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As filed with the Securities and Exchange Commission on September 1, 1998
Registration No. 333-58451
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CD WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1504999
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1204 Sovereign Row
Oklahoma City, Oklahoma 73108
(405) 949-2422
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Jerry W. Grizzle, President COPIES TO:
CD Warehouse, Inc. Jeanette C. Timmons, Esq.
1204 Sovereign Row Day, Edward, Federman, Propester
Oklahoma City, Oklahoma 73108 & Christensen, P.C.
(405) 949-2422 210 Park Ave., Suite 2900
Oklahoma City, Oklahoma 73102
(405) 239-2121
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE (3)(4)
<S> <C> <C> <C> <C>
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Common Stock, $.01 par value 1,720,300 $16.375 $28,169,192.50 $8,310.12
per share
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(1) This Registration Statement relates to the offering from time to time of an
aggregate of (a) 1,701,550 shares of the Registrant's common stock, par
value $0.01 per share ("Common Stock"), received by (i) certain purchasers
of the Common Stock in private placements exempt from the registration
provisions of the Securities Act of 1933, as amended (the "Act"), pursuant
to Regulation D and Regulation S under the Act, and (ii) a certain holder
of Common Stock issued pursuant to the exercise of stock options granted to
such holder in connection with a professional services agreement; and (b)
18,750 shares of Common Stock issuable in connection with such stock
options (together with the 1,701,550 shares, the "Offered Shares"). This
Registration Statement also includes such indeterminate number of shares
issuable in respect of the Offered Shares in connection with stock splits,
stock dividends and similar transactions.
(2) Calculated in accordance with Rule 457(c) under the Securities Act of 1933,
based on the average of the high and low prices of the Common Stock on June
25, 1998 on the Nasdaq SmallCap Market.
(3) The registration fee was calculated pursuant to Rule 457(c), as $295 per $1
million, pro rated for amounts less than $1 million.
(4) Previously paid in original filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
SUBJECT TO COMPLETION DATED SEPTEMBER 1, 1998
PROSPECTUS
1,720,300 Shares
[CD WAREHOUSE LOGO APPEARS HERE]
CD WAREHOUSE, INC.
COMMON STOCK
This Prospectus relates to 1,720,300 shares (the "Shares") of Common Stock
of CD Warehouse, Inc. (together with its wholly owned subsidiary, Compact Discs
Management, Inc., the "Company"), which may be offered from time to time by the
selling stockholders named herein (the "Selling Stockholders"), or by their
respective pledgees, donees, transferees or other successors in interest that
receive such Shares as a gift, partnership distribution or other non-sale
related transfer. The Company will not receive any of the proceeds from the
sale of the Shares being sold by the Selling Stockholders. All expenses
incurred in connection with this offering are being borne by the Company, except
that the Selling Stockholders are bearing their selling expenses and expenses of
separate legal counsel.
The Selling Stockholders may sell the Shares from time to time on the over-
the-counter market in regular brokerage transactions, in transactions directly
with market makers or in certain privately negotiated transactions, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at prices otherwise negotiated. The Common Stock is traded on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") Small Cap Market under the symbol "CDWI." On August 24, the last
reported sale price of the Common Stock, as reported on the Nasdaq Small Cap
Market, was $14.25 per share. Each Selling Stockholder has advised the Company
that no sale or distribution of the Shares other than as disclosed herein will
be effected until after this Prospectus shall have been appropriately amended or
supplemented, if required, to set forth the terms thereof. See "Plan of
Distribution."
PROSPECTIVE PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE
MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS."
____________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________________
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus does not constitute an
offer of any securities other than the registered securities to which it relates
or an offer to any person in any jurisdiction where such offer would be
unlawful.
The date of this Prospectus is ________, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and in accordance therewith files reports
and other information with the Securities and Exchange Commission (the
"Commission"). These reports, proxy statements and other information concerning
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549; and at the Commission's regional offices at Room 3190, John C.
Kluczynski Federal Building, 230 South Dearborn Street, Chicago, Illinois 60604,
and the 14th Floor, 75 Park Place, New York, New York 10007. Copies of such
material can also be obtained from the Commission at prescribed rates through
its Public Reference Section at 450 Fifth Street, NW, Washington, D.C. 20549.
The Commission also maintains a site on the World Wide Web at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Common
Stock of the Company is traded on the Nasdaq SmallCap Market under the symbol
"CDWI," and such reports, proxy and information statements and other information
concerning the Company also can be inspected at the offices of the Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). This Prospectus, which
forms a part of the Registration Statement, does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of certain documents are
not necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities and regional offices
referred to above.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED AND INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION STATEMENTS UNDER
"SUMMARY," "RISK FACTORS" AND "THE COMPANY" REGARDING PLANNED ACQUISITIONS, THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES
FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. THE COMPANY CAUTIONS PROSPECTIVE INVESTORS THAT ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE EXPECTED BY THE COMPANY, DEPENDING ON THE
OUTCOME OF CERTAIN FACTORS, INCLUDING, WITHOUT LIMITATION, FACTORS DISCUSSED
UNDER "RISK FACTORS" SUCH AS TECHNOLOGICAL ADVANCES, DEPENDENCE ON FRANCHISE
GROWTH, INCREASED COMPETITION, SEASONAL FLUCTUATIONS, INTEGRATION OF OPERATIONS
AND CAPITAL REQUIREMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE
COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY REVISIONS
TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF, INCLUDING, WITHOUT LIMITATION, CHANGES IN
THE COMPANY'S BUSINESS STRATEGY OR PLANNED CAPITAL EXPENDITURES, OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference and
made a part of this Prospectus:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997;
2. The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998;
3. The Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998;
4. Current Reports on Form 8-K dated January 1, 1998, February 10,
1998, May 22, 1998, June 26, 1998 and August 21, 1998; and
5. The description of the Common Stock contained in the Company's
registration statement on Form 8-A, dated December 17, 1996 (File
No. 000-21887) and any amendment or report filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the securities covered hereby shall be
deemed to be incorporated herein by reference and shall be a part hereof from
the date of the filing of such documents. Any statement contained herein or in
a document or information incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also, is or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of the documents incorporated by reference
herein, other than exhibits to such documents not specifically incorporated by
reference. Such requests should be directed to Doyle E. Motley, Senior Vice
President and Chief Financial Officer, CD Warehouse, Inc., 1204 Sovereign Row,
Oklahoma City, Oklahoma 73108 (telephone (405) 949-2422).
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4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) included
elsewhere in this Prospectus or incorporated by reference herein.
THE COMPANY
CD Warehouse, Inc. (together with its wholly owned subsidiary, Compact
Discs Management, Inc., the "Company") is engaged in the franchising and
ownership of music stores offering new and preowned compact discs ("CD's") and
related products under the tradename of "CD Warehouse." Since its initial
public offering in January 1997, the Company has engaged in a
program of expansion to achieve strong market recognition in the retail music
industry. This expansion has been accomplished primarily through the sale of
new franchises and the conversion of existing independent retail music stores to
Company-owned stores, as well as the acquisition by the Company of existing
franchised stores. As of June 30, 1998, there were 156 CD Warehouse units
operating in 30 states and 7 international units operating in England, France,
Guatemala and Venezuela.
On June 26, 1998, the Company completed the purchase from Grow Biz
International, Inc. (NASDAQ: GBIZ) ("Grow Biz"), of the franchise rights for 134
Disc Go Round(R) retail music stores, and the assets of three Disc Go Round(R)
stores owned and operated by Grow Biz, for an aggregate cash purchase price of
$7 million. Consummation of the transaction added 137 stores to the Company's
operations, for an aggregate of 300 stores in 40 states and five foreign
countries.
The Company was incorporated under the laws of the State of Delaware in
1996. The Company's principal office is located at 1204 Sovereign Row, Oklahoma
City, Oklahoma 73108, and its telephone number is (405) 949-2422.
THE OFFERING
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<S> <C>
Securities Offered............... 1,720,300 shares ("Shares") of Common Stock,
including 18,750 Shares issuable pursuant to
certain stock options. See "Selling
Stockholders."
Common Stock Outstanding......... 3,550,550 shares.
Use of Proceeds.................. All Shares are being sold by and for the
account of Selling Stockholders and the
Company will not receive any proceeds from
the sale of stock contemplated herein.
Nasdaq Small Cap Market Symbol... CDWI
Selling Shareholders............. Of the 1,720,300 Shares offered hereby,
1,595,300 of the Shares are being offered by
certain purchasers of the Company's Common
Stock who acquired such securities in
connection with a private placement effected
by the Company in May 1998; 100,000 of the
Shares are being offered by certain holders
who acquired such securities in connection
with the Company's acquisition of certain
partnership interests owned by such holders;
and 25,000 of the Shares are being offered by
an entity who received options to purchase an
aggregate 25,000 shares of Common Stock (of
which 18,750 Shares are issuable upon the
exercise of the stock options) in connection
with a professional services agreement. The
Selling Shareholders will receive all the
proceeds from the sale of the Shares. See
"Selling Shareholders."
</TABLE>
RISK FACTORS
This offering involves a substantial degree of risk including, among
others, the Company's limited operating history, dependence on franchisees, the
highly competitive nature of the prerecorded music market and the inherent
uncertainties in the evolution of the music reproduction media. See "Risk
Factors."
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RISK FACTORS
An investment in the Shares involves substantial risk. Prospective investors
should carefully consider the following factors, in addition to the other
information set forth in this Prospectus, or incorporated by reference herein.
LIMITED OPERATING HISTORY. CD Warehouse stores have operated since late 1992;
however, the Company is only recently formed. Although members of the Company's
management have extensive experience in the franchise industry, their experience
in the retail music industry is limited. The Company has limited operating
history upon which investors may base their evaluation of the Company's
performance. As a result of the Company's limited operating history, period-to-
period comparisons of operating results may not be meaningful and results of
operations from prior periods may not be indicative of future results.
EXPANSION. The Company's growth will depend in part on its ability to open
and operate new stores on a profitable basis. As of June 30, 1998, the Company
had 163 stores in the CD Warehouse system, 22 of which are managed by its
subsidiary, Compact Discs Management, Inc. ("CDM"), and 137 stores in the Disc
Go Round(R) system, including three company-owned stores. Although the Company
opened 37 net stores in 1997 and has opened 13 net stores through June 30, 1998
("net stores" being the difference between the gross number of stores opened and
the number of stores closed during the referenced period), exclusive of the Disc
Go Round(R) acquisition, there can be no assurance that the Company will enjoy
the same success for the remainder of 1998 and beyond. The opening and success
of new stores will depend on various factors, including the customer acceptance
of the Company's buy-sell-trade concept in new markets, the availability of
suitable store sites, the negotiation of acceptable lease or purchase terms for
new locations, the financial and other capabilities of the Company and its
franchisees, the ability of the Company to manage the anticipated expansion and
hire and train personnel and general economic and business conditions. Some of
the foregoing factors are not within the control of the Company or its
franchisees.
The Company's expansion will also require the continued implementation and
integration of enhanced operational and financial systems and additional
management, operational and financial resources. Failure to implement and
integrate these systems and add these resources could have a material adverse
effect of the Company's results of operations and financial condition. The
Company experienced growth in revenues and net income in 1997 and for the three
months ended June 30, 1998. Additionally, on June 26, 1998 the Company completed
the purchase from Grow Biz of the franchise rights for 134 Disc Go Round(R)
retail music stores, as well as the assets of 3 Disc Go Round(R) stores owned
and operated by Grow Biz, for an aggregate cash purchase price of $7 million.
See "The Company--Recent Developments." There can be no assurance that the
Company will be able to manage its expanding operations effectively or that it
will be able to maintain or accelerate its growth.
DEPENDENCE ON FRANCHISEES. The Company relies upon its revenues from initial
franchise fees, continuing royalty payments from its franchisees and wholesale
CD sales throughout the current store system. If the Company's franchisees
encounter business or operational difficulties, the Company's revenues from
royalties will be adversely affected. Such difficulties may also negatively
impact the Company's ability to sell new franchises. Consequently, the
Company's financial prospects are significantly related to the success of its
franchised stores, over which the Company has limited operational control.
There can be no assurance that the Company will successfully be able to attract
new franchises or that the Company's franchisees will be able to successfully
operate existing or develop and operate additional CD Warehouse stores.
GOVERNMENT REGULATION. The Company is subject to federal regulation and
certain state laws, which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain franchise offering
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain any requisite licenses or approvals to sell
franchises could adversely affect the Company's results of operations. The
future enactment, adoption or amendment of laws or regulations, such as
establishing basic franchisee rights, could adversely affect the Company's
results of operations.
COMPETITION. The prerecorded music market is highly competitive. The Company
competes with other chain retailers who specialize in prerecorded music,
discounters and other mass merchandisers, direct mail programs such as record
clubs, and local operators. In the Company's judgment, small operators may be
well located, but usually have
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significant disadvantages in inventory selection and cost relative to chain
retailers. Historically, the Company has competed with Disc Go Round(R), a
franchisor of stores which sell preowned and new CD's, and one national music
and video retail chain, The Wherehouse, which in recent years has begun selling
preowned CD's. Although the Company believes that its recent acquisition of Disc
Go Round(R) will enable it to compete favorably in the prerecorded music
market, an increase in the number of competitors, particularly the large chains,
selling preowned CD's in the Company's territories could have an adverse impact
on the Company's results of operations and expansion plans. See "The Company-
Recent Developments."
TECHNOLOGICAL ADVANCEMENT. The advent of the CD as the prevailing form of
prerecorded music is less than 20 years old. The CD has during this period
surpassed vinyl records and subsequently audio cassette tapes as the dominant
and preferred form of music reproduction. Subsequent technological advancements
in music reproduction media may occur which may adversely effect the CD
marketplace as it exists today. Further refinement in size and capacity of CD's
is currently anticipated. The Company's strategy is to adapt the CD Warehouse
concept to compete effectively as the industry changes. However, the evolution
of music reproduction media could occur in such a manner, or at a pace, that
would adversely affect the Company's results of operations and profitability.
POSSIBLE ACQUISITIONS. In June 1998, the Company completed a $7 million
acquisition of the Disc Go Round(R) chain of retail music stores, and the
Company's growth strategy includes possible future acquisitions of CD music
retailers specializing in preowned CD titles. Although the Company is actively
engaged in the process of identifying possible acquisition candidates, the
Company has no specific plans, agreements or understndings with respect to such
acquisitions. No assurance can be given that the Company will be able to find
attractive acquisition candidates, consummate additional acquisitions or that it
will successfully integrate, convert or operate any acquired business. In the
event that the Company makes acquisitions, there can be no assurance that any
such acquisition and resulting conversion expenses, including loss of unit sales
during the remodel period, will not have a material adverse effect upon the
Company's operating results, particularly during the period in which such
operations are being integrated into the Company. Furthermore, the Company's
ability to make acquisitions may depend upon its ability to obtain financing.
There can be no assurance that the Company will be able to obtain financing or,
if available, that such financing will be on acceptable terms.
DEPENDENCE ON KEY PERSONNEL. The Company's future success will be highly
dependent on the continued efforts of Jerry W. Grizzle, President and Chief
Executive Officer; Gary D. Johnson, Chief Operating Officer and Executive Vice
President and Doyle E. Motley, Senior Vice President and Chief Financial
Officer. Although the Company has employment agreements with all of its senior
management, the loss of the services of one or more of such key personnel could
have a material adverse effect upon the Company's results of operations. The
Company's success is also dependent upon its ability to attract and retain
skilled retail managers and employees who are also knowledgeable in music and
the ability of its key personnel to manage the Company's growth and integrate
its operations. There can be no assurance that the Company will be successful
in attracting and retaining such personnel.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY. The Company expects
to experience fluctuations in future quarterly operating results that may be
caused by many factors, including variations in the number and timing of store
openings, the quality of release titles available for sale, additional and
existing competition, marketing programs, weather, special or unusual events and
national, regional and local economic conditions that may affect retailers in
general. Any concentration of new store openings and the related new store
pre-opening costs near the end of a fiscal quarter could have an adverse effect
on the financial results for that quarter and could, in certain circumstances,
lead to fluctuations in quarterly financial results. The retail music business
is somewhat seasonal, with revenues in September and October generally being
lower compared to other months of the year. The Company anticipates that
revenues from its franchise royalties and the CD Warehouse and Disc Go Round(R)
stores it manages and owns an interest in, as well as the revenues from Company-
owned stores, will track traditional consumer music-buying habits. Therefore,
revenues from such sources are expected to decline during the fall months of the
third fiscal quarter and to increase during the late fourth-quarter peak holiday
season. As a result, the Company believes that period-to-period comparisons of
its results of operations are not and will not necessarily be meaningful, and
should not be relied upon, as an indication of future performance.
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Delaware General
Corporation Law (the "DGCL") may delay, discourage or prevent a change in
control of the Company. Such provisions may discourage bids for the Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price and the voting and
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other rights of the holders of Common Stock. In addition, the Board of Directors
has the authority without action by the Company's stockholders to fix the
rights, privileges and preferences of and to issue shares of the Company's
preferred stock, par value $.01 per share (the "Preferred Stock"), which may
have the effect of delaying, deterring or preventing a change in control of the
Company.
In addition to the provision for the issuance of Preferred Stock, the
Company's Certificate of Incorporation and Bylaws include several other
provisions, which may have the effect of inhibiting a change of control of the
Company. These include a classified Board of Directors, no stockholder action by
written consent and advance notice requirements for stockholder proposals and
director nominations. The provisions may discourage a party from making a
tender offer for or otherwise attempting to obtain control of the Company.
POSSIBLE VOLATILITY OF STOCK PRICE. The trading price of the Company's Common
Stock is subject to fluctuations in response to quarterly variations in results
of operations, announcements of technological innovations or new services or
products by the Company or its competitors, changes in financial estimates by
securities analysts and other events or factors. Recent history relating to the
market prices of other newly public companies indicates that the market price of
the Company's Common Stock may be highly volatile. At various times, the stock
market has experienced volatility that has particularly affected the market
prices for stock of particular industry groups, such as retail-oriented
companies, often without regard to a particular company's operating results.
LIMITED PUBLIC MARKET. The Company's Common Stock is traded on the Nasdaq
Small Cap Market. "Small Cap" issues tend to be small businesses of regional
interest with limited trading activity. Although the Company intends to make
application to list the Common Stock on Nasdaq's National Market System as soon
as it meets the listing qualifications, there can be no assurance that the
Company's securities will qualify for listing on Nasdaq's National Market System
or on an exchange.
SHARES AVAILABLE FOR FUTURE SALE. Subject to the restrictions described in
"Selling Shareholders" and applicable law, the Selling Shareholders are free to
sell, without restrictions, at their election, all or part of the Shares of
Common Stock owned by such persons. No prediction can be made as to the effect,
if any, that future sales of Common Stock, or the availability of Common Stock
for future sale, may have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock or the
perception that such sales might occur could adversely affect prevailing market
prices for the Common Stock.
ABSENCE OF DIVIDENDS. The Company has never declared or paid any dividends on
the Common Stock and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future.
POSSIBLE NEED FOR ADDITIONAL FUNDS. The Company anticipates that its existing
capital resources will enable it to maintain its operations for the foreseeable
future. However, the Company may require additional funds to sustain and expand
its sales and marketing activities, particularly if a well-financed competitor
emerges. Adequate funds for these and other purposes on terms acceptable to the
Company, whether through additional equity financing, debt financing or other
sources, may not be available when needed or may result in significant dilution
to existing stockholders. The inability to obtain sufficient funds from
operations or external sources would have a material adverse effect on the
Company's business, results of operations and financial condition.
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THE COMPANY
The Company is engaged in the franchising and ownership of music stores
offering new and preowned CD's and related products under the tradename of "CD
Warehouse." Since its initial public offering in January 1997, the Company has
engaged in a program of expansion to achieve strong market recognition in the
retail music industry. This expansion has been accomplished primarily through
the sale of new franchises and the conversion of existing independent retail
music stores to Company-owned stores, as well as the acquisition by the Company
of existing franchised stores.
In June 1998, the Company acquired the franchise rights for 134 Disc Go
Round(R) retail music stores, and the assets of three Disc Go Round(R) stores
owned and operated by Grow Biz, for an aggregate cash purchase price of $7
million. Consummation of the transaction added 137 stores to the Company's
operations, for an aggregate of 300 stores in 40 states and five foreign
countries. Financial statements of the Disc Go Round(R) assets acquired, as well
as the Company's pro forma financial statements taking into account the
acquisition, are set forth in the Company's Current Report on Form 8-K dated
June 26, 1998, incorporated herein by reference. Additionally, a pro forma
financial statement for the six months ended June 30, 1998 is included as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, and is incorporated herein by reference.
CD Warehouse stores sell their products to the general public in the market
area where the respective store is located. A typical CD Warehouse store,
located in a high traffic strip shopping center, will occupy between 1,200 and
2,500 square feet and offer between 10,000 and 16,000 selections, with
approximately 70% of the dollar sales volume being preowned selections and the
balance being new releases from the major music categories. At each CD
Warehouse store, a customer selects from a number of new and preowned CD's and
may listen to preowned CD's before purchase. CD Warehouse sells CD's, takes
customers' CD's in trade or buys customers' CD's for cash. Typically, each CD
Warehouse store carries the majority of the Billboard Top 100 selections as
"new" inventory, filling out its inventory selection with preowned CD's which
are purchased for $1 to $4 and remarketed for $6 to $9.
The Company's principal office is located at 1204 Sovereign Row, Oklahoma
City, Oklahoma 73108, and its telephone number is (405) 949-2422.
PLAN OF DISTRIBUTION
The Shares offered hereby are being sold by the Selling Stockholders acting
as principals for their own accounts. Although the Company will receive amounts
paid by one of the Selling Stockholders for Shares purchased by such Selling
Stockholder upon exercise of stock options, the Company will receive none of the
proceeds from the sale of the Shares to the public pursuant to this Prospectus.
The Selling Stockholders may sell the Shares from time to time on the
over-the-counter market in regular brokerage transactions, in transactions
directly with market makers or in certain privately negotiated transactions, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at prices otherwise negotiated. The Selling
Stockholders will pay brokerage commissions or discounts, if any, with respect
to the sale of Shares in amounts customary for the type of transaction effected.
The Selling Stockholders, and any other persons who participate in the sale of
the Shares, may be deemed to be "underwriters" as defined in the Securities Act,
and any commissions paid or any discounts or concessions allowed to any such
persons, and any profits received on resale of the Shares, may be deemed to be
underwriting discounts and commissions under the Securities Act. Sales may also
be made by the Selling Stockholders pursuant to Rule 144 under the Securities
Act or otherwise.
Each Selling Stockholder has advised the Company that during such time as
such Selling Stockholder may be engaged in the attempt to sell Shares registered
hereunder, such person will: (i) not engage in any stabilization activity in
connection with any of the Company's securities; (ii) cause to be furnished to
each person to whom Shares included herein may be offered, and to each broker-
dealer, if any, through whom Shares are offered, such copies of this Prospectus,
as supplemented or amended, as may be required by such person; and (iii) not bid
for or purchase any of the Company's securities (or any rights to acquire the
Company's securities), or attempt to induce any person to purchase any of the
9
<PAGE>
Company's securities (or rights to acquire the Company's securities) other than
as permitted under the Exchange Act.
The Company and the Selling Stockholders have agreed to indemnify each other
and certain other persons against certain liabilities, including liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing agreements, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The Company has agreed to maintain the effectiveness of this Registration
Statement for 24 months from the date hereof. No sales may be made pursuant to
this Prospectus after such date unless the Company amends or supplements this
Prospectus to indicate that it has agreed to extend such period of
effectiveness.
SELLING STOCKHOLDERS
Of the 1,720,300 Shares offered hereby, 1,595,300 of the Shares are being
offered by certain purchasers of the Company's Common Stock who acquired such
securities in connection with a private placement effected by the Company in May
1998 pursuant to Regulation D and Regulation S of the Securities Act, for a
purchase price of $10.00 per share. Of the remaining 125,000 Shares being
offered hereby, 100,000 Shares are being offered by certain holders who acquired
such securities in January 1998 in connection with the Company's acquisition of
certain partnership interests owned by such holders, and 25,000 of the Shares
are being offered by Desmond Towey & Associates, who received options to
purchase an aggregate 25,000 shares of Common Stock at an exercise price of
$3.750 per share, as additional consideration for its services under a
professional services agreement with the Company.
The following table sets forth certain information with respect to the
Selling Stockholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2)
-------------------------------
NUMBER PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF SELLING STOCKHOLDER OF SHARES OF CLASS (1) OFFERED HEREBY
- --------------------------------------- --------------- -------------- ------------------
<S> <C> <C> <C>
Formula Growth Limited (3) 1,000,000 28.16% 1,000,000
1010 Sherbrook Street W., Suite 1409
Montreal, Quebec, Canada H3A 2R7
GBC Canadian Growth Fund 110,000 3.10% 110,000
1st Canadian Place, TSSC B1 Level
Toronto, Ontario, Canada M5K 1A1
Precept Capital Master Fund 75,000 2.11% 75,000
2305 Cedar Springs Road, Suite 415
Dallas, TX 75201
GHS Partners LDC 50,000 1.40% 50,000
8235 Douglas Avenue, Suite 420
Dallas, TX 75225
GBC North American Growth Fund 40,000 1.13% 40,000
200 Bay Street RBC Plaza
North Tower, Suite 500
Toronto, Ontario, Canada MSJ 2JS
Natico Interest, LP 33,340 0.93% 33,340
1001 Frost Hollow Dr.
Desoto, TX 75115
Michael Corboy 30,000 0.84% 30,000
8111 Preston Road, Suite 712
Dallas, TX 75225
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2)
-------------------------------
NUMBER PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF SELLING STOCKHOLDER OF SHARES OF CLASS (1) OFFERED HEREBY
- --------------------------------------- --------------- -------------- ------------------
<S> <C> <C> <C>
Random Walk Trading, Inc. (4) 30,000 0.84% 30,000
1010 Sherbrook Street, W. Suite 1409
Montreal, Quebec, Canada H3A 2R7
John Liddy 26,000 0.73% 26,000
1010 Sherbrook Street, W. Suite 1409
Montreal, Quebec, Canada H3A 2R7
Air Canada 25,000 0.70% 25,000
Commerce Court West Securities Level
Toronto, Ontario, Canada MSL 1G9
The Combined Master Retirement Trust 25,000 0.70% 25,000
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240
Terry Worrell 25,000 0.70% 25,000
6909 Vassar
Dallas, TX 75205
Southwest Securities as IRA Custodian 25,000 0.70% 25,000
FBO Gerald D. Rogers
1201 Elm Street, Suite 4300
Dallas, TX 75270
Jo Syd Inc. 25,000 0.70% 25,000
1010 Sherbrook Street, W. Suite 1409
Montreal, Quebec, Canada H3A 2R7
Jaytor Investments (John Tory) 25,000 0.70% 25,000
1010 Sherbrook Street, W. Suite 1409
Montreal, Quebec, Canada H3A 2R7
Desmond Towey & Associates 25,000/(5)/ 0.69% 25,000
515 Madison Avenue
Suite 1909
New York City, NY 10022-5403
Tomima L. Edmark 20,000 0.56% 20,000
5335 S. Dentwood Drive
Dallas, TX 75220
Zack Miller 18,070 0.50% 18,070
10520 Gooding Dr.
Dallas, TX 75229
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2)
-------------------------------
NUMBER PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF SELLING STOCKHOLDER OF SHARES OF CLASS (1) OFFERED HEREBY
- --------------------------------------- --------------- -------------- ------------------
<S> <C> <C> <C>
David J. Pulling 12,390 0.34% 12,390
1801 N. Hampton #200
Desoto, TX 75115
Debra Pulling 12,060 0.33% 12,060
1801 N. Hampton #200
Desoto, TX 75115
R. Howard Webster Foundation 10,000 0.28% 10,000
P.O. Box 9, Commerce Court Postal Station
Toronto, Ontario, Canada M5L 1G9
The Freedom Trust 10,000 0.28% 10,000
Sterling House, City Hall Square
P.O. Box HM 1029
Hamilton, Bermuda HMEX
Ratous 10,000 0.28% 10,000
1010 Sherbrook Street, W. Suite 818
Montreal, Quebec, Canada H3A 2R7
Rogers Telecommunications 9,000 0.25% 9,000
P.O. Box 6007
Montreal, Quebec, Canada H3C 3B6
Don Black 7,950 0.22% 7,950
3917 Deepwood
Colleville, TX 76034
Amp Miller 6,940 0.19% 6,940
10431 Crestover
Dallas, TX 75229
Dascon Investments Limited 6,300 0.18% 6,300
P.O. Box 9, Commerce Court Postal Station
Toronto, Ontario, Canada M5L 1G9
Amp Miller III 5,050 0.14% 5,050
7224 Claybrook
Dallas, TX 75231
Taylor Assets Limited 5,000 0.14% 5,000
P.O. Box 9, Commerce Court Postal Station
Toronto, Ontario, Canada M5L 1G9
Kenneth W. Anderson 5,000 0.14% 5,000
P.O. Box 8189
Horseshoe Bay, TX 78657-9206
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2)
-------------------------------
NUMBER PERCENT NUMBER OF SHARES
NAME AND ADDRESS OF SELLING STOCKHOLDER OF SHARES OF CLASS (1) OFFERED HEREBY
- --------------------------------------- --------------- -------------- ------------------
<S> <C> <C> <C>
Founders Equity, Inc. 5,000 0.14% 5,000
2602 McKinney Ave., Ste. 220
Dallas, TX 75204
John S. Lemark 5,000 0.14% 5,000
5956 Sherry Lane, Suite 1900
Dallas, TX 75225
Royal Trust Corporation of Canada 4,000 0.11% 4,000
Royal Bank Plaza, South Tower, 2nd Floor, Service Level
200 Bay Street
Toronto, Ontario, Canada M5J 2J5
Mary Thrash 2,770 0.06% 2,770
2764 Hollandale
Dallas, TX 75234
Marilyn Hackler 930 0.02% 930
859 Twilight
Cedar Hill, TX 75104
--------- ---------
Total 4,824,290 4,824,290
========= =========
</TABLE>
(1) Except as set forth in footnote (2) below, beneficial ownership is
determined in accordance with Rule 13d-3 of the Exchange Act. The persons
named in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
(2) In addition, the Registration Statement also covers Shares that are
issuable upon the exercise of stock options exercisable not earlier than
dates which are more than 60 days from the effective date of the
Registration Statement of which this Prospectus is a part. Accordingly,
the number of Shares set forth in the table for a Selling Stockholder may
exceed the number of Shares that such Selling Stockholder could own
beneficially at any given time through such Selling Stockholder's ownership
of the Common Stock and stock options held by him. In that regard,
beneficial ownership of such Selling Stockholder set forth in the table is
not determined in accordance with Rule 13d-3 under the Exchange Act.
(3) Pursuant to separate Schedule 13D's filed on June 2, 1998, Formula Growth
Limited ("FGL") acquired 600,000 shares on behalf of Formula Unit Trust, a
Canadian commingled pension fund, and 400,000 shares on behalf of Formula
Growth Fund, a Canadian mutual fund.
(4) Pursuant to the Schedule 13D's referenced in footnote (3) above, Random
Walk Trading, Inc., a Canadian corporation, is 100% owned by Randall W.
Kelly, who is the president of FGL.
(5) Includes 18,750 shares of Common Stock issuable pursuant to stock options
granted by the Company in connection with a professional services
agreement. The options, which are for an exercise price of $3.750 per
share, vest in quarterly increments commencing on the grant date, which was
November 1, 1997.
13
<PAGE>
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company and the Selling Stockholders by Day, Edwards, Federman, Propester, &
Christensen, P.C., Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements of CD Warehouse, Inc. appearing in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997,
have been audited by Ernst & Young, LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statements of net assets to be sold of Disc Go Round (a division of
Grow Biz International, Inc.) as of December 28, 1996 and December 27, 1997 and
the related statements of revenues and expenses and cash flows for the years
then ended appearing in the Company's Current Report on Form 8-K dated June 26,
1998, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
14
<PAGE>
<TABLE>
<S> <C>
==================================================== ====================================================
No dealer, salesman or other person has been
authorized to give any information or to make 1,720,300 SHARES
any representation, other than those contained
or incorporated by reference in this Prospectus
and, if given or made, such information or
representation must not be relied upon as
having been authorized by the Company or the [LOGO OF CD WAREHOUSE APPEARS HERE]
Selling Stockholders. This Prospectus does not
constitute an offer to sell or solicitation of
an offer to buy any securities offered hereby
in any jurisdiction to any person to whom it is
unlawful to make such offer in such
jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, CD WAREHOUSE, INC.
under any circumstances, create any implication
that the information herein is correct as of
any time subsequent to the date hereof or that
there has been no change in the affairs of the
Company since such date. COMMON STOCK
($.01 PAR VALUE)
_____________________________ ___________________________
PROSPECTUS
TABLE OF CONTENTS ____________________________
Page
-----
Available Information....................... 2
Incorporation of Certain Documents
by Reference............................... 3
Prospectus Summary.......................... 5
Risk Factors................................ 6
The Company................................. 9
Plan of Distribution........................ 9
Selling Stockholders........................ 10 ______________, 1998
Legal Matters............................... 14
Experts..................................... 14
==================================================== ====================================================
</TABLE>
<PAGE>
CD WAREHOUSE, INC.
REGISTRATION STATEMENT ON FORM S-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth (with the exception of the fees of
counsel, if any, to the Selling Stockholders) the various expenses in connection
with the sale and distribution of the securities being registered. All expenses
of registration of the Shares, other than the fees of counsel, if any, to the
Selling Stockholders, will be borne by the Company. All of the amounts shown are
estimates except the registration fee.
Securities and Exchange Commission registration fee.. $ 8,450.21
Legal fees and expenses.............................. 20,000.00
Accounting fees and expenses......................... 20,000.00
Miscellaneous........................................ 5,000.00
----------
$53,450.21
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware grants every
corporation the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses, including attorneys'
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The Delaware statute also grants every corporation the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
II-1
<PAGE>
The Delaware statute provides that to the extent that a director,
officer, employee, or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in the
statute, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually incurred by
him in connection therewith.
Articles Nine and Eleven of the Registrant's Certificate of
Incorporation indemnify and exculpate the directors, officers, employees, and
agents of the Registrant from and against certain liabilities. Article Nine
provides that the Registrant shall indemnify to the full extent permitted under
the General Corporation Law of the State of Delaware any director, officer,
employee, or agent of the Registrant. Article Eleven provides that a director of
the Registrant shall have no personal liability to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
Registrant or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for acts
or omissions specified in Section 174 of the General Corporation Law of the
State of Delaware regarding the unlawful payment of dividends and the unlawful
purchase or redemption of the Registrant's stock, and (d) for any transaction
from which the director derived an improper personal benefit.
ITEM 16. EXHIBITS.
Exhibit Number Name of Exhibit
-------------- ---------------
5.1* Opinion of Day, Edwards, Federman, Propester &
Christensen, P.C. as to the legality of the
securities being registered
23.1* Consent of Ernst & Young, LLP.
23.2* Consent of Arthur Andersen, LLP
24.1* Consent of Day, Edwards, Federman, Propester &
Christensen, P.C. (included in Exhibit 5.1)
- -----------------
* Filed electronically herewith
ITEM 17. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement
to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-2
<PAGE>
provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed by the Company pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in
the registration statement.
(b) That, for the purpose of determining liability under the
Securities Act, each post-effective amendment shall be deemed to
be a new registration statement of the securities offered, and
the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of
the offering.
2. The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form S-3 and has duly caused this Amendment No. 1
to the registration statement to be signed on its behalf by the undersigned,
thereon duly authorized in the City of Oklahoma City, State of Oklahoma, on
August 27, 1998.
CD WAREHOUSE, INC.
a Delaware corporation
By: /s/ Jerry W. Grizzle
------------------------------------------
Jerry W. Grizzle, Chairman of the Board of
Directors and President
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated on August 27, 1998:
/s/ Jerry W. Grizzle /s/ Gary D. Johnson
___________________________________ ----------------------------------
Jerry W. Grizzle Gary D. Johnson
Chairman of the Board of Directors Director, Executive Vice President
President and Chief Operating Officer
/s/ Christopher M. Salyer /s/ Ronald V. Perry
___________________________________ ----------------------------------
Christopher M. Salyer Ronald V. Perry
Director Director
/s/ Robert O. McDonald /s/ Doyle E. Motley
___________________________________ ----------------------------------
Robert O. McDonald Doyle E. Motely
Director Senior Vice President and
Chief Financial Officer
II-4
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF DAY, EDWARDS, FEDERMAN, PROPESTER & CHRISTENSEN, P.C.]
August 31, 1998
CD Warehouse, Inc.
1204 Sovereign Row
Oklahoma City, Oklahoma 73108
Re: CD Warehouse, Inc.
Registration Statement on Form S-3
File No. 333-58451
Gentlemen:
We have acted as counsel to CD Warehouse, Inc. (the "Company") and
certain selling stockholders (the "Selling Stockholders") in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of an
aggregate of 1,720,300 shares (the "Shares") of the Company's common stock, par
value $0.01 per share (the "Common Stock"), to be sold by the Selling
Stockholders upon the terms and subject to the conditions set forth in the
Company's registration statement on Form S-3, File No. 333-58451 (the
"Registration Statement").
In connection therewith, we have examined copies of the Company's
Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws,
the corporate proceedings with respect to the offering of shares, and such other
documents and instruments as we have deemed necessary or appropriate for the
expression of the opinions contacted herein. In such examination, we have
assumed the genuineness of all signatures, the authenticity and completeness of
all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies and the correctness of all
statements of fact contained in such documents.
Based on the foregoing, and having regard for such legal considerations
as we have deemed relevant, we are of the opinion that the Shares to be sold by
the Selling Stockholders by means of the Registration Statement, when sold in
accordance with the terms and conditions set forth in the Registration
Statement, will be duly and validly issued, fully paid and nonassessable.
We are members of the Bar of the State of Oklahoma and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
Oklahoma and the federal laws of the United States of America. This opinion is
for the benefit of the Company and this opinion may not be relied upon in any
manner whatsoever by any other person or entity.
<PAGE>
DAY, EDWARDS, FEDERMAN, PROPESTER & CHRISTENSEN, P.C.
CD Warehouse, Inc.
August 31, 1998
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included as part of the Registration Statement.
Very truly yours,
DAY, EDWARDS, FEDERMAN, PROPESTER & CHRISTENSEN, P.C.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 No. 333-58451 and related Prospectus of CD
Warehouse, Inc. for the registration of 1,720,300 shares of its common
stock and to the incorporation by reference therein of our report dated
February 27, 1998, with respect to the consolidated financial statements of
CD Warehouse, Inc. included in its Annual Report Form 10-KSB for the year
ended December 31, 1997, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 25, 1998
<PAGE>
Exhibit 23.2
CONSENT OF ARTHUR ANDERSEN, LLP, INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN, LLP
Minneapolis, Minnesota
August 25, 1998
