SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
__
Filed by the Registrant /X/ __
Filed by a Party other than the Registrant /_/
Check the appropriate box:
__
/X/ Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/_/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ALLIANCE ENTERTAINMENT CORP.
(Name of Registrant as Specified in Its Charter)
ALLIANCE ENTERTAINMENT CORP.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
__
/X/ $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or
__ Item 22(a)(2) of Schedule 14A.
/_/ $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/_/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
1) Title of each class of securities to which transaction applies:
.........................................................................
2) Aggregate number of securities to which transaction applies:
.........................................................................
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule O-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined)
.........................................................................
4) Proposed maximum aggregate value of transaction:
.........................................................................
5) Total fee paid:
.........................................................................
__
/_/ Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------
2) Form Schedule or Registration Statement No.:
----------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
ALLIANCE ENTERTAINMENT CORP.
110 East 59th Street
New York, New York 10022
________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
October 29, 1996
________________________
A Special Meeting of Stockholders of Alliance Enter-
tainment Corp., a Delaware corporation (the "Company"), will be
held at the Company's offices at 4250 Coral Ridge Drive, Coral
Springs, Florida 33065 on October 29, 1996 at 10:00 a.m., local
time, and at any adjourned session of the Special Meeting, to
consider and act on the following matters:
1. To approve the issuance of shares of Common Stock of
the Company upon conversion of A Stock.
2. To ratify the acquisition of Red Ant L.L.C. pursuant
to the Stock Acquisition and Merger Agreement, dated
as of August 15, 1996 among the Company, Wasserstein
& Co., Inc., Alvin N. Teller and others so as to
approve the issuance of Contingent Stock contemplated
thereby.
Stockholders are being asked to approve the foregoing
matters in order to comply with the rules of the New York Stock
Exchange which require stockholder approval prior to the issu-
ance of shares upon conversion of the Series A Convertible Pre-
ferred Stock ("Proposal 1") and prior to the issuance of Con-
tingent Stock pursuant to the Stock Acquisition and Merger
Agreement ("Proposal 2").
Assuming the New York Stock Exchange rules are not
otherwise satisfied, failure to obtain stockholder approval of
Proposal 1 would prevent the conversion of the Series A Con-
vertible Preferred Stock and would obligate the Company to
redeem the Preferred Stock on or before July 26, 2005. Failure
to obtain stockholder approval of Proposal 2 would obligate the
Company to retain an independent investment bank to develop a
consideration equivalent to replace the issuance of these
shares of Contingent Stock which could not be issued as a
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result of the New York Stock Exchange rules. Under the rules
of the New York Stock Exchange, approval of Proposal 1 and Pro-
posal 2 requires the affirmative vote of a majority of the
votes cast on the Proposals, provided that the total vote cast
represents more than 50% in interest of all securities entitled
to vote on the Proposals.
Stockholders of record at the close of business on
September 20, 1996 are entitled to vote at the meeting and any
adjournments or postponements thereof. A list of stockholders
entitled to vote at the meeting will be available for inspec-
tion at the Company's office at 4250 Coral Ridge Drive, Coral
Springs, Florida 33065. You are cordially invited to attend
the meeting in person. Whether or not you plan to attend the
meeting, please sign the accompanying proxy and return it in
the enclosed postage prepaid envelope.
By Order of the Board of Directors,
ELLIOT B. NEWMAN
Secretary
September __, 1996
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
________________________
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
October 29, 1996
________________________
INTRODUCTION
This Proxy Statement is being furnished to the stock-
holders of Alliance Entertainment Corp. ("Alliance" or the
"Company") in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Direc-
tors") for use at the Special Meeting of the Stockholders of
the Company to be held on October 29, 1996 at 10:00 A.M., local
time, at the Company's offices at 4250 Coral Ridge Drive, Coral
Springs, Florida 33065 and at any adjournments or postpone-
ments thereof (the "Special Meeting"). This Proxy Statement
and the accompanying proxy card are first being mailed to the
stockholders of the Company on or about , 1996.
You are cordially invited to attend the Special Meet-
ing, but whether or not you attend in person, you are urged to
mark, sign and date the enclosed Proxy Card and return it in
the enclosed postage prepaid envelope. Shares represented by
proxies properly executed and returned, unless previously
revoked, will be voted at the Special Meeting in accordance
with the instructions thereon. If a proxy is signed and
returned without indicating any voting instructions, the shares
represented by the proxy will be voted FOR the proposals listed
on the Notice of Special Meeting.
You have the right to revoke your proxy at any time
prior to its use by filing a written notice with the Secretary
of the Company prior to the convening of the Special Meeting or
by presenting another Proxy Card with a later date. If you
attend the Special Meeting and desire to vote in person, you
may request that your previously submitted Proxy Card not be
used.
The Company will pay all expenses involved in the
solicitation of proxies by the Board of Directors. The Company
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will request brokerage firms, nominees, custodians and fiducia-
ries to forward proxy materials to the beneficial owners of
shares held of record by such persons and will reimburse such
persons and the Company's transfer agent for their reasonable
out-of-pocket expenses in forwarding such materials.
VOTING RIGHTS AND PRINCIPAL STOCKHOLDERS
Each outstanding share of the Company's Common Stock,
par value $.0001 per share (the "Common Stock"), entitles the
holder to one vote. Holders of Common Stock do not have pre-
emptive rights. The Company's Restated Certificate of Incorpo-
ration and By-laws do not provide for cumulative voting. As of
September 20, 1996, the date fixed by the Board of Directors as
the record date for determining the stockholders entitled to
notice of and to vote at the Special Meeting and at any
adjournments or postponements thereof (the "Record Date"),
there were shares of Common Stock outstanding. The
presence, in person or by proxy, of a majority of the outstand-
ing shares of Common Stock shall constitute a quorum for the
transaction of business at the Special Meeting. Except as
otherwise specifically set forth herein, the affirmative vote
of the holders of a majority of the shares of Common Stock rep-
resented in person or by proxy and entitled to vote at the Spe-
cial Meeting is necessary for the approval of the proposals
specifically set forth in the Notice of Special Meeting and,
except as otherwise required by law or by the Certificate of
Incorporation, to transact any other business which may be
brought before the Special Meeting.
Abstentions may be specified on all proposals.
Abstentions will be counted as present for purposes of the item
on which the abstention is noted and, thus, have the effect of
a vote against the proposal. In the event of a broker non-vote
with respect to any issue coming before the Special Meeting
arising from the absence of authorization by the beneficial
owner to vote as to that issue, the proxy will be counted as
present for purposes of determining the existence of a quorum,
but will not be deemed as present and entitled to vote as to
that issue for purposes of determining the total number of
shares of which a majority is required for adoption.
As of September 20, 1996 each of the following per-
sons was the "beneficial owner," as that term is defined by
Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), of more than five percent of the
<PAGE>
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Common Stock outstanding and entitled to vote at the Special
Meeting:
<TABLE>
<CAPTION>
Shares of
Name and Address Common Stock Percentage
of Beneficial Owners Beneficially Owned(1)(2) of Class(1)(2)
- -------------------- ------------------------ --------------
<S> <C> <C>
Joseph J. Bianco 12,250,388(3) 27%
110 East 59th Street
New York, New York 10022
Wasserstein & Co., Inc. 7,807,928(4) 17%
31 West 52nd Street
New York, New York 10019
BT Capital Partners, Inc. 3,974,937(5) 9%
130 Liberty Street
25th Floor
New York, New York 10006
Bain Capital, Inc. 3,306,972(6) 7%
Two Copley Place
Boston, MA 02116
Jerry Bassin 2,068,625(7) 5%
15959 N.W. 15th Avenue
Miami, Florida 33169
</TABLE>
___________________
(1) As used herein, beneficial ownership means the sole or
shared power to vote, or direct the voting of, a security,
or the sole or shared power to dispose, or direct the dis-
position of, a security. Except as otherwise indicated,
all persons named herein have (i) voting power and/or
investment power with respect to their shares of Common
Stock, except to the extent that authority is shared by
spouses under applicable law, and (ii) record and benefi-
cial ownership with respect to their shares of Common
Stock.
(2) With respect to each stockholder, includes any shares
issuable upon exercise of all options or warrants held by
such stockholder that are currently exercisable or will
become exercisable within 60 days after September 20,
1996.
<PAGE>
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(3) Includes (i) 3,128,560 shares of Common Stock which
Mr. Bianco has the right to vote and dispose of,
(ii) options to purchase 1,326,666 shares of Common Stock
held by Mr. Bianco which are exercisable within 60 days
after September 20, 1996, (iii) 4,488,190 shares of Common
Stock which Mr. Bianco has the right to vote on any and
all matters presented to any meeting of stockholders,
including the election of directors, which Jerry Bassin
(1,768,625 shares), Anil K. Narang (50,000 shares), Alan
Shapiro (1,837,065 shares), Lawrence Burstein (399,250
shares) and Barry Goldin (433,250 shares) own and (iv)
3,306,972 shares of Common Stock which are owned by cer-
tain funds managed by Bain Capital, Inc. ("Bain") and
which Mr. Bianco has the right to vote on the election of
directors. Does not include options to purchase 333,334
shares of Common Stock held by Mr. Bianco which are not
exercisable within 60 days after September 20, 1996.
(4) Includes 2,904,766 shares of Common Stock held by
Wasserstein & Co., Inc. and 4,903,162 shares of Common
Stock held by WP Management Partners L.L.C. on behalf of
U.S. Equity Partners, L.P. and U.S. Equity Partners (Off-
shore), L.P. based on information reflected in a Schedule
13D filed on August 28, 1996.
(5) Includes 3,567,034 shares of Common Stock, warrants to
acquire 227,489 shares of Common Stock at an exercise
price of $5.00 per share and an additional 180,414 shares
of Common Stock at an exercise price of $8.00 per share.
Does not include 4,827,586 shares of Common Stock which
may be issued upon conversion of the Company's Series A
Convertible Preferred Stock held by BT Capital Partners,
Inc. upon approval of Proposal 1 herein.
(6) Comprised of 3,306,992 shares of Common Stock held by cer-
tain funds managed by Bain Capital, Inc. Does not include
options to purchase 26,666 shares of Common Stock issued
to Robert Gay, Managing Director of Bain Capital, Inc.,
which are exercisable within 60 days after September 20,
1996.
(7) Includes options to purchase 300,000 shares of Common
stock which are exercisable within 60 days after September
20, 1996. Does not include options to purchase 20,000
shares of Common Stock which are not exercisable within 60
days after September 20, 1996.
<PAGE>
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PROPOSAL 1 - APPROVAL OF COMMON STOCK
ISSUABLE ON CONVERSION OF SERIES A
CONVERTIBLE PREFERRED STOCK
-------------------------------------
The Proposal
On July 16, 1996, the Company issued 422,500 shares
of Series A Convertible Preferred Stock, par value $.01 per
share (liquidation value of $100 per share) (the "Preferred
Stock"), to BT Capital Partners, Inc. ("BT Capital") and BCI
Growth IV L.P. ("BCI") for an aggregate purchase price of
$42,250,000 pursuant to a Stock Purchase Agreement dated as of
July 16, 1996 (the "Purchase Agreement").
Since BT Capital was the beneficial owner of more
than 5% of the Common Stock prior to the consummation of the
transactions contemplated by the Purchase Agreement, Rule
312.03(b) of the New York Stock Exchange Listed Company Manual
requires that stockholder approval be obtained prior to the
issuance of Common Stock to BT Capital having voting power in
excess of 1% of the voting stock outstanding. The Certificate
of Designation setting forth the terms of the Preferred Stock
(the "Certificate of Designation") provides that the Preferred
Stock cannot be converted into Common Stock until the stock-
holders approve the issuance of Common Stock upon conversion of
the Preferred Stock or the requirements of the New York Stock
Exchange are otherwise satisfied to permit conversion thereof.
In Proposal 1, the stockholders are being asked to approve the
issuance of shares of Common Stock upon conversion of the Pre-
ferred Stock (initially 5,827,586 shares subject to
anti-dilution adjustment) issued pursuant to the Purchase
Agreement on July 16, 1996.
In the event that the stockholders do not approve
Proposal 1 and the requirements of the New York Stock Exchange
are not otherwise satisfied to permit conversion thereof on or
before July 26, 2005, the Company will be obligated to redeem
the shares of Preferred Stock at a redemption price equal to
the lesser of (a) the amount which would give the holder of the
Preferred Stock an Internal Rate of Return (as defined in the
Certificate of Designation) of 35% or (b) the greater of the
Liquidation Value (as defined in the Certificate of Designa-
tion) of the Preferred Stock or 75% of the Company's cumulative
EBITDA (as defined in the Certificate of Designation) from the
date of issuance to the date of redemption times the proportion
of the number of shares of Preferred Stock being redeemed to
the total number of shares of Preferred Stock issued.
<PAGE>
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Terms of the Preferred Stock
The Preferred Stock has a Liquidation Value of $100
per share plus any accrued and unpaid dividends. Upon the
liquidation, dissolution or winding up of the Company, holders
of the Preferred Stock are entitled to the Liquidation Value of
the Preferred Stock plus any accrued and unpaid dividends on
Preferred Stock prior to any payment being made to holders of
Common Stock or any stock of the Company junior to the Pre-
ferred Stock.
Dividends on the Preferred Stock are payable, when,
if and as declared by the Board of Directors of the Company, in
additional shares of Preferred Stock at an annual rate of
7-7/8% of the Liquidation Value of each outstanding share of
Preferred Stock.
Under the terms of the Certificate of Designation,
the Preferred Stock may be redeemed at its Liquidation Value by
the Company at its option in whole, but not in part, at any
time after July 16, 1999, on at least 30 days notice, if the
market price of the Common Stock for 20 of 30 consecutive trad-
ing days prior to such notice exceeds $11.00 per share, subject
to adjustment for stock dividends, stock splits and reverse
stock splits, and the shares of Common Stock issued in redemp-
tion are either registered under the Securities Act of 1933, as
amended (the "Securities Act"), or can be sold in reliance upon
an exemption from the registration requirements of the Securi-
ties Act.
The Preferred Stock may also be redeemed by the Com-
pany at its option in whole but not in part, at any time after
July 16, 1999, if as of the end of the most recent fiscal quar-
ter (the "Valuation Date") prior to such notice, the amount
equal to:
(i) the sum of (A) the Company's EBITDA for the four
fiscal quarters ended on the Valuation Date, multiplied by
ten (10), plus (B) without duplication, the cash, if any,
that would be deemed received by the Company in connection
with options and convertible securities deemed exercised
or converted pursuant to (ii) following, minus (C) the sum
of the Company's long-term debt on the Valuation Date,
divided by
<PAGE>
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(ii) the number of shares of the Company's Common
Stock outstanding on the Valuation Date, determined on a
fully diluted basis in accordance with generally accepted
accounting principles for financial reporting purposes
(the so-called "treasury method" of accounting for
shares), including without limitation Common Stock issu-
able upon conversion of Preferred Stock if and to the
extent that Preferred Stock is not treated as long-term
debt, as defined below,
is greater than $11.00. The redemption price for each share of
Preferred Stock redeemed pursuant to this provision shall be
the amount which will cause the holder to realize an Internal
Rate of Return (as defined in the Certificate of Designation)
of 35% with respect to its investment in such shares.
At any time after the Preferred Stock has become con-
vertible by the holders as a result of approval of Proposal 1,
if a Corporate Change (as defined below) is to occur and the
holders of Preferred Stock refuse to provide the vote or writ-
ten consent required to authorize such Corporate Change, the
Company may redeem all of the outstanding Preferred Stock imme-
diately prior to the consummation of such Corporate Change at
liquidation value plus accrued dividends. "Corporate Change"
means (i) the sale, exchange or transfer of all or substan-
tially all of the Company's assets, or (ii) any transaction or
series of related transactions in which one 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 con-
trolled by them on the date of original issuance of the Pre-
ferred Stock) of the Company (or securities exchangeable for or
convertible into such stock) entitled to elect 50% or more of
the Company's Board of Directors and representing at least 50%
of the number of shares of Common Stock outstanding.
In addition, as noted above, in the event that the
stockholders do not approve the issuance of Common Stock upon
conversion of the Preferred Stock and the requirements of the
New York Stock Exchange are not otherwise satisfied to permit
conversion thereof on or before July 26, 2005, the Company will
be obligated to redeem the shares of Preferred Stock at a
redemption price equal to the lesser of (a) the amount which
would give the holder of the Preferred Stock an Internal Rate
of Return of 35% or (b) the greater of the Liquidation Value
(as defined) of the Preferred Stock or 75% of the Company's
cumulative EBITDA from the date of issuance to the date of
<PAGE>
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redemption times the proportion of the number of shares of Pre-
ferred Stock being redeemed to the total number of shares of
Preferred Stock issued.
The Company's credit agreement and the indenture with
respect to the Company's Senior Subordinated Debentures contain
restrictive covenants which may require the Company to obtain
the consent of banks or noteholders, respectively, before it
can redeem the Preferred Stock in accordance with its terms.
Upon approval of this Proposal 1 by the holders of
Common Stock, the holders of Preferred Stock may at any time
thereafter convert shares of Preferred Stock into Common Stock
at the Conversion Price (as defined in the Certificate of Des-
ignation) then in effect. The Conversion Price is initially
$7.25 per share of Common Stock, and is subject to adjustment
for dilutive issuances of securities.
Holders of Preferred Stock generally have no voting
rights. However, so long as the shares of Common Stock receiv-
able upon conversion of the Preferred Stock outstanding repre-
sent at least five percent (5%) of the Common Stock outstand-
ing, determined on a fully diluted basis, 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 Company shall not increase the number of
shares of the Preferred Stock which the Company is authorized
to issue, or issue additional shares of Preferred Stock except
in connection with the payment of dividends on Preferred Stock;
(b) unless the dividend payment and redemption obligations of
the Company with respect to the Preferred Stock have been fully
satisfied, the Company shall not declare or pay any dividend or
make any other distribution on any securities junior to the
Preferred Stock other than dividends or distributions payable
solely in securities junior to the Preferred Stock, or pur-
chase, redeem, or otherwise acquire for any consideration, or
set aside as a sinking fund or other fund for the redemption or
repurchase of any securities junior to the Preferred Stock or
any warrants, rights or options to purchase the same; or
(c) the Company shall not cause or permit a Corporate Change to
occur.
The holders of Preferred Stock also have certain
rights to require the Company to register under the Securities
Act shares of Common Stock issued upon conversion of Preferred
Stock.
<PAGE>
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Vote Required for Approval of Proposal 1
Approval of Proposal 1 will require the affirmative
vote of the holders of a majority of shares of Common Stock
present or represented by proxy and entitled to vote at the
Special Meeting. Holders of Common Stock representing in
excess of 50% of the outstanding shares of Common Stock enti-
tled to vote at the Special Meeting have agreed to vote their
shares in favor of Proposal 1, thereby assuring that Proposal 1
will be approved. See "Proposal 2 - Voting Agreement".
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSU-
ANCE OF COMMON STOCK UPON CONVERSION OF THE PREFERRED STOCK.
<PAGE>
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PROPOSAL 2 - RATIFICATION OF THE ACQUISITION
OF RED ANT L.L.C. PURSUANT TO THE
STOCK ACQUISITION AND MERGER AGREEMENT
DATED AS OF AUGUST 15, 1996
SO AS TO APPROVE THE ISSUANCE
OF CONTINGENT STOCK CONTEMPLATED THEREBY
The Proposal
On August 27, 1996, pursuant to the Stock Acquisition
and Merger Agreement (the "Acquisition Agreement") dated as of
August 15, 1996 among Alvin N. Teller, Wasserstein & Co. Inc.
("WCI"), the Company and other parties thereto, the Company
acquired (the "Acquisition") all the outstanding membership
units of Red Ant L.L.C., a Delaware limited liability company
("Red Ant"), from Mr. Teller and WCI in exchange for
(i) 6,718,751 shares of Common Stock issued to Mr. Teller and
WCI and its affiliates and (ii) the right to receive an addi-
tional 2,500,000 shares of Common Stock ("Contingent Stock")
contingent upon the market price of the Company's Common Stock
achieving certain target limits described below under "The
Acquisition Agreement." Since the issuance of all the Contin-
gent Stock, when added to the stock issued on the closing of
the Acquisition, would result in the issuance of in excess of
20% of the Company's outstanding Common Stock prior to the
Acquisition, Rule 312.03(c) of the New York Stock Exchange
Listed Company Manual requires stockholder approval for the
issuance of those shares of Contingent Stock that, incremen-
tally, would result in the issuance of more than 20% of the
Company's outstanding voting stock.
In Proposal 2, the stockholders are being asked to
ratify the Acquisition which was consummated on August 27,
1996. In the event the Company's stockholders fail to ratify
the Acquisition, the Company would not be able to issue all the
shares of the Contingent Stock and would be obligated pursuant
to the Acquisition Agreement to select an independent invest-
ment bank to structure consideration equivalent to the Contin-
gent Stock not issued.
Description of Red Ant
Red Ant is a Los Angeles based record label recently
formed by Mr. Teller and WCI to build a roster of alternative,
urban contemporary and country artists. Red Ant's management
team is headed by Mr. Teller, the former chairman and chief
executive officer of MCA Music Entertainment Group ("MCA").
<PAGE>
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Prior to his employment at MCA, Mr. Teller served as president
of CBS Records, Columbia Records and United Artists Records.
Prior to the Acquisition, Red Ant was capitalized with
$20 million of equity in the form of cash and letters of credit
provided by WCI and its affiliates and has only recently com-
menced operations. The Company acquired Red Ant in order to
accelerate its development of proprietary product and add to
its expanding presence in independent label distribution. The
Acquisition will be accounted for as a "purchase" for financial
reporting purposes.
The Acquisition Agreement
Pursuant to the terms of the Acquisition Agreement
the Company acquired all the outstanding membership units of
Red Ant through (i) the merger of Alliance Acquisition Co.
Inc., a wholly owned Delaware subsidiary of the Company, into
Red Ant Box, Inc., a Delaware corporation wholly owned by Alvin
N. Teller, and (ii) the acquisition of all the outstanding
shares of capital stock of Red Ant Holdings, Inc., a Delaware
corporation, from Wasserstein & Co., Inc. ("WCI") and its
affiliates, U.S. Equity Partners, L.P. and U.S. Equity Partners
(Offshore), L.P.
As consideration for the Acquisition, Mr. Teller was
issued 760,823 shares of the Company's Common Stock and WCI and
its affiliates were issued an aggregate of 5,957,928 shares of
Common Stock. In addition, the Acquisition Agreement provides
for the issuance of a maximum of 2,500,000 additional shares of
Common Stock to Mr. Teller, WCI and its affiliates in the event
the price of the Company's Common Stock reaches certain levels
over a period of four years from August 27, 1996, the closing
date of the Acquisition (the "Closing Date"). In particular,
if at any time during the period of two years following the
Closing Date, the price of the Common Stock remains at or above
any of the Target Contingent Acquisition Prices indicated on
the schedule below for any 25 trading days out of a period of
30 consecutive trading days, then Mr. Teller shall be entitled
to receive the corresponding percentage of 500,000 shares of
Common Stock and WCI and its affiliates shall be entitled to
receive the corresponding percentage of 750,000 shares of Com-
mon Stock (the "Tranche 1 Contingent Stock"):
<PAGE>
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Tranche 1 Contingent Stock Schedule
------------------------------------
Target Contingent % of Tranche 1 Contingent
Acquisition Price Stock Issuable
----------------- -------------------------
$ 9.00 25.00%
$ 9.25 31.25%
$ 9.50 37.50%
$ 9.75 43.75%
$10.00 50.00%
$10.25 56.25%
$10.50 63.50%
$10.75 69.75%
$11.00 75.00%
$11.25 81.25%
$11.50 87.50%
$11.75 93.75%
$12.00 100.00%
If, at any time during the period of four years fol-
lowing the Closing Date, the price of the Common Stock remains
at or above any of the Target Contingent Acquisition Prices
indicated on the schedule below for any 85 trading days out of
a period of 90 consecutive trading days, then Mr. Teller shall
be entitled to receive the corresponding percentage of 500,000
shares of Common Stock and WCI and its affiliates shall be
entitled to receive the corresponding percentage of 750,000
shares of Common Stock (the "Tranche 2 Contingent Stock"):
Tranche 2 Contingent Stock Schedule
-----------------------------------
Target Contingent % of Tranche 2 Contingent
Acquisition Price Stock Issuable
----------------- -------------------------
$13.00 50.00%
$13.50 56.25%
$14.00 62.50%
$14.50 68.75%
$15.00 75.00%
$15.50 81.25%
$16.00 87.50%
$16.50 93.75%
$17.00 100.00%
In the event of a Change of Control (as defined in
the Acquisition Agreement) all the shares of Contingent Stock
would be immediately issuable to Mr. Teller and WCI and its
<PAGE>
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affiliates. The Acquisition Agreement also provides that in
the event the Common Stock of the Company is no longer required
to be registered under the Securities Exchange Act of 1934, or
the issuance of the Contingent Stock is not approved by stock-
holder vote within a certain time period, then the Company
shall engage an investment bank unaffiliated with the Company
to develop a method of equivalent consideration. In addition,
the issuance of 150,000 shares of Contingent Stock is subject
to reallocation between Mr. Teller and WCI under certain
circumstances.
The Acquisition Agreement also grants certain regis-
tration rights to WCI and its affiliates and to Mr. Teller.
Related Transactions
Employment Contracts. In connection with the Acqui-
sition, Mr. Teller and the Company entered into an employment
agreement dated as of August 15, 1996 (the "Employment Agree-
ment") pursuant to which, among other things, Mr. Teller will
be employed for a term of five years as Chief Executive Offi-
cer, Co-Chairman and President of the Company at a base annual
salary of not less than $1,500,000, subject to annual bonuses
in the discretion of the Compensation Committee. Mr. Joseph
Bianco will serve as the other Co-Chairman of the Company.
The Company granted Mr. Teller options to purchase
5,000,000 shares of Common Stock at an exercise price of $6.00
per share. Options to purchase 1,000,000 shares of Common
Stock vest immediately. The remaining options to purchase
4,000,000 shares of Common Stock vest in four equal install-
ments commencing on August 15, 1997 subject to accelerated
vesting under certain circumstances. The terms of the options
run from five to nine years.
The Company agreed to pay Mr. Teller an acquisition
bonus in the event that more than 50% of the outstanding shares
of Common Stock are acquired in a Change of Control (as defined
in the Employment Agreement) at a price in excess of $11.00 per
share. The amount of the bonus is generally 1,000,000 times
the amount by which the price paid in the Change of Control
exceeds $11.00 per share. This amount is payable if a qualify-
ing Change of Control occurs during Mr. Teller's employment or
within a period of up to two years subsequent thereto. During
the later parts of such period, only 50% of such bonus would be
payable.
<PAGE>
-14-
The Company also agreed to adopt and maintain a
restricted stock plan under which up to 500,000 shares of Com-
mon Stock are to be issued to employees of Red Ant and its sub-
sidiaries (including Mr. Teller), each at the direction of Mr.
Teller, provided that the market price of the Company's Common
Stock reaches levels identical to those targets governing the
issuance of the Contingent Stock in the Acquisition. See "The
Acquisition Agreement".
In connection with the appointment of Mr. Teller as
Chief Executive Officer, Co-Chairman and President of the Com-
pany, the employment contracts of Joseph J. Bianco, Anil K.
Narang and Elliot B. Newman have been amended to reflect
revised titles, duties, termination provisions and compensation
for surrender of long-term incentive awards granted in 1995 and
1996.
Stock Purchase Agreements. As a condition to the
consummation of the Acquisition, WCI and its affiliates,
U.S. Equity Partners, L.P., and U.S. Equity Partners (Off-
shore), L.P., acquired at a purchase price of $6.00 per share
1,350,000 shares of Common Stock from Mr. Bianco and 500,000
shares of Common Stock from Mr. Narang pursuant to stock pur-
chase agreements dated August 15, 1996 (the "Stock Purchase
Agreements").
Board of Directors Composition. In connection with
the consummation of the Acquisition, Messrs. Friedman, Goldin,
Kaufmann and Rothschild resigned as members of the Company's
Board of Directors, and the following persons were appointed as
members of the Board to fill the vacancies created by such res-
ignations: Class I directors - term expiring in 1999 - Alvin
N. Teller, W. Townsend Ziebold (a designee of WCI) and Douglas
Brent (a designee of BT Capital); Class II director - term
expiring in 1997 - Randall Weisenberger (a designee of WCI).
The Acquisition Agreement granted WCI and Mr. Teller
the right to designate two and one nominees, respectively, to
the Board of Directors. WCI maintains its right to have its
two nominees appointed to the Board of Directors so long as
WCI, any wholly owned subsidiary of WCI or any limited partner-
ship of which a wholly owned subsidiary of WCI is general part-
ner (collectively, "WCI Entities") hold in the aggregate
3,900,000 shares of Common Stock (subject to adjustment for
stock splits, combinations and recapitalizations). So long as
WCI Entities hold an aggregate of 780,000 shares of Common
Stock, WCI may nominate one representative for election to the
<PAGE>
-15-
Board of Directors. Mr. Teller has the right to select a rep-
resentative for the Board of Directors of the Company so long
as he is the beneficial owner of at least 380,400 shares of
Common Stock.
Approval of Material Transactions and Financings.
Under the Acquisition Agreement, the following actions by the
Company require the prior written consent of WCI and Mr. Teller
so long as the WCI Entities and Mr. Teller beneficially hold at
least 3,900,000 (subject to adjustment) and 380,400 shares of
Common Stock, respectively (or in the case of WCI and its
affiliates, at least 5,800,000 shares (subject to adjustment)
and such amount represents at least 4.1% of the fully diluted
Common Stock): (i) amendment or restatement of the Company's
Restated Certificate of Incorporation; (ii) the dissolution,
liquidation or winding up of the Company or the commencement of
a voluntary proceeding seeking reorganization or other relief
under bankruptcy or similar laws; or (iii) any merger, consoli-
dation or combination involving the Company or sale or other
transfer by the Company to a third party of substantially all
the Company's assets. In addition, the bylaws of the Company
provide that a Finance Committee, made up of the two
Co-Chairmen and nominees of BT Capital and WCI, shall review
and approve proposed transactions which contemplate the issu-
ance of securities or the refinancing of bank debt. Issuances
of equity securities of the Company for cash or debt in excess
of $10 million in a 12-month period, and any proposal regarding
a merger or acquisition in which the consideration paid exceeds
$50 million or which involves the issuance of equity securities
in excess of certain maximums over the previous 12-month period
require that the Finance Committee recommend the proposal unan-
imously. The rights of WCI and its affiliates to designate a
member of the Finance Committee is subject to the ownership
thresholds described above.
Voting Agreement
The Voting Agreement, dated as of August 15, 1996,
among WCI and its affiliates, Mr. Teller, Mr. Bianco, BT Capi-
tal and Bain Capital, Inc. (the "Voting Agreement") stipulates
that the parties thereto will vote for (a) the approval of the
conversion rights of the Series A Convertible Preferred Stock
of the Company (See "Proposal 1 -- Terms of the Preferred
Stock"), (b) the approval of the Company's issuance of Common
Stock pursuant to any party's exercise of such conversion
rights, (c) transactions contemplated in the Acquisition Agree-
ment, including the issuance of Contingent Shares and (d) the
<PAGE>
-16-
election of directors designated by WCI and its affiliates, Mr.
Teller, BT Capital, Bain Capital, Inc. and Mr. Bianco. The
Voting Agreement also provides that Mr. Bianco shall use his
best efforts to cause each of the parties to the Stockholders
Agreement executed as of November 30, 1993 and amended and
restated as of May 18, 1995, to grant an irrevocable proxy to
Mr. Teller with respect to their shares, such proxy to be
effective to the extent set forth in such Stockholders Agree-
ment upon the death of Mr. Bianco. The parties to the Voting
Agreement, as of September 20, 1996, own 52% of the issued and
outstanding Common Stock of the Company.
Vote Required for Approval of Proposal 2
Approval of Proposal 2 will require the affirmative
vote of the holders of a majority of shares of Common Stock
present or represented by proxy and entitled to vote at the
Special Meeting. Holders of 16,850,346 shares of Common Stock
(which excludes 6,718,751 shares of Common Stock acquired by
Mr. Teller and WCI pursuant to the Acquisition Agreement), rep-
resenting approximately 38% of the shares entitled to vote
at the Special Meeting, have agreed to vote their shares in
favor of Proposal 2. See "-- The Voting Agreement." Pursuant to
the New York Stock Exchange rules, the Common Stock acquired by
Mr. Teller and WCI pursuant to the Acquisition Agreement (but not
Common Stock acquired by them pursuant to the Stock Purchase
Agreements) which would otherwise be subject to the provisions of
the Voting Agreement shall be voted in proportion to the votes
cast by all other holders of Common Stock voting in person or by
proxy at the Special Meeting. In the event the stockholders fail
to approve Proposal 2, the Company would be obligated to select
an independent investment bank to develop a consideration
equivalent to replace the issuance of those shares of Contingent
Stock which could not be issued as a result of the New York Stock
Exchange rules.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE
ACQUISITION AGREEMENT.
<PAGE>
-17-
OTHER BUSINESS
No business may be brought before the Special Meeting
other than the consideration of Proposals 1 and 2 and proce-
dural matters that may arise in connection therewith.
Stockholder Proposals
Proposals of stockholders intended to be presented at
the 1997 annual meeting must be received by the Company at its
principal executive offices for inclusion in the Company's
proxy statement and form of proxy relating to such meeting on
or before March 4, 1997.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Proxy Statement,
and subject in each case to information contained in this Proxy
Statement, are the following documents filed by the Company
with the Securities and Exchange Commission pursuant to the
Exchange Act: (1) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995; (2) the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996; (3) the Company's Current Reports on Form 8-K dated
March 22, 1996, April 29, 1996, May 9, 1996, June 21, 1996,
July 16, 1996, August 15, 1996 and August 27, 1996.
The Company will provide without charge to each per-
son, including any beneficial owner, to whom this Proxy State-
ment is delivered, upon the written or oral request of such
person, a copy of any and all of the documents incorporated by
reference herein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in
such documents). Such request should be directed to the Secre-
tary, Alliance Entertainment Corp., 4250 Coral Ridge Drive,
Coral Springs, Florida 33065 (telephone: (954) 346-0110).
----------------
<PAGE>
-18-
PLEASE EXERCISE YOUR RIGHT TO VOTE BY PROMPTLY COM-
PLETING, SIGNING AND RETURNING THE ENCLOSED PROXY FORM. You
may later revoke the proxy and, if you are able to attend the
meeting, you may vote your shares in person.
By Order of the Board of Directors,
Elliot B. Newman
Secretary
September , 1996
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
This proxy is solicited by the Board of Directors
of Alliance Entertainment Corp.
Proxy for the Special Meeting of Stockholders
at 10:00 A.M., local time
October 29, 1996,
Alliance Entertainment Corp.
4250 Coral Ridge Drive
Coral Springs, Florida
The undersigned hereby appoints ALVIN N. TELLER,
JOSEPH J. BIANCO, ANIL K. NARANG and ELLIOT B. NEWMAN, and each
of them, with power of substitution, as proxies of the under-
signed to vote all shares of stock which the undersigned is
entitled in any capacity to vote at the above-stated Special
Meeting, and at all adjournments and postponements thereof in
their discretion, upon such other matters as may properly be
brought before the meeting. This proxy revokes all prior prox-
ies given by the undersigned.
All properly signed proxies will be voted as
directed. All ABSTAIN votes will be counted in determining the
existence of a quorum at the Special Meeting, but will not be
voted in favor of the proposal as to which such ABSTAIN vote
was directed. If no direction is made, this proxy will be
voted FOR approval of the issuance of shares of Common Stock
upon conversion of Series A Convertible Preferred Stock (Pro-
posal 1) and FOR ratification of the Stock Acquisition and
Merger Agreement so as to approve the issuance of Contingent
Stock contemplated thereby (Proposal 2).
Receipt of the Notice of Meeting and Proxy Statement
is hereby acknowledged.
____ ____ ____
1. Approval of issuance of Common /___/ /___/ /___/
Stock upon conversion of the For Against Abstain
Series A Convertible Preferred
Stock of Alliance Entertainment
Corp.
<PAGE>
-2-
____ ____ ____
2. Ratification of the Stock /___/ /___/ /___/
Acquisition and Merger For Against Abstain
Agreement so as to approve
the issuance of Contingent
Stock contemplated thereby.
Please Sign, Date and Mail the Proxy
Card Promptly Using the Enclosed
Envelope.
The Directors Recommend a Vote FOR
Proposals 1 and 2.
SIGNATURES:
---------------------------------
---------------------------------
DATE:
---------------------------------------
NOTE: Joint Owners should EACH sign.
Please sign EXACTLY as your
name(s) appear(s) on this card.
When signing as an attorney,
trustee, executor, administrator
or guardian or corporate officer
please give full name as such.
