X. Xxxxxxxx Xxxxxxx. Jr.
Managing Director
Xxxxxxxxxxx Xxxxxxx & Co., Inc.
00 Xxxx 00xx Xxxxxx
XXXXXXXXXXX Xxx Xxxx, Xxx, Xxxx 00000
PERELLA & CO Telephone 000-000-0000
Fax 2l2-969-7879
August 15, 1996
Alliance Entertainment Corp.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Xxxx X. Xxxxxx
Gentlemen:
This letter confirms our understanding that Xxxxxxxxxxx Xxxxxxx & Co., Inc.
("WP&Co.") has been engaged as a financial and strategic advisor to Alliance
Entertainment Corp. (the "Company") to provide certain financial advisory and
investment banking services to the Company. References herein to the "Company"
include affiliates of the Company and any entity that the Company or any of its
affiliates may form to pursue any of the transactions contemplated hereby. If
appropriate in connection with performing its services hereunder, WP&Co. may
utilize the services of one or more of its affiliates, including Xxxxxxxxxxx
Xxxxxxx Securities, Inc., in which case references herein to WP&Co. shall
include such affiliates.
1 . WP&Co., in its capacity as financial advisor to the Company, will
perform such of the following financial and strategic advisory and investment
banking services as the Company may reasonably request:
(a) WP&Co. will meet with the Company's management and familiarize itself to the
extent it reasonably deems necessary, appropriate and feasible with the
business, operations, properties, financial condition and prospects of the
Company in order to better determine ways in which WP&Co. can facilitate the
Company's financial and strategic objectives. The Company agrees to cause the
chief executive officer and each co-chairman to meet with WP&Co. at least once
every quarter on an agreed date to discuss among other things the financial
condition
and business plan of the Company and any significant recent developments;
(b) WP&Co. will advise and assist the Company at the Company's request in
identifying and/or evaluating various financial alternatives that may be
available to the Company to enhance shareholder values, including, without
limitation, a public or private sale of equity or debt securities of the Company
or such other form of financial transaction that WP&Co., after completing the
familiarization process provided for in subparagraph l(a) hereof, believes may
be of possible interest to the Company (each a "Financial Transaction"), it
being understood and agreed that nothing contained herein shall constitute a
commitment by WP&Co. to underwrite, place or purchase any securities;
(c) WP&Co. will advise and assist the Company at the Company's request in
identifying and/or evaluating various non-financial strategic alternatives that
may be available to the Company to enhance shareholder value, including, without
limitation, an acquisition of all or a significant portion of the assets or
equity securities of another corporation or other business entity, a merger or
consolidation or other business combination involving the Company and one or
more third parties, a sale (whether or not the proposal therefor is solicited or
unsolicited) of the Company or a significant portion of its equity securities,
assets or businesses to one or more third parties, a recapitalization or
restructuring of the Company (including through spin-offs, split-offs,
repurchases by the Company of its equity or other securities, an extraordinary
dividend or any similar transaction), a liquidation of the Company, a material
joint venture, a strategic alliance or such other form of transaction that
WP&Co., after completing the familiarization process provided for in
subparagraph l(a) hereof, believes may be of possible interest to the Company
(each a "Strategic Transaction");
(d) If the Company determines in the ordinary course of business that it
will utilize a financial advisor to consider or undertake one or more Financial
and/or Strategic Transactions, WP&Co. will, subject to the provisions of this
agreement, advise and assist the Company with respect thereto;
(e) The Company agrees that, in the event it retains a financial advisor in
connection with any such matter, WP&Co. shall serve as the Company's exclusive
financial advisor with respect to matters relating to takeover defense; and
(f) WP&Co. will render such other financial advisory and investment banking
services as may from time to time be agreed upon by WP&Co. and the Company.
If the Company requests services hereunder, the Company shall make
available to WP&Co. all information concerning the business, assets, the
operations, financial condition and prospects of the Company that WP&Co.
reasonably requests in connection with the services to be performed for the
Company hereunder, and shall provide WP&Co. with reasonable access to the
Company's officers, directors, employees, independent accountants and other
advisors and agents as WP&Co. shall deem appropriate.
2. WP&Co.'s compensation for services rendered under this engagement
will include the following cash fees:
(a) An annual retainer fee of $150,000, the first two annual payments of
which are due and shall be paid by the Company upon the execution of this
agreement, and subsequent payments of which shall be due and paid by the Company
in advance on each subsequent annual anniversary (beginning on the second
anniversary) of the date of this agreement during the term of this agreement.
The initial retainer fee of $300,000 payable to WP&Co. pursuant to this
subparagraph 2(a) shall be non-refundable. Half of the annual retainer fee
either paid as of the date of this agreement or payable in any future year shall
be credited against any fees paid by the Company to WP&Co. pursuant to
paragraphs 2(b), 2(c), and 2(d) below during the year in respect of which such
retainer fee is paid.
(b) In connection with any Financial Transaction, financing fees, customary
under the circumstances, the precise amounts of which shall be agreed upon by
the Company and WP&Co. It is understood and agreed that in the event that the
Company determines to engage in any Financial Transaction for which it will
engage a financial advisor, WP&Co shall be offered the right, but shall not be
obligated, to act as: (i) co-manager with respect to a public offering of the
Company's equity securities, unless the chief executive officer of the Company
shall reasonably determine in good faith that the appointment of WP&Co. as a
co-manager would have a material adverse effect on the ability of the Company to
obtain or retain analyst coverage from one or more nationally recognized
investment banks, (ii) sole, or at WP&Co.'s option, lead agent of any private
placement of the Company's equity securities, and (iii) co-manager of any public
offering or private placement of the Company's debt securities.
(c) In connection with any Strategic Transaction involving substantially
all of the capital stock or assets of the Company, a transaction fee based on
Aggregate Consideration (as hereafter defined) calculated as follows: (i) 1.5%
of the first $250 million of Aggregate Consideration, plus (ii) 1.0% of the
Aggregate Consideration, if any, between $250 million and $500 million, plus
(iii) 0.75% of the Aggregate Consideration, if any, between $500 million and $1
billion, plus (iv) 0.5% of the Aggregate Consideration, if any, in excess of $1
billion provided, however, that the minimum transaction fee payable pursuant to
this subparagraph 2(c) shall be $3.0 million. It is understood and agreed that
in the event that the Company determines to engage in any Strategic Transaction
for which it will engage a financial advisor, WP&Co. shall be offered the right,
but shall not be obligated, to act as the Company's exclusive financial advisor
in connection with such Strategic Transaction. In the event the board of
directors of the Company determines that a fairness opinion is required from a
non-affiliated, third party nationally recognized investment bank, WP&Co. will
pay for the fee for such opinion, provided that the Company pays for the first
$50,000 of such opinion and provided that WP&Co. and the Company mutually
participate in the retention of such third party investment bank.
For purposes of this subparagraph 2(c), the term Aggregate Consideration
shall mean the total amount of cash and the fair market value (on the date of
payment) of all other
property paid or payable, directly or indirectly, by the acquiring party
(the "Acquiror") to the acquired party or the seller of the acquired business
(in either case, the "Acquired"), or for securities of the Acquired, or by the
Acquired to the Acquired's equity security holders, in connection with a
Strategic Transaction or a transaction related thereto (including, without
limitation, amounts paid by the Acquiror (A) pursuant to covenants not to
compete, employment contracts, employee benefit plans or other similar
arrangements of the Acquired and (B) to holders of any warrants, stock purchase
rights, convertible securities or similar rights of the Acquired and to holders
of any options or stock appreciation rights issued by the Acquired, whether or
not vested). Aggregate Consideration shall also include the value of any
long-term liabilities (including the short-term portion thereof) of the Acquired
(including the principal amount of any indebtedness for borrowed money)
indirectly or directly assumed or acquired by the Acquiror, or otherwise repaid
or retired, in connection with or in anticipation of a Strategic Transaction. In
the event of a Strategic Transaction that takes the form of a recapitalization
or restructuring of the Company (including, without limitation, through
negotiated repurchases of its securities, an issuer tender offer, an
extraordinary dividend, a spin-off, split-off or similar transaction), Aggregate
Consideration shall also include the fair market value of (i) the equity
securities of the Company retained by the Company's security holders following
such transaction and (ii) any cash, securities (including securities of
subsidiaries) or other consideration received by the Company's security holders
in exchange for or in respect of securities of the Company in connection with
such transaction (all such cash, securities or other consideration received by
such security holders being deemed to have been paid to such security holders in
such transaction). If a Strategic Transaction takes the form of a purchase of
assets, Aggregate Consideration shall also include (i) the value of any current
assets not purchased, minus (ii) the value of any current liabilities not
assumed by the Acquiror. In the event that any part of the consideration in
connection with any Strategic Transaction will be payable (whether in one
payment or a series of two or more payments) at any time following the
consummation thereof, the term Aggregate Consideration shall include the present
value of such future payment or payments, agreed upon in good faith between the
Company and WP&Co.
(d) In connection with any Strategic Transaction that does not involve
substantially all of the assets or capital stock of the Company and in which the
Company would retain a financial advisor, the Company and WP&Co. shall in good
faith negotiate a fee that would be customary for such a transaction.
(e) Financing and/or transaction fees payable to WP&Co. pursuant to
subparagraphs 2(b), 2(c), and 2(d) above shall be contingent upon the
consummation of the relevant transaction and payable on the closing date
thereof.
3. In addition to any fees payable by the Company to WP&Co. hereunder, the
Company shall, whether or not any Financial Transaction or Strategic Transaction
shall be proposed or consummated, reimburse WP&Co. on a monthly basis for its
travel and other reasonable out-of-pocket expenses (including all reasonable
fees, disbursements and other
charges of counsel to be retained by WP&Co., and of other consultants and
advisors retained by WP&Co. with the Company's consent) incurred in connection
with, or arising out of WP&Co.'s activities under or contemplated by this
engagement; provided that the Company shall not be required to pay any such
expenses in excess of an amount set forth in a budget agreed to by WP&Co. and
the Company in connection with any specific assignment for which WP&Co is
engaged. The Company shall also reimburse WP&Co., at such times as WP&Co. shall
request, for any sales, use or similar taxes (including additions to such taxes,
if any) arising in connection with any matter referred to or contemplated by,
this engagement. Such reimbursements shall be made promptly upon submission by
WP&Co. of statements for such expenses.
4. The Company recognizes and confirms that, in advising the Company and in
completing its engagement hereunder, WP&Co. will be using and relying on
publicly available information and on data, material, and other information
furnished to WP&Co. by the Company and other parties. It is understood that in
performing under this engagement WP&Co. may assume and rely upon the accuracy
and completeness of, and is not assuming any responsibility for independent
verification of, such publicly available information and the other information
so furnished.
5. The Company and WP&Co. have entered into a separate letter agreement,
dated the date hereof and attached hereto, providing for the indemnification by
the Company of WP&Co. and certain related persons. Such indemnification
agreement is an integral part of this agreement and the terms thereof are
incorporated by reference herein. As stated therein, such indemnification
agreement shall survive any termination or completion of WP&Co.'s engagement
hereunder.
6. This agreement and WP&Co.'s engagement hereunder may be terminated by
either the Company or WP&Co. at any time effective after August 15, 1999 upon
thirty days' prior written notice thereof to the other party; provided, however,
that (a) termination of WP&Co.'s engagement hereunder shall not affect the
Company's continuing obligation to indemnify WP&Co. and certain related persons
as provided in the separate letter agreement referred to above and its
continuing obligation under paragraph 7 hereof, (b) notwithstanding any such
termination, WP&Co. shall be entitled to (i) the full annual retainer fees in
the amounts and at the times provided for in paragraph 2(a) hereof, and (ii) the
full financing and/or transaction fees agreed upon pursuant to or provided for
in paragraphs 2(b) and 2(c) hereof in the event that at any time prior to the
expiration six months following such termination, any Financial Transaction
and/or any Strategic Trans be, is consummated; and (c) termination of WP&Co.'s
engagement he the Company's obligation to reimburse the expenses accruing prior
to extent provided for herein.
7. WP&Co. has been retained under this agreement as an independent
contractor with duties owed solely to the Company. The advice (oral or written)
rendered by WP&Co. pursuant to this agreement is intended solely for the benefit
and use of the Board of Directors of the Company in considering the matters to
which this agreement relates, and the Company agrees that such advice may not be
relied upon by any other person, used
for any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, nor shall any public references to
WP&Co. be made by the Company without the prior written consent of WP&Co.
8. The Company agrees that WP&Co. shall have the right to place
advertisements in financial and other newspapers and journals at its own expense
describing its services to the Company hereunder, provided that WP&Co. will
submit a copy of any such advertisement to the Company for its approval, which
approval shall not be unreasonably withheld or delayed.
9. This agreement shall be deemed made in New York. This agreement and all
controversies arising from or relating to performance under this agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to such state's rules concerning conflicts of laws.
The Company hereby irrevocably consents to personal jurisdiction in any court of
the State of New York or any Federal court sitting in the Southern District of
New York for the purposes of any suit, action or other proceeding arising out of
this agreement or any of the agreements or transactions contemplated hereby,
which is brought by or against the Company, hereby waives any objection to venue
with respect thereto, and hereby agrees that all claims in respect of any such
suit, action or proceeding may be heard and determined in any such court. The
Company hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the Company
at its address set forth above, such service to become effective ten (10) days
after such mailing. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
ACTION ARISING OUT OF THIS AGREEMENT OR CONDUCT IN CONNECTION WITH THIS
ENGAGEMENT IS HEREBY WAIVED.
10. This agreement may be executed in counterparts, each of which together
shall be considered a single document. This agreement shall be binding upon
WP&Co. and the Company and their respective successors and assigns. This
agreement is not intended to confer any rights upon any shareholder, owner or
partner of the Company, or any other person not a party hereto other than the
indemnified persons referenced in the indemnification agreement referred to
above.
11. It is understood and agreed that WP&Co. and its affiliates may from
time to time make a market in, have a long or short position in, buy and sell or
otherwise effect transactions for customer accounts and for their own accounts
in the securities of, or perform investment banking or other services for, the
Company and other entities which are or may be the subject of the engagement
contemplated by this agreement. It is further understood that neither WP&Co. or
any of its affiliates will use any information obtained in connection with its
services provided pursuant to this agreement (unless such information is
publicly available or generally known) in conducting any of the activities
described in this paragraph.
12. Any payments to be made to WP&Co. hereunder and under the related
indemnification agreement referred to above shall be in U.S. dollars and shall
be free of all withholding, stamp and other taxes and of all other governmental
charges of any nature whatsoever.
We are pleased to accept this engagement and look forward to acting as
financial and strategic advisor to the Company. Please confirm that the
foregoing is in accordance with your understanding by signing and returning to
us the enclosed duplicate of this letter, which shall thereupon constitute a
binding agreement between WP&Co. and the Company.
Very truly yours,
XXXXXXXXXXX XXXXXXX & CO., INC.
By: /s/X. Xxxxxxxx Xxxxxxx, Jr.
---------------------------------
Name: X. Xxxxxxxx Xxxxxxx, Jr.
Title: Managing Director
ACCEPTED AND AGREED TO:
ALLIANCE ENTERTAINMENT CORP.
By: /s/Xxxxxxx X. Xxxxxxxx
---------------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Executive Vice President
August 15, 1996
Xxxxxxxxxxx Xxxxxxx & Co., Inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Gentlemen:
In connection with your engagement as our financial advisor pursuant to a
separate agreement between you and, us, we hereby agree to indemnify and hold
harmless Xxxxxxxxxxx Xxxxxxx & Co., Inc. ("WP&Co.") and its affiliates, their
respective directors, officers, agents, employees and controlling persons, and
each of their respective successors and assigns (collectively, the "indemnified
persons"), to the full extent lawful, from and against all losses, claims,
damages, liabilities and expenses incurred by them which (A) are related to or
arise out of (i) actions or alleged actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us or (ii) actions or alleged actions taken or omitted to be taken by an
indemnified person with our consent or in conformity with our actions or
omissions or (B) are otherwise related to or arise out of WP&Co.'s activities
under WP&Co.'s engagement. We will not be responsible, however, for any losses,
claims, damages, liabilities or expenses pursuant to clause (B) of the preceding
sentence which are finally judicially determined to have resulted primarily from
the gross negligence or willful misconduct of the person seeking indemnification
hereunder. We also agree that no indemnified person shall have any liability to
us for or in connection with such engagement or any transactions or conduct in
connection therewith except for losses, claims, damages, liabilities or expenses
incurred by us which are finally judicially determined to have resulted
primarily from the gross negligence or willful misconduct of such indemnified
person; provided, however, that in no event shall the indemnified persons'
aggregate liability to us exceed the fees WP&Co. actually receives from us
pursuant to its engagement referred to above, unless there is a final judicial
determination of willful misconduct specified in this sentence.
After receipt by an indemnified person of notice of any complaint or the
commencement of any action or proceeding with respect to which indemnification
is being sought hereunder, such person will notify us in writing of such
complaint or of the commencement of such action or proceeding, but failure so to
notify us will relieve us from any liability which we may have hereunder only
if, and to the extent that such failure results in the forfeiture by us of
substantial rights and defenses, and will not in any event relieve us from any
other obligation or liability that we may have to any indemnified person
otherwise than under this letter agreement. If we so elect or are requested by
such indemnified person, we will assume the defense of such action or
proceeding, including the employment of counsel reasonably satisfactory to
WP&Co. and the payment of the fees and disbursements of such counsel. In the
event, however, such indemnified person reasonably determines in its judgment
that having common counsel would present such counsel with a conflict of
interest or if the defendants in, or targets of,
any such action or proceeding include both an indemnified person and us, and
such indemnified person reasonably concludes that there may be legal defenses
available to it or other indemnified persons that are different from or in
addition to those available to us, or if we fail to assume the defense of the
action or proceeding or to employ counsel reasonably satisfactory to such
indemnified person, in either case in a timely manner, then such indemnified
person may employ separate counsel to represent or defend it in any such action
or proceeding and we will pay the fees and disbursements of such counsel;
provided, however, that we will not be required to pay the fees and
disbursements of more than one separate counsel (in addition to local counsel)
for all indemnified persons in any jurisdiction in any single action or
proceeding. In any action or proceeding the defense of which we assume, the
indemnified person will have the right to participate in such litigation and to
retain its own counsel at such indemnified person's own expense. We further
agree that we will not, without the prior written consent of WP&Co., settle or
compromise or consent to the entry of any judgement in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not WP&Co. or any other
indemnified person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of WP&Co. and each other indemnified person hereunder from
all liability arising out of such claim, action, suit or proceeding.
We agree that if any indemnification sought by an indemnified person
pursuant to this letter agreement is held by a court to be unavailable for any
reason other than as specified in the second sentence of the first paragraph of
this letter agreement, then (whether or not WP&Co. is the indemnified person),
we and WP&Co. will contribute to the losses, claims, damages, liabilities and
expenses for which such indemnification is held unavailable (i) in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and WP&Co., on the other hand, in connection with WP&Co.'s engagement
referred to above, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i), but also the relative
fault of us, on the one hand, and WP&Co., on the other hand, as well as any
other relevant equitable considerations; provided however, that in any event the
aggregate contribution of all indemnified persons, including WP&Co., to all
losses, claims, damages, liabilities and expenses with respect to which
contribution is available hereunder will not exceed the amount of fees actually
received by WP&Co. from us pursuant to WP&Co.'s engagement referred to above. It
is hereby agreed that for purposes of this paragraph, the relative benefits to
us, on the one hand, and WP&Co., on the other hand, with respect to WP&Co.'s
engagement shall be deemed to be in the same proportion as (i) the total value
paid or proposed to be paid or received by us or our stockholders, as the case
may be, pursuant to the transaction, whether or not consummated, for which
WP&Co. is engaged to render financial advisory services, bears to (ii) the fee
paid or proposed to be paid to WP&Co. in connection with such engagement. It is
agreed that it would not be just and equitable if contribution pursuant to this
paragraph were determined by pro rata allocation or by any other method which
does not take into account the considerations referred to in this paragraph.
We further agree that we will promptly reimburse WP&Co. and any other
indemnified person hereunder for all expenses (including fees and disbursements
of counsel) as they are incurred by WP&Co. or such other indemnified person in
connection with investigating, preparing for or defending, or providing evidence
in, any pending or threatened action, claim, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
WP&Co. or any other indemnified person is a party) and in enforcing this
agreement.
Our indemnity, contribution, reimbursement and other obligations under this
letter agreement shall be in addition to any liability that we may otherwise
have, at common law or otherwise, and shall be binding on our successors and
assigns.
Solely for purposes of enforcing this letter agreement, we hereby consent
to personal jurisdiction, service and venue in any court in which any claim or
proceeding which is subject to, or which may give rise to a claim for
indemnification or contribution under, this letter agreement is brought against
WP&Co. or any other indemnified person.
This letter agreement shall be deemed made in New York. This letter
agreement and all controversies arising from or relating to performance under
this letter agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to such state's rules
concerning conflicts of laws. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
CLAIM OR ACTION ARISING OUT OF THIS LETTER AGREEMENT OR ANY ENGAGEMENT OF WP&CO.
IS HEREBY WAIVED.
The provisions of this letter agreement shall apply to the above-mentioned
engagement, activities relating to the engagement occurring prior to the date
hereof, and any subsequent modification of or amendment to such engagement, and
shall remain in full force and effect following the completion or termination of
WP&Co.'s engagement.
Very truly yours,
ALLIANCE ENTERTAINMENT CORP.
By:/s/Xxxxxxx X. Xxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Executive Vice President
Accepted:
XXXXXXXXXXX XXXXXXX & CO., INC.
By:/s/X. Xxxxxxxx Xxxxxxx
----------------------------------------
Name: X. Xxxxxxxx Xxxxxxx
Title: Managing Director
