ("WCI Entities") holds in the aggregate fewer than
3,900,000 shares (subject to adjustment for stock splits, combinations and
recapitalization) of the Corporation's Common Stock, or (ii) the WCI Entities
hold fewer than 5,800,000 shares (subject to adjustment for stock splits,
combinations and recapitalization) of the Corporation's Common Stock and such
amount is less than 4.1% of the fully diluted shares of Common Stock of the
Company (treating all outstanding options, warrants or convertible securities as
being exercised or converted, but not taking into account the Contingent Shares)
on any subsequent date, then the Finance Committee shall be dissolved and this
paragraph (B) of Section 11 shall be of no further force and effect.
SECTION 12. Written Consents. Any action required or permitted to be taken
at any meeting of the Board of Directors or by any committee thereof may be
taken without a meeting, if all members of the Board or of such committee, as
the case may be, consent thereto in writing and the writing or
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writings are filed with the minutes of proceedings of the Board
or committee.
SECTION 13. Conference Telephone Meetings. Members of the Board of
Directors or any committee designated by such Board may participate in a meeting
of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall
constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. Number and Election. The officers of the Corporation
shall be elected by the Board of Directors and shall be two Co-Chairmen of the
Board, one of which shall be a designee of WCI, one or more Vice Chairmen of the
Board, President and a Secretary. The Board of Directors may also elect one or
more Vice Presidents, a Treasurer, a Comptroller and one or more Assistance
Comptrollers, Assistant Secretaries and Assistant Treasurers. The Co-Chairmen of
the Board and the Vice Chairmen of the Board shall be chosen from the directors.
All officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV.
SECTION 2. Term of Office and Qualification. The officers shall be
elected annually by the Board of Directors at the first meeting thereof after
each annual meeting of stockholders. A meeting of the directors may be held
without notice for this purpose, as well as for the transaction of any other
business, immediately after the annual meeting of stockholders of the
Corporation and at the same place. In the event of the failure so to elect any
such officer, such officer may be elected at any subsequent meeting (regular or
special) of the Board. Each officer, except such officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV, shall holder
office until the next annual election of officers and until his successor shall
have been duly elected and qualified, subject, however, to the provisions of
Article IV hereof. None of the officers of the Corporation except the
Co-Chairmen of the Board and the Vice Chairman of the Board need be directors.
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SECTION 3. Other Officers. The Board of Directors may also appoint
such other officers and agents as it may deem necessary for the transaction of
the business of the Corporation. Such officers and agents shall hold office for
such period, have such authority and perform such duties as shall be determined
from time to time by the Board.
SECTION 4. The Co-Chairmen of the Board. The Co-Chairmen of the
Board, (and as between the two Co-Chairmen, the Co-Chairman who shall also be
the Chief Executive Officer of the Company, if both Co-Chairmen shall be
present) shall preside at all meetings of the stockholders and of the Board of
Directors. The Co-Chairmen shall make reports to the Board of Directors and the
Stockholders, and shall perform all such other duties as are properly required
of them by the Board of Directors.
SECTION 5. The Vice Chairmen. Each Vice Chairman shall, in the
absence of both Co-Chairmen, act as chairman of meetings of the Board of
Directors. Each Vice Chairman shall have such other powers and duties as may be
conferred upon him by the Co-Chairmen of the Board or the Board of Directors.
SECTION 6. The President. The President shall be the chief executive
officer of the Corporation and shall have general and active management of the
business and affairs of the Corporation, subject to the Board of Directors. The
President shall, in the absence of or because of the inability to act of the
Co-Chairmen of the Board or any Vice Chairman, perform all duties of the
Co-Chairmen of the Board or the Vice Chairman and preside at all meetings of
stockholders and of the Board of Directors. The President may sign, alone or
with the Secretary, or an Assistant Secretary, or any other proper officer of
the Corporation authorized by the Board of Directors, certificates, contracts,
and other instruments of the Corporation as authorized by the Board of
Directors.
SECTION 7. Vice Presidents. In the absence or inability to act of
the Co-Chairmen, the Vice Chairman or the President, any Vice President
designated by the Board of Directors shall perform all the duties and may
exercise all the powers of the President. Each Vice President shall perform such
other duties as from time to time may be assigned to him by the Board of
Directors or the President or as may be prescribed by these By-laws.
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SECTION 8. The Comptroller. The Comptroller shall have
responsibility for the accounting procedures and practices of the Corporation
and shall keep or cause to be kept at the principal office of the corporation,
and shall be responsible for the keeping of, correct financial records of the
business and transactions of the Corporation and at all reasonable times shall
exhibit such record to any of the directors of the Corporation upon application
at the office of the Corporation where such records are kept. He shall also
perform all the duties incident to the office of Comptroller and such other
duties as from time to time may be assigned to him by the Board of Directors,
the President or the Vice President.
SECTION 9. Assistant Comptrollers. In the absence of the
Comptroller, or in case of his inability to act, an Assistant Comptroller
designated by the President or by the Board of Directors shall perform all the
duties of the Comptroller and, when so acting, shall have all the powers of the
Comptroller. The Assistant Comptrollers shall perform such other duties as from
time to time shall be assigned to them by the Board of Directors, the President
or the Comptroller.
SECTION 10. The Secretary. The Secretary shall have the duty to
record or cause to be recorded in books kept for that purpose the proceedings of
the meetings of the Corporation including those of the stockholders, the Board
of Directors and all committees designated by the Board of Directors; shall see
that all notices are duly given in accordance with the provisions of these
By-laws and as required by law; shall be custodian of the records (other than
those financial records kept by the Comptroller) and of the seal of the
Corporation and see that the seal is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-laws and when so affixed may attest
the same; shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed; and in
general, the Secretary shall perform all duties incident to the office of the
Secretary and such other duties as may, from time to time, be assigned to him by
the Board of Directors or the President.
SECTION 11. Assistant Secretaries. In the absence of the Secretary,
or in case of his inability to act, an Assistant Secretary designated by the
President or the Board of Directors shall perform all the duties of the
Secretary and, when so acting, shall have all the powers of the Secretary.
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The Assistant Secretaries shall perform such other duties as from time to time
shall be assigned to them by the Board of Directors, the President or the
Secretary.
SECTION 12. The Treasurer. The Treasurer shall give such bond with
such surety or sureties for the faithful performance of his duties as the Board
of Directors may require. He shall have charge and custody of and be responsible
for all funds and securities of the Corporation, deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositaries as
shall be selected in accordance with the provisions of these By-laws and have
supervision over all receipts and disbursements of the Corporation and, in the
absence of a Comptroller, have general responsibility for its accounting
procedures and practices; at all reasonable times exhibit his books of account
and records to any of the directors of the Corporation upon application during
business hours at the place where such books and records are kept; receive, and
give receipts for, monies due and payable to the Corporation from any source
whatsoever; and in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
SECTION 13. Assistant Treasurers. Each of the Assistant Treasurers
shall give such bond for the faithful performance of his duties as the Board of
Directors may require. In the absence of the Treasurer, or in case of his
inability to act, an Assistant Treasurer designated by the President or the
Board of Directors shall perform all the duties of the Treasurer and, when so
acting, shall have all the powers of the Treasurer. The Assistant Treasurers
shall perform such other duties as from time to time may be assigned to them by
the Board of Directors, the President or the Treasurer.
SECTION 14. Compensation. The compensation of all officers, agents
and employees of the Corporation shall be fixed from time to time by the Board
of Directors, or pursuant to authority of general or special resolutions of the
Board. No officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the Corporation or a member of any committee.
SECTION 15.Bonds. The Board of Directors shall have the power to
require any officer or agent of the Corporation to give a bond for the
faithful discharge of his
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duties in such form and in such amount and with such surety or sureties as the
Board may deem advisable.
SECTION 16. Removal. Any officer elected by the Board of Directors
may be removed by a majority of the members of the whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.
No elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or an
employee plan.
SECTION 17. Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
NOTICES
SECTION 1. Manner of Giving. Whenever under the provisions of the
laws of the State of Delaware, the Certificate of Incorporation or these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given by
mailing or telegraphing (including telex or cable or other similar means) the
same to each such director or stockholder at such address as appears on the
books or in the records of the Corporation, and such notice shall be deemed to
be given at the time when the same is thus mailed or telegraphed.
SECTION 2. Waiver of Notice. Whenever under the provisions of these
By-laws, or of the Certificate of Incorporation, or of any of the laws of the
State of Delaware, the stockholders, directors or members of a committee of
directors are authorized to hold any meeting or take any action after notice or
after the lapse of any prescribed period of time, a waiver thereof, in writing,
signed by the person or persons entitled to such notice or lapse of time,
whether before or after the time of meeting or action stated therein, shall be
deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of any
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committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these By-laws. The presence
at any meeting of a person or persons entitled to notice thereof shall be deemed
a waiver of such notice as to such person or persons, except when such person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transactions of any business because the meeting is not lawfully
called or convened.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Form and Issuance. Certificates of stock shall be issued
in such form as may be approved by the Board of Directors and shall be signed,
countersigned and registered by, or in the name of the Corporation in such
manner as the Board of Directors may by resolution prescribe. Any of or all the
signatures on such a certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue unless determined otherwise by the Board
generally or in particular instances.
SECTION 2. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. The Board of Directors shall have power and
authority to make such other rules and regulations or amendments thereto as they
may deem expedient concerning the issue, registration and transfer of
certificates of stock and may appoint transfer agents and registrars thereof.
SECTION 3. Lost, Stolen and Destroyed Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon satisfactory proof of
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that fact by the person claiming the certificate or certificates for shares to
be lost, stolen or destroyed. When authorizing such issue of a new certificate
or certificates, the Board of Directors may, at its discretion, and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative, to
publicize the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as the Board of Directors may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate or certificates alleged to have been lost, stolen or destroyed, or
the issuance of the new certificate or certificates.
SECTION 4. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. Only such stockholders as shall be stockholders of record on the
date so fixed shall be entitled to such notice of, and to vote at, such meeting
and any adjournment thereof, or to receive payment of such dividend or other
distribution, or to receive such allotment of rights, or to exercise such rights
in respect of any such change, conversion or exchange of stock, or to
participate in such other action, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid. If no record date is fixed by the Board of Directors, the
record date shall be determined as provided by the laws of the State of
Delaware. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
SECTION 1. Signatures on Checks, Etc. All checks, drafts, bills
of exchange, notes or other instruments or orders
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for the payment of money or evidences of indebtedness shall be signed for or in
the name of the Corporation by such officer or officers, person or persons, as
the Board of Directors may from time to time designate by resolution.
SECTION 2. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name of
and on behalf of the Corporation, to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 3. Loans. No loan shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized or ratified by a resolution of the Board or Directors. Such
authorization or ratification may be general or confined to specific instances.
ARTICLE VIII
CORPORATE SEAL
The seal of the Corporation shall have inscribed thereon the name of
the Corporation, the year of its organization and the word "Delaware". Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced in any manner whatsoever.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board
of Directors.
ARTICLE X
VOTING OF STOCK HELD
Unless otherwise provided by resolution of the Board of Directors,
the Co-Chairmen of the Board, the Vice Chairman of the Board, the President or
any Vice President may from time to time appoint an attorney or attorneys or
agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
a stockholder or otherwise in any other corporation or
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association, any of whose stock or securities may be held by the Corporation, at
meetings of the holders of the stock or other securities of such other
corporations or associations, or to consent in writing to any action by any such
other corporation or association, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, consents, waivers or other
instruments as he may deemed necessary or proper in the premises; or any such
officer may himself attend any meeting of the holders of stock or other
securities of any such other corporation or association and thereat vote or
exercise any or all other powers of the Corporation as the holder of such stock
or other securities of such other corporation or association, or may consent in
writing to any action by any such other corporation or association.
ARTICLE XI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
SECTION 1. Indemnification. (a) Any person made a party or
threatened to be made a party to a threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action or suit by or in the right of the Corporation to procure a
judgment in its favor) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to an employee benefit plan, shall be indemnified by the
Corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
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person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, or, with respect
to any criminal action or proceeding, that the person had reasonable cause to
believe that his conduct was unlawful.
(b) Any person made a party or threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall be indemnified by the Corporation against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit to the fullest extent authorized by
the General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), except that no indemnification shall be made hereunder in respect of
any claim, issue or matter as to which the person shall be adjudged liable to
the Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which said Court of Chancery or such
other court shall deem proper.
(c) To the extent that any person referred to above has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b) above, or in defense of any
claim, issue or matter therein, he shall be indemnified by the Corporation
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) No indemnification shall be granted under paragraph (a) or (b)
above unless ordered by a court or unless it shall be specifically determined
that indemnification of the person is proper in the circumstances because he has
met the applicable standard of conduct set forth in the applicable
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paragraph, which determination shall be made (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
(e) Expenses incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding by a person who may
be entitled to indemnity under the above provisions shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding if authorized under paragraph (d) above within twenty days following
receipt by the Corporation of a written request for such advance, accompanied by
a written undertaking by or on behalf of the person to whom payment is to be
made that he will repay the amounts advanced if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation in
accordance with the above provisions.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the above provisions shall not be deemed exclusive of any
other rights to which those indemnified or advancement expenses may be entitled
under any provision of the Certificate of Incorporation, By-law, agreement, vote
of stockholders or disinterested directors, insurance agreement, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The indemnification and advancement of expenses, provided by, or
granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Any amendment or repeal of this Article XI shall not adversely
affect any right or protection existing hereunder in respect of any act or
omission occurring prior to such amendment or repeal.
SECTION 2. Insurance. The Board of Directors of the Corporation may, in its
discretion, authorize the Corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
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Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 1 of this
Article XI.
ARTICLE XII
AMENDMENTS
All By-laws of the Corporation shall be subject to amendment or
repeal, and new By-laws may be adopted, either (a) by the affirmative vote of
the holders of record of at least eighty percent (80%) of the outstanding stock
of the Corporation entitled to vote for the election of directors, voting
together as a single class, given at an annual meeting or at any special meeting
of such stockholders, or (b) by the affirmative vote of a majority of the whole
Board of Directors of the Corporation; provided, however, that Section 11(B) of
Article III hereof may be amended only by stockholder vote or by the affirmative
vote of 12 of 13 members of the Board of Directors and provided, further, that
(i) the provisions of these By-laws concerning the powers and authority of the
Co-Chairman who shall be the Chief Executive Officer shall not be changed, and
(ii) the number of directors set forth in Section 2 of Article III shall not be
increased, without a stockholder vote or by the affirmative vote of 12 of 13
members of the Board of Directors.
Exhibit H
December 20, 1996
Alliance Entertainment Corp.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Reference is made to that certain Purchase Agreement dated December
20, 1996 (the "Agreement") by and among Alliance Entertainment Corp. (the
"Company") and Cypress Investors, Inc., ▇▇▇▇▇▇▇▇▇▇▇ & Co., Inc. ("WCI") and BT
Capital Partners, Inc. ("BTC"), as the Purchasers. As a further inducement to
the Company to enter into the Agreement and for other good and valuable
consideration, receipt of which is hereby acknowledged, this letter will confirm
that:
(i) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("Teller") hereby waives the rights that Teller has
pursuant to the last sentence of Section 9.2(b) of the Stock Acquisition and
Merger Agreement dated August 15, 1996 (the "Stock Acquisition Agreement") by
and among Teller, WCI, U.S. Equity Partners, L.P., U.S. Equity Partners
(Offshore), L.P., Red Ant Box, Inc., Alliance Entertainment Corp. and Alliance
Acquisition Co. Inc. to select an additional representative for election to the
Board of Directors after the occurrence of the first vacancy on the Board of
Directors after August 27, 1996, to the extent these rights could apply to a
vacancy created by a designee of WCI or BTC ceasing to serve on the Board of
Directors;
(ii) Teller and WCI each hereby waive any and all rights each of them has
pursuant to Section 9.11(c) of the Stock Acquisition Agreement; and
(iii) Exhibit I to the Stock Acquisition Agreement is hereby amended by
making the modification set forth on Attachment 1 hereto.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance hereof in the space pro
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vided below, whereupon this letter and your acceptance shall constitute a
binding agreement between us.
Very truly yours,
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ & CO. INC.
By: ____________________________
Accepted and agreed as of the date first written:
ALLIANCE ENTERTAINMENT CORP.
By:__________________________
Name:
Title:
Attachment 1
Section 3(ii) of Exhibit I of the Stock Acquisition Agreement is
amended by deleting the word "and" at the end of such Section and adding the
following language:
"provided that, if such registration as initially proposed by the Company was in
whole or in part requested by holders of securities of the Company pursuant to
demand registration rights the Company will include in such registration to the
extent of the amount of securities which the managing underwriter advises the
Company can be sold in such offering, (x) first, such securities held by the
holders initiating such registration and, if applicable, any securities proposed
by the Company to be sold for its own account, allocated in accordance with the
priorities then existing among the Company and such holders, and (y) second, any
Registrable Securities requested to be included in such registration by
Requesting Stockholders and any other securities of the Company proposed to be
included in such registration (1) as between such Registrable Securities and
such other securities, pro rata on the basis of the numbers of such Registrable
Securities and such other securities, respectively, (2) as among such
Registrable Securities, pro rata on the basis of the number of Registrable
Securities requested to be included by such holders and (3) as among such other
securities, allocated among the holders thereof in accordance with the
priorities then existing among the Company and the holders of such other
securities and any securities so excluded shall be withdrawn from and shall not
be included in such incidental registration; and"