SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________________________ TO _______________________
Commission File Number 1-13054
ALLIANCE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3645913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
- ---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
212-935-6662
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and not be contained, to the best of
the Registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K. [ ]
As of April 10, 1997, the number of outstanding shares of the Registrant's
Common Stock was 44,990,205. The aggregate market value of the voting stock held
by the non-affiliates of the Registrant as of April 10, 1997, was $39,460,783.
The Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended by Amendment No. 1 on Form 10K/A (as so amended the "Form
10-K") is hereby amended to (i) eliminate the reference to the Registrant's
definitive Proxy Statement for the Annual Meeting of the Stockholder to be held
on June 27, 1997, under the caption "Documents Incorporated by Reference" on the
cover of the Form 10-K and (ii) include the following information herein after
set forth as Part III of Form 10-K.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
As of April 30, 1997, the Company's Board of Directors was comprised of
eight members consisting of two designees of each of Wasserstein & Co. and BT
Capital Partners, Inc. as well as four members of the Company's management. In
connection with the issuance of the Company's Series B Preferred Stock and 6%
Exchangeable Notes Due 2001, Wasserstein & Co. was granted the right to replace
two management directors with two additional designees of Wasserstein & Co. The
following table sets forth certain information regarding the directors and
executive officers of the Company.
Name Age Position
Alvin N. Teller 52 Co-Chairman, Chief Executive
Officer and President; Director
Randall J. Weisenburger 38 Co-Chairman; Director
Joseph J. Bianco 45 Vice Chairman; Director
Anil K. Narang 33 Vice Chairman; Director
W. Townsend Ziebold, Jr. 35 Deputy Vice-Chairman; Director
Elliot B. Newman 50 Senior Executive Vice President
-Business Affairs and Secretary;
Director
Eric S. Weisman 35 Senior Executive Vice President
Timothy J. Dahltorp 34 Executive Vice President, Chief
Financial Officer and Treasurer
Christopher J. Joyce 33 Executive Vice President,
General Counsel and Assistant
Secretary
David Schlang 51 Executive Vice President
Douglas B. Brent 38 Director
Robert Marakovits 37 Director
Alvin N. Teller, became Co-Chairman, Chief Executive Officer, President and
a director of Alliance in August 1996. Mr. Teller has also been CEO of Red Ant
Entertainment, Inc. since August 1996. From September 1989 to November 1995, Mr.
Teller was Chairman and CEO of MCA Music Entertainment Group. Prior to that he
served as President of CBS Records, Columbia Records and United Artists Records.
Randall J. Weisenburger, has been a director of the Company since August
1996 and Co-Chairman since December 1996. Mr. Weisenburger has been a Managing
Director of Wasserstein Perella & Co., Inc. ("WP") since December 1993. Mr.
Weisenburger was a Director of WP from December 1992 to December 1993 and Vice
President of WP from December 1989 to December 1992. Mr. Weisenburger is also a
director and Co-Chairman of the Board of Collins & Aikman Corporation and
Chairman of Yardley of London, Ltd.
Joseph J. Bianco has been a Vice Chairman since December 1996 and a
director of Alliance since November 1990. From August 1996 to December 1996 Mr.
Bianco was a Co-Chairman. Mr. Bianco served as the Company's Chairman and Chief
Executive Officer since the Company's formation in November 1990 until August
1996. Since May 1991, Mr. Bianco has served as a director of Sentex Sensing
Technology, Inc., a public company engaged in the business of developing and
marketing explosive detectors and gas chromatographs.
<PAGE>
Anil K. Narang has been a Vice Chairman of Alliance since December 1993 and
a director since November 1990. In connection with the sale of the Company's
Series B Convertible Preferred Stock and 6% Exchangeable Notes Due 2001, Mr.
Narang tendered his resignation as a director effective upon the appointment of
a successor by WP. As of April 30, 1996, no successor has been appointed. Mr.
Narang was Chief Financial Officer of Alliance from November 1990 to December
1995, Co-President from November 1994 to February 1995 and President from March
1995 to August 1996.
W. Townsend Ziebold, Jr., has been a director and Deputy Vice Chairman of
Alliance since August 1996. Mr. Ziebold is a Managing Director of WP, and has
served in that capacity since December 1994. From December 1993, to December
1994, Mr. Ziebold was a Director of WP; from December 1991, to December 1993, he
was a Vice President of WP; prior thereto he was an associate at WP. Mr. Ziebold
is also a director of Collins & Aikman Corporation.
Elliot B. Newman has been a director of Alliance since November 1990 and
Senior Executive Vice President - Business Affairs since March 1995. In
connection with the sale of the Company's Series B Convertible Preferred Stock
and 6% Exchangeable Notes Due 2001, Mr. Newman tendered his resignation as a
director effective upon the appointment of a successor by WP. As of April 30,
1996, no successor has been appointed. The Company and Mr. Newman are currently
negotiating termination of his employment. From December 1993 until March 1995,
Mr. Newman was Executive Vice President and General Counsel of Alliance. In
February 1994, Mr. Newman was named Secretary. Mr. Newman was a partner with
Warsaw Burstein Cohen Schlesinger & Kuh, a New York law firm from April 1991 to
September 1993.
Eric S. Weisman has been an Executive Vice President of Alliance since
April 1994 and Senior Executive Vice President since June 1996. Prior to that
Mr. Weisman was Executive Vice President and Chief Operating Officer of Premier
Artist Services, Inc. from December 1985 to April 1994 when it was acquired by
Alliance.
Timothy J. Dahltorp has been Executive Vice President and Chief Financial
Officer of Alliance since January 1996 and Treasurer since November 1993. Mr.
Dahltorp was a Senior Vice President from January 1995 to January 1996 and a
Vice President from November 1993 to December 1994. From 1983 to 1993 Mr.
Dahltorp held various positions with First Chicago Corp., most recently Vice
President/Business Development in the Asset Based Finance Group of American
National Bank & Trust Company of Chicago, a wholly-owned subsidiary of First
Chicago Corp.
Christopher J. Joyce has been Executive Vice President since August 1996
and Assistant Secretary and General Counsel of Alliance since July 1995. Prior
to joining Alliance, he was Executive Vice President of Business Affairs and
General Counsel of Independent National Distributors Inc. from February 1992 to
July 1995 when it was acquired by Alliance. From 1988 to 1992, Mr. Joyce
practiced law with Willkie Farr & Gallagher, a New York law firm.
David Schlang has been Executive Vice President of Alliance since February
1996, and Senior Vice President since September 1995. Prior to that Mr. Schlang
was President and Chief Executive Officer of One Way Records Inc. from February
1971 to September 1995 when it was acquired by Alliance.
Douglas B. Brent has been Director of Alliance since August 1996. Mr. Brent
has served as President of BT Capital Partners, Inc. ("BT") since January 1995
and served as the Managing Director of BT Securities Corp. an affiliate of BT
from January 1990 to December 1994.
Robert Marakovits has been a Director of the Company since June 1996. Mr.
Marakovits has been a Managing Director of BT, a small business investment
company and an affiliate of Bankers Trust New York Corp. since October 1993 and
a Vice President of BT since June 1998.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
To the best of the Company's knowledge, based solely on its review of
reports furnished to the Company, there were no directors, officers or
beneficial owners of more than 10% of the Company's Common Stock that failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act of
1934 during the Company's 1996 fiscal year except as follows: (i) Robert Gay, a
former director filed a late Form 3 to report his election as a director in May
1995; and (ii) Robert Marakovits filed a late Form 3 to report his election as a
director in June 1996.
Item 11. Executive Compensation
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Annual Long-Term
Principal Position Compensation (1) Compensation Awards
-------------------- ---------------- ---------------------
Restricted Shares
Stocks Underlying All Other
Year Salary($) Bonus($)(2) Awards Options Compensation
---- --------- ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alvin N. Teller 1996 $496,677 ---- (3)(4) 5,000,000(5) ----
Co-Chairman, Chief Executive
Officer and President
Joseph J. Bianco 1996 $589,550 --- ---- 250,000(7) (6)
Vice-Chairman 1995 518,000 119,000 ---- 250,000(8) $12,779(12)
1994 445,468 250,000 ---- 150,000(9) ----
Anil K.Narang 1996 $494,417 ---- ---- 200,000(7) (10)
Vice-Chairman 1995 421,077 84,000 ---- 200,000(8) $15,003(13)
1994 342,281 150,000 ---- 375,000(9) 2,520(14)
Elliot B. Newman 1996 $396,210 ---- ---- 125,000(7) (11)
Senior Executive Vice 1995 363,462 43,000 ---- 100,000(8) $9,088(12)
President - Business Affairs 1994 323,352 60,000 ---- 100,000(9)
and Secretary
Terence Shand 1996 $412,639(15) $160,300(19) ---- 100,000(7) $28,854(19)
Executive Vice President 1995 336,350(16) 26,350 ---- 75,000(8) ----
1994 113,202(17) 57,768 ---- 250,000(18) ----
<FN>
(1) The aggregate total value of perquisites and other personal benefits,
securities or property did not equal the lesser of $50,000 or ten
percent (10%) of the annual salary and bonus for any named executive
officer during either 1994, 1995 or 1996.
(2) Bonuses in 1995 and 1994 were determined by the Board of Directors
based on, among other things, Alliance's yearly results as compared to
objectives established for such year, and are paid after the end of the
fiscal year, but only if the participant is employed at such time.
Bonus amounts were awarded in each fiscal year and paid in the
following year, and such amounts were based on performance in the
previous year. No additional bonuses relating to 1994, 1995 or 1996
performance will be paid in 1997.
(3) Pursuant to the Red Ant Stock Acquisition and Merger Agreement, Mr.
Teller may be entitled to receive up to 1,000,000 shares of Common
Stock and Wasserstein & Co. Inc. ("WCI") and affiliates 1,500,000
shares of Common Stock (together, the "Contingent Stock."), if the
price of the Company's Common Stock reaches certain levels over a
period of four years from August 27, 1996. The Company's stockholders
approved the issuance of the Contingent Stock at a special meeting held
on October 29, 1996. The last price quoted for the Company's Common
Stock on the New York Stock Exchange ("NYSE") on December 31, 1996 was
$1.87. See "Certain Relationships and Related Transactions," for a
description of the Contingent Stock vesting schedule.
<PAGE>
(4) Pursuant to Mr. Teller's employment agreement, the Company has adopted
the 1996 Restricted Stock Plan (the "1996 Plan") pursuant to which the
Company has reserved 500,000 shares of Common Stock which may be
allocated to Mr. Teller for distribution at his sole discretion among
employees of Red Ant and its subsidiaries (including Mr. Teller) if the
price of the Company's Common Stock reaches certain levels over a
period of four years from August 27, 1996. Shares will be available for
distribution under the 1996 Plan provided the market price of the
Company's Common Stock reaches levels identical to the targets
governing the issuance of the Contingent Stock. See "Certain
Relationships and Related Transactions."
(5) Represents stock options granted as of August 15, 1996, to purchase the
stated number of shares of Common Stock at an exercise price of $6.00 a
share. One fifth of these options are currently exercisable and the
remaining four fifths will vest one fifth on each anniversary of the
date of grant.
(6) For the fiscal year ended December 31, 1996, the executive received
additional compensation in the amount of $2,110,720 as follows: (i)
$2,100,000 in exchange for surrender of long term incentive awards
granted in 1995 and 1996 in connection with the appointment of Mr.
Teller as Chief Executive Officer, Co-Chairman and President of the
Company and amendment of the executive's employment contract to reflect
his revised title, duties and termination provisions; and (ii) $10,720
covering reimbursements for medical expenses incurred by the executive
in 1995 and 1996 not covered by insurance pursuant to the Company's
Supplemental Medical Benefits Plan.
(7) Represent stock options granted as of June 20, 1996, under the
Company's Long Term Incentive and Stock Option Plan as amended (the
"1994 Plan") at an exercise price of $5.25 per share.
(8) Represents stock options granted as of March 16, 1995 under the 1994
Plan to purchase the stated number of shares of Common Stock at an
exercise price of $5.50 per share.
(9) Represents stock options granted as of March 18, 1994 under the
Company's 1994 Plan to purchase the stated number of shares of Common
Stock at an exercise price of $6.00 per share.
(10) For the fiscal year ended December 31, 1996, the executive received
additional compensation in the amount of $1,910,619.20 as follows: (i)
$1,900,000 in exchange for surrender of long term incentive awards
granted in 1995 and 1996 in connection with the appointment of Mr.
Teller as Chief Executive Officer, Co-Chairman and President of the
Company and amendment of the executive's employment contract to reflect
his revised duties and termination provisions; (ii) $7,192 covering
reimbursements for medical expenses incurred by the executive in 1995
and 1996 not covered by insurance pursuant to the Company's
Supplemental Medical Benefits Plan; and (iii) $3,427.20 representing
interest of prime plus 1% not charged on a $36,000 loan to the
executive.
(11) For the fiscal year ended December 31, 1996, the executive received
additional compensation in the amount of $893,211 as follows: (i)
$850,000 in exchange for surrender of long term incentive awards
granted in 1995 and 1996 in connection with the appointment of Mr.
Teller as Chief Executive Officer, Co-Chairman and President of the
Company and amendment of the executive's employment contract to reflect
his revised duties and termination provisions; (ii) $2,826 covering
reimbursements for medical expenses incurred by the executive in 1995
and 1996 which were not covered by insurance pursuant to the Company's
Supplemental Medical Benefits Plan; and (iii) $40,385 representing
cancellation of loans by the Company pursuant to the executive's
revised employment contract.
(12) Represents the dollar amount of insurance premium paid by the Company
for disability insurance covering these executive officers.
<PAGE>
(13) Includes $12,483 of insurance premium paid by the Company for
disability insurance covering Mr. Narang and the fair market value of
the interest not charged on a $36,000 loan to Mr. Narang.
(14) Represents the fair market value of the interest not charged on a
$36,000 loan to Mr. Narang.
(15) Shand's salary and bonus are paid in British pounds. The dollar amounts
in the Table for 1996 reflect an exchange rate of $1.603 U.S. dollars
per British pound which is the average exchange rate for the year
ended December 31, 1996.
(16) Mr. Shand's salary and bonus are paid in British pounds. The
dollar amounts in the Table for 1995 reflect an exchange rate of $1.55
U.S. dollars per British pound.
(17) Mr. Shand was employed by the Company in September 1994 and the
dollar amount in the Table for 1994 reflects an exchange rate of $1.565
U.S. dollars per British pound.
(18) Represents stock options granted as of September 9, 1994, under the
Company's 1994 Plan to purchase the stated number of shares of Common
Stock at an exercise price of $5.375 per share.
(19) Represents payment made pursuant to Mr. Shand's employment agreement
with Castle Communications PLC dated as of November 14, 1996. Mr.
Shand resigned from his position as Executive Vice President on
December 31, 1996 and from the Company's Board of Directors on March
31, 1997.
</FN>
</TABLE>
STOCK OPTIONS GRANTED IN 1996
The following table sets forth information concerning individual grants
of stock options made during 1996 to each executive officer listed below. The
Company did not grant any stock appreciation rights during 1996.
<TABLE>
<CAPTION>
% of Total
Options Fair Potential Realizable Value
Granted to Market at Assumed Annual Rates
Options Employees Exercise Value at of Stock Appreciation
Granted in Price Date of Expiration for Option Term(1)
Name (Shares)(2) 1996 (per share) Grant Date 0% 5% 10%
- ---- ----------- ----- ------ ------ ----- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alvin N. Teller 1,000,000 14% $6.00 $6.75 8/14/02 $750,000 $3,045,641 $5,958,036
2,000,000 28% 6.00 6.75 8/14/03 1,500,000 6,995,836 14,307,678
1,000,000 14% 6.00 6.75 8/14/04 750,000 3,972,807 8,469,219
1,000,000 14% 6.00 6.75 8/14/05 750,000 4,471,443 9,916,135
Joseph J. Bianco 250,000 3.5% 5.25 5.25 6/19/06 N/A 825,419 2,091,783
Anil K. Narang 200,000 2.8% 5.25 5.25 6/19/06 N/A 660,335 1,673,426
Elliot B. Newman 125,000 1.75% 5.25 5.25 6/19/06 N/A 1,045,891 412,709
Terence Shand 100,000 1.4% 5.25 5.25 6/19/06 N/A 836,712 330,167
<FN>
(1) Gains, if any, are dependent upon the actual performance of the Common
Stock, as well as the continued employment of the executive officers
through the vesting period. The potential realizable values indicated
have not taken into account amounts required to be paid as income tax
under the Internal Revenue Code and any applicable state laws.
(2) The options were granted by the Compensation Committee of the Board of
Directors pursuant to the 1994 Plan except that Mr. Teller's options
were granted outside of the 1994 Plan pursuant to his employment
agreement.
</FN>
</TABLE>
<PAGE>
AGGREGATE OPTION EXERCISES AND STOCK OPTIONS HELD AT THE END OF 1996
The following table indicates the total number of exercisable and
nonexercisable stock options held by each named executive officer on December
31, 1996, and the aggregate value thereof.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at In-The-Money Options at
December 31, 1996 December 31, 1996(1)
----------------- --------------------
Name Shares Acquired Value
on Exercise (#) Realized($)(2) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Alvin N. Teller --- --- 1,000,000 4,000,000 -0- -0-
Joseph J. Bianco 1,500,000 $13,509,000 1,326,666 333,334 -0- -0-
Anil K. Narang. 50,000 202,750 933,333 266,667 -0- -0-
Elliot B. Newman 31,250 251,719 200,000 155,000 -0- -0-
Terence Shand.. --- --- 240,000 125,000 -0- -0-
</TABLE>
(1) The per share fair market value was determined to be $1.87, which was
the last price quoted on the New York Stock Exchange on December 31,
1996.
(2) Value Realized reflects only the difference between the option exercise
price and the closing price of the Company's Common Stock on the NYSE
on the date of exercise.
Compensation of Directors
Directors who are not full-time employees of the Company or its
subsidiaries are paid an annual retainer of $20,000 for service on the Board of
Directors and $2,500 for each committee chairmanship held during the year.
Each such director is paid a fee of $1,000 for each Board or committee
meeting they attend except, that they receive a total of $1,000 if they attend a
Board and committee meeting on the same date. In addition, pursuant to the 1994
Plan, each non-employee director of the Company is entitled to receive, on the
date such person becomes a non-employee director of the Company, options to
acquire 30,000 shares of Common Stock at the market value on the date of the
grant. Thereafter, an annual automatic grant of options to acquire 20,000 shares
of Common Stock at the market value on the date of grant. New non-employee
directors are entitled to receive such annual grants of options under the 1994
Plan only after the first anniversary of becoming a non-employee director of the
Company. Pursuant to agreements with the Company, four non-employee directors
who resigned from the Board in 1996 in connection with consummation of the Red
Ant acquisition and Preferred Stock issuances, are receiving 75% of the amount
they would have received for services as a director for a period of one year
from the date of their resignation.
<PAGE>
Executive Compensation and Employment Related Contracts
On August 15, 1996, the Company entered into an employment agreement
with Mr. Alvin N. Teller, pursuant to which, among other things, Mr. Teller will
be employed for a term of five years as Chief Executive Officer, 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. The
agreement provides that after the five year term, the agreement is automatically
renewed for an additional year unless either party gives notice that the
contract will not be extended between 120 days and 150 days prior to its
expiration. The agreement provides that Mr. Teller will receive upon termination
by the Company without cause (or termination by the executive for good reason)
severance in the form of a cash lump sum payment equal to the greater of four
times Mr. Teller's salary in effect at that time, plus a bonus of 125% of his
base salary or Mr. Teller's base salary plus maximum target bonus payable for
the remaining term of the agreement.
The Company agreed to pay Mr. Teller an acquisition bonus in the event
that more than 50% of the Company's 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 qualifying 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.
In connection with Mr. Teller's employment agreement, the Company
adopted the 1996 Restricted Stock Plan under which up to 500,000 shares of
Common Stock may be issued to employees of Red Ant and its subsidiaries
(including Mr. Teller), each at the direction of Mr. Teller, provided that the
market price of the Company's Common Stock reaches certain targets. See "Certain
Relationships and Related Transactions." The Company also entered into a
confidentiality and non-competition agreement with Mr. Teller in which he agreed
to, among other things, not to compete for a period of three years after
termination of employment without prior written consent by the Company and not
to solicit to hire any officer, employee, agent or consultant of the Company
while he is employed by the Company and for a one year period thereafter.
In connection with the appointment of Mr. Teller as Chief Executive
Officer, Co-Chairman and President of the Company, the employment contracts of
Messrs. Bianco, Narang, and 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. Each agreement has a five year term
and is automatically extended for an additional year unless either party gives
notice to the other party that the contract will not be extended between 210
days and 180 days prior to the expiration of the contract. By recommendation of
the Compensation Committee of the Company's Board of Directors, the agreements
provide that each executive will receive upon termination by the Company without
cause (or termination by the executive for good reason) severance equal to four
times such executive's base salary, plus the greater of such executive's prior
year bonus or current year bonus target. Each agreement provides that the
executive will be entitled to participate in awards under the 1994 Plan or such
other stock option as may be maintained by the Company and may receive a bonus
in each fiscal year. Each agreement requires that the executive devote his best
efforts and full business time to the Company. Each of Messrs. Bianco, Narang
<PAGE>
and Newman also entered into a confidentiality and non-competition agreement
pursuant to which each such executive agreed not to compete during employment
and for a period of twelve months following termination of employment, keep all
proprietary conformation owned by the Company confidential and to not solicit
clients to cease doing business with the Company. The agreements also provide
for the payment by the Company of certain excise taxes, if any, payable in
connection with compensation paid under such agreement.
Pursuant to their respective agreements, Messrs. Bianco, Narang, and
Newman received an annual base salary of, $578,000, $484,000 and $413,000
respectively which will increase annually based on increases in the CPI. Messrs.
Teller, Bianco and Narang's agreements provides that two luxury cars are to be
provided to each such executive and Mr. Newman's agreement provides that a
luxury car will be provided by the Company.
Under their amended employment agreements, the Company has agreed to
forgive certain outstanding loans to Messrs. Narang and Newman. Mr. Narang's
revised employment agreement provides that commencing on March 15, 1997 and on
each anniversary thereof for the following two years, the Company shall forgive
$66,666.67 of the $200,000 loan owed by Mr. Narang to the Company; provided that
if the executive's employment is terminated for any reason except by the Company
for Cause (as defined in his employment agreement) the entire amount of the
$200,000 loan shall be forgiven. Mr. Newman's revised employment agreement
provides that on October 1, 1996 and the first day of each of the twelve
calendar quarters thereafter, the Company shall forgive $13,461.54 of the
$175,000 of loans owed by Mr. Newman to the Company.
In November 1996, Castle Communications PLC ("Castle") the Company's UK
subsidiary, entered into an amended employment contract with Terence Shand to
serve as its Executive Chairman. The contract provides for a salary of 300,000
British Pounds per annum, or $486,900 per annum based on the exchange rate for
British pounds on April 23, 1997, as reported by the Wall Street Journal. The
contract expires in September 1997 and provides that from January 1 to March 31,
1997, Mr. Shand is to devote three days a week to perform his duties as
Executive Chairman of Castle and that Mr. Shand shall provide consulting
services to Castle for the remaining contract term. Mr. Shand resigned from the
Company's Board of Directors effective March 31, 1997.
Compensation Committee Interlocks and Insider Participation
John Friedman and Robert Marx served as directors and members of the
Company's Compensation Committee until August 1996. As of December 31, 1996, no
members of the Company's Board of Directors were designated to serve as members
of the Compensation Committee.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of April 10, 1997, with
respect to the beneficial ownership of shares of Common Stock held by certain
beneficial owners, each current director and all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Amount of Beneficial
Ownership of Shares Percentage of Beneficial
of Common Stock as of Ownership of Shares
Name April 10, 1997(1)(2) of Common Stock(1)(2)
---------------------- ---------------------------
<S> <C> <C>
Alvin N. Teller(3)..................... 1,760,823 3.8%
Joseph J. Bianco(4).................... 12,278,722
26.5%
2%
Anil K. Narang(5)...................... 1,050,000
Elliot B. Newman(6).................... 267,000 *
Eric S. Weisman(7)..................... 115,775 *
W. Townsend Ziebold, Jr.(8)............ 10,000 *
Randall J. Weisenburger(8)............. 10,000 *
Douglas Brent(8)....................... 10,000 *
Robert Marakovits(8)................... 10,000 *
Christopher J. Joyce(9)................ 50,000 *
David H. Schlang(10)................... *
138,924
Timothy Dahltorp(11)................... *
142,000
BT Capital Partner, Inc.(12)........... 19%
130 Liberty Street 9,712,642
New York, New York 10006
Wasserstein Perella Group Inc. (13)...... 7,807,928 17.35%
31 West 52nd Street, 26th Floor
New York, New York 10019
Bain Capital Inc....................... 3,306,972 7.35%
Two Copley Place
Boston, Massachusetts 02116
All Executive Officers and Directors as a 32%
Group (12 Persons) (14)................ 15,793,244
</TABLE>
(*) Less than 1%.
<PAGE>
(1) As used herein, beneficial ownership means the sole power to vote, or
direct the voting of, a security, or the sole or shared power to
dispose, or direct the disposition, of a security. Except as otherwise
indicated, all persons named herein have (i) sole voting power and
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 beneficial ownership with respect to their shares
of Common Stock. Furthermore, in computing percentage ownership herein
any shares not outstanding which are subject to options, warrants or
conversion privileges are deemed to be outstanding for the purpose of
computing the percentage of outstanding shares owned by such person but
are not be deemed to be outstanding for the purpose of computing the
percentage of shares owned by any other person as directed by Rule
13d-3(d)(1) of the Exchange Act.
(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 of
April 10, 1997.
(3) Includes options to purchase 1,00,000 shares which are exercisable
within 60 days of April 10, 1997. Does not include options to purchase
4,000,000 which are not exercisable within 60 days of April 10, 1997.
(4) Includes (i) 3,073,560 shares of Common Stock which Mr. Bianco has
the right to vote and dispose of, (ii) options to purchase 1,410,000
shares of Common Stock held by Mr. Bianco which are exercisable within
60 days of April 10, 1997, (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),
Barry Goldin (433,250 shares), own and (iv) 3,306,972 shares of Common
Stock which are owned by certain 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 250,000 shares of
Common Stock held by Mr. Bianco which are not exercisable within 60
days of April 10, 1997.
(5) Includes options to purchase 1,000,000 shares of Common Stock which are
exercisable within 60 days of April 10, 1997. Does not include options
to purchase 200,000 shares of Common Stock which are not exercisable
within 60 days of April 10, 1997. Includes beneficial ownership of
shares by Mr. Narang which were transferred on August 21, 1994 to an
irrevocable trust for the primary benefit of Mr. Narang and certain
members of his family.
(6) Includes options to purchase 230,000 shares of Common Stock which are
exercisable within 60 days of April 10, 1997. Does not include options
to purchase 125,000 shares of Common Stock which are not exercisable
within 60 days of April 10, 1997.
(7) Includes options to purchase 95,000 shares of Common Stock which are
exercisable within 60 days of April 10, 1997. Does not include options
to purchase 75,000 shares which are not exercisable within 60 days of
April 10, 1997.
(8) Comprised of options to purchase 10,000 shares of Common Stock which
are exercisable within 60 days of April 10, 1997. Does not include
options to purchase 20,000 shares of Common Stock which are not
exercisable within 60 days of April 10, 1997.
(9) Comprised of options to purchase 50,000 shares which are exercisable
within 60 days of April 10, 1997. Does not include options to purchase
55,000 shares which are not exercisable within 60 days of April 10,
1997.
(10) Comprised of options to purchase 100,000 shares of Common Stock which
are exercisable within 60 days of April 10, 1997. Does not include
options to purchase 45,000 shares of Common Stock which are exercisable
within 60 days of April 10, 1997.
(11) Comprised of options to purchase 142,000 shares which are exercisable
within 60 days of April 10, 1997. Does not include options to purchase
60,000 shares which are not exercisable within 60 days of April 10,
1997.
<PAGE>
(12) Includes 3,567,034 shares of Common Stock owned, 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 held by BT and 5,737,705 shares of Common Stock
issuable upon conversion by BT of 350,000 shares of the Company's
Series A Convertible Preferred Stock into Common Stock. Does not
include 6,000,000 shares which may be issued upon conversion of $7.5
million of 6% Exchangeable Notes subject to stockholder approval of the
conversion feature of the Series B Convertible Preferred Stock or
options to purchase 20,000 shares of Common Stock exercisable within 60
days of April 10, 1997 by Messrs. Brent and Marakovits which BT is the
beneficial owner.
(13) Includes 2,904,766 shares of Common Stock owned by Cypress Ventures,
Inc. ("CVI") and 4,903,162 shares of Common Stock owned by WP
Management Partners L.L.C. ("WPM"). Does not include 6,600,000 shares
of Common Stock which may be issued upon conversion of 57,500 shares of
Series B Convertible Preferred Stock and $2.5 million of 6%
Exchangeable Notes subject to stockholder approval of the conversion
feature of the Series B Convertible Preferred Stock. CVI and WPM are
owned directly or indirectly by Wasserstein Perella Group, Inc.
(14) Includes options to purchase 4,053,621 shares of Common Stock which are
exercisable within 60 days of April 10, 1997. Does not include: (i)
options to purchase 4,903,337 shares of Common Stock which are not
exercisable within 60 days of April 10, 1997; (ii) 9,712,642 shares of
Common Stock beneficially owned by BT; or (iii) 7,807,928 shares of
Common Stock owned by the Wasserstein Perella Group, Inc.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Management Agreement dated May 18, 1995, the Company
paid a $200,000 fee to Bain for consulting services in 1996.
The Company paid BT a financing fee of $1,250,000 in connection with
the sale and issuance of the Company's Series A Convertible Preferred Stock in
July 1996 to BT and BCI Growth IV L.P. Douglas Brent is President of BT
and Robert Marakovits is a Managing Director of BT.
In connection with the acquisition of Red Ant, the Company entered into
a Stock Acquisition and Merger Agreement dated as of August 15, 1996, (the
"Acquisition Agreement"). Pursuant to the Acquisition Agreement, the Company
paid a $300,000 fee to Wasserstein & Co. Inc. ("WCI") and Messrs. Ziebold and
Weisenburger became members of the Board. Furthermore, the Acquisition Agreement
provides the Company may be required to issue a maximum of 2,500,000 additional
shares of Common Stock (the "Contingent Stock") to Al 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"). 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 Common Stock (the "Tranche 1 Contingent Stock"):
<PAGE>
Tranche 1 Contingent Stock Schedule
Percentage
Target Contingent of Tranche 1 Contingent
Acquisition Price Stock Issuable
$ 9.00 25.00%
9.25 31.25
9.50 37.50
10.00 43.75
10.25 50.00
10.50 56.25
10.75 63.50
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 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 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
Percentage
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 affiliates. 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
registration rights to WCI and its affiliates and to Mr. Teller.
As a condition to the consummation of the acquisition of Red Ant, WCI
and its affiliates, U.S. Equity Partners, L.P., and U.S. Equity Partners
(Offshore), 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 purchase agreements dated August 15, 1996.
In connection with the acquisition of Red Ant, the Company entered into
an Engagement Letter Agreement with WP dated August 15, 1996 (the "Engagement
Letter") whereby WP agreed to provide financial advisory and investment banking
services to the Company for an annual retainer fee of $150,000 (the first two
annual payments were made upon execution of the Engagement Letter) plus
additional transaction fees. The Engagement Letter may be terminated by either
party after August 15, 1999 upon thirty days' prior written notice.
<PAGE>
Pursuant to the issuance of the Company's Series B Convertible
Preferred Stock and 6% Exchangeable Notes, the Company entered into a Purchase
Agreement with WCI, CVI and BT dated December 20, 1996 (the "Purchase
Agreement"), and paid a $225,000 fee to each of WCI and BT. The Purchase
Agreement contemplated a Rights Offering of up to $35 million of Series C
Preferred Stock par value $.01. In connection with the Purchase Agreement, the
Company paid WCI a fee of 7,500 shares of Series B Convertible Preferred Stock
in consideration for WCI agreeing that in the event the Company effects the
Rights Offering WCI will enter into a standby purchase commitment to purchase
$17.5 million worth of rights provided that, among other things, shareholders
subscribe for at least $17.5 million of rights in the Rights Offering. In
addition, the Company has agreed to pay a financing fee to WCI and BT on the
closing date of the Rights Offering in an aggregate amount of $1,050,000.
During 1996, Mr. Newman was indebted to the Company for a total
principal amount of $175,000 of which $134,615.30 was outstanding as of December
31, 1996. As of December 31, 1996, Mr. Newman held a loan from the Company in
the principal amount of $100,000 which bears interest at prime rate plus 1%,
plus a second loan from the Company in the principal amount of $34,615.38 which
bears interest at the highest rate of interest paid by the Company on borrowing,
which was 11.25% on December 31, 1996. Mr. Newman's revised employment agreement
provides that on October 1, 1996 and the first day of each of the twelve
calendar quarters thereafter, the Company shall forgive $13,461.54 of the
$175,000 loan owed by Mr. Newman to the Company.
During 1996, Anil K. Narang, President, Vice Chairman and a director of
the Company, was indebted to the Company for up to $275,464 which was also the
balance outstanding as of December 31, 1996. Mr. Narang's revised employment
agreement provides that commencing on March 15, 1997 and on each anniversary
thereof for the following two years, the Company shall forgive $66,666.67 of the
$200,000 loan owed by Mr. Narang to the Company; provided that if the
executive's employment is terminated for any reason except by the Company for
Cause (as defined in his employment agreement) the entire amount of the $200,000
loan shall be forgiven. Of the amount Mr. Narang owed the Company, $36,000 was
due the Company for stock options exercised and was represented by a note
bearing no interest. The remainder bears interest at the highest rate of
interest paid by the Company on borrowings.
This rate was 11.25% on December 31, 1996.
During 1996, Christopher J. Joyce, Executive Vice President, General
Counsel and Assistant Secretary of Alliance was indebted to the Company for up
to $150,000 which was also the amount outstanding as of December 31, 1996. The
loan bears an interest rate of prime plus 1%.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALLIANCE ENTERTAINMENT CORP.
By: /s/Alvin N.Teller
-------------------------------------
Alvin N. Teller
Co-Chairman, Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/Alvin N.Teller Co-Chairman, Chief Executive Officer April 29, 1997
- -------------------------------------- and President (Principal Executive
Alvin N. Teller Officer); Director
Co-Chairman; Director April , 1997
- --------------------------------------
Randall J. Weisenburger
/s/ Timothy Dahltorp Executive Vice President, Chief April 29, 1997
- -------------------------------------- Financial Officer (Principal
Timothy Dahltorp Financial and Accounting Officer)
and Treasurer
/s/ Joseph J. Bianco Vice Chairman; Director April 29, 1997
- --------------------------------------
Joseph J. Bianco
/s/ Anil K. Narang Vice Chairman; Director April 29, 1997
- ---------------------------------------
Anil K. Narang
/s/ Elliot B. Newman Senior Executive Vice President and April 29, 1997
- -------------------------------------- Secretary; Director
Elliot B. Newman
Deputy Vice Chairman; Director April , 1997
- --------------------------------------
W. Townsend Ziebold, Jr.
Director April , 1997
- --------------------------------------
Douglas B. Brent
/s/ Robert Marakovits Director April 29, 1997
- --------------------------------------
Robert Marakovits
</TABLE>
