<PAGE>
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Audio Book Club, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Board of Directors of Audio Book Club, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined).
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total Fee Paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
Audio Book Club, Inc.
2295 Corporate Boulevard, N.W. - Suite 222
Boca Raton, Florida 33431
May 20, 1998
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of Audio Book Club, Inc. (the "Company") which will be held on Friday, June 19,
1998 at 9:00 A.M. local time at The Headquarters Plaza Hotel, 3 Headquarters
Plaza, Morristown, New Jersey 07960.
The Notice of Annual Meeting and Proxy Statement which follow describe
the business to be conducted at the meeting.
Your Board of Directors unanimously believes that (i) the election of
the nominees as directors and (ii) the approval of an amendment to the Company's
1997 Stock Option Plan are in the best interests of the Company and its
shareholders and, accordingly, recommends a vote "FOR" the foregoing proposals
on the enclosed proxy card.
Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted. After reading the enclosed
Notice of Annual Meeting and Proxy Statement, may I urge you to complete, sign,
date and return the enclosed proxy card in the envelope provided. If the address
on the accompanying material is incorrect, please advise our Transfer Agent,
Continental Share Transfer & Trust Company, in writing, at 2 Broadway, New York,
New York 10004.
Your vote is very important, and we will appreciate a prompt return of
your signed proxy card. We hope to see you at the meeting and appreciate your
continued support.
Sincerely yours,
Norton Herrick
Co-Chief Executive Officer
<PAGE>
AUDIO BOOK CLUB, INC.
2295 Corporate Boulevard, N.W., Suite 222
Boca Raton, Florida 33431
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, JUNE 19, 1998
--------------------
To the Shareholders of AUDIO BOOK CLUB, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting ("Annual Meeting") of
Shareholders of Audio Book Club, Inc. (the "Company") will be held on Friday,
June 19, 1998, at 9:00 A.M. local time at The Headquarters Plaza Hotel, 3
Headquarters Plaza, Morristown, New Jersey 07960, for the following purposes:
1. To elect two Class I directors to hold office until the 2001 Annual
Meeting of Shareholders and until their respective successors have been duly
elected and qualified;
2. To consider and vote on a proposal to approve an amendment to the
Company's 1997 Stock Option Plan (i) to increase the number of shares of Common
Stock reserved for issuance thereunder from 750,000 to 2,000,000 and (ii) to
increase the maximum number of shares of Common Stock with respect to which
options may be granted to any employee during the term of the Plan from 250,000
to 1,000,000; and
3. To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Only shareholders of record at the close of business on May 19, 1998
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
By Order of the Board of Directors,
Norton Herrick
Co-Chief Executive Officer
May 20, 1998
<PAGE>
AUDIO BOOK CLUB, INC.
2295 Corporate Boulevard, N.W., Suite 222
Boca Raton, Florida 33431
--------------
PROXY STATEMENT
--------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JUNE 19, 1998
This proxy statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by the Board of Directors of Audio Book Club,
Inc. (the "Company") for use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Friday, June 19, 1998, including any adjournment or
adjournments thereof, for the purposes set forth in the accompanying Notice of
Meeting.
Management intends to mail this proxy statement and the accompanying
form of proxy to shareholders on or about May 20, 1998.
Proxies in the accompanying form, duly executed and returned to the
management of the Company and not revoked, will be voted at the Annual Meeting.
Any proxy given pursuant to such solicitation may be revoked by the shareholder
at any time prior to the voting of the proxy by a subsequently dated proxy, by
written notification to the Secretary of the Company, or by personally
withdrawing the proxy at the Annual Meeting and voting in person.
The address and telephone number of the principal executive offices of
the Company are: 2295 Corporate Blvd., N.W., Suite 222, Boca Raton, Florida
33431, Telephone No.: (561) 241-1426.
OUTSTANDING SHARES AND VOTING RIGHTS
Only shareholders of record at the close of business on May 19, 1998
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, there were issued and outstanding 6,153,920 shares of the
Company's Common Stock, no par value per share (the "Common Stock"). Each share
of Common Stock entitles the holder to one vote on each matter submitted to a
vote at the Annual Meeting. Messrs. Norton Herrick and Howard Herrick, who
together maintain voting rights to approximately 60.1% of the Company's voting
securities, have indicated an intention to vote for the election of the Class I
directors and for the proposal to amend the Company's 1997 Stock Option Plan.
See "Voting Security Ownership of Certain Beneficial Owners and Management."
<PAGE>
VOTING PROCEDURES AND PROXY INFORMATION
The Class I directors will be elected by the affirmative vote of a
plurality of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting voting as a single class, provided a quorum exists.
A quorum is established if, as of the Record Date, at least a majority of the
outstanding shares of Common Stock are present in person or represented by proxy
at the Annual Meeting. Adoption of an amendment to the Company's 1997 Stock
Option Plan requires the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting voting as
a class, provided a quorum exists. All other matters at the meeting will be
decided by the affirmative vote of a majority of the shares of Common Stock
present in person or represented by proxy at the meeting and entitled to vote on
the subject matter voting as a single class, provided a quorum exists. Votes
will be counted and certified by one or more Inspectors of Election who are
expected to be employees of Continental Share Transfer & Trust Company, the
Company's transfer agent.
In accordance with Florida law, abstentions and "broker non-votes"
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares as to a matter with respect to which the brokers or nominees do not
have discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum. For purposes of determining approval of a
matter presented at the meeting, abstentions will be deemed present and entitled
to vote and will, therefore, have the same legal effect as a vote "against" a
matter presented at the meeting. Broker non-votes will be deemed not entitled to
vote on the subject matter as to which the non-vote is indicated. Abstentions
and broker non-votes will have no effect on the election of directors or on the
vote to approve an amendment to the Company's 1997 Stock Option Plan.
The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all shares represented by such proxy will be
voted as instructed. Proxies may be revoked as noted above.
The entire cost of soliciting proxies, including the costs of
preparing, assembling, printing and mailing this Proxy Statement, the proxy and
any additional soliciting material furnished to shareholders, will be borne by
the Company. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy materials to the
beneficial owners of stock, and such persons may be reimbursed for their
expenses by the Company. Proxies may also be solicited by directors, officers or
employees of the Company in person or by telephone, telegram or other means. No
additional compensation will be paid to such individuals for these services.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the Board of Directors of the
Company is divided into three classes (Class I, Class II and Class III). At each
Annual Meeting of Shareholders, directors constituting one class are elected for
a three-year term. At this year's Annual Meeting of Shareholders, two (2) Class
I directors will be elected to hold office for a term expiring at the Annual
Meeting of Shareholders to be held in 2001. It is the intention of the Board of
Directors to nominate Norton Herrick and Jesse Faber as Class I directors. Each
director will be elected to serve until a successor is elected and qualified or
until the director's earlier resignation or removal.
At this year's Annual Meeting of Shareholders, the proxies granted by
shareholders will be voted individually for the election, as directors of the
Company, of the persons listed below, unless a proxy specifies that it is not to
be voted in favor of a nominee for director. In the event either or both of the
nominees listed below shall be unable to serve, it is intended that the proxy
will be voted for such other nominees as are designated by the Board of
Directors. Each of the persons named below has indicated to the Board of
Directors that he will be available to serve.
-2-
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES.
The following information is with respect to the nominees for election
at this Annual Meeting of Shareholders:
CLASS I DIRECTORS
(To be Elected)
(Term Expires in 2001)
Norton Herrick, 59, has been Chief Executive Officer, Chairman of the
Board and a director of the Company since its inception and was President of the
Company from its inception until January 1996. Mr. Herrick has been a private
investor for over 30 years and is currently Chairman and Chief Executive Officer
of The Herrick Company, Inc., a private investment firm he founded. Through his
wholly-owned affiliates, Mr. Herrick has owned and managed income producing
properties, including office buildings, shopping centers and multi-family
apartment complexes, and has completed transactions with respect to
approximately 250 income producing properties valued at an aggregate of
approximately $2 billion. Mr. Herrick is involved in the management of numerous
entities he formed to acquire, finance, manage and lease office, industrial and
retail properties; and to acquire, operate, manage, redevelop and sell
residential rental properties. Mr. Herrick serves on the advisory board of the
Make A Wish Foundation, the advisory committee of the National Multi Housing
Council and the National Board of Directors for People for the American Way.
Jesse Faber, 42, has been President of the Company since October 1996
and a director since October 1997. From 1989 to October 1996, Mr. Faber was
Senior Vice President and Partner of AyerDirect, a direct response advertising
agency wholly-owned by McManus, Inc., one of the ten largest advertising and
marketing agencies in the world. From 1984 to 1989, Mr. Faber was Management
Supervisor of Grey Direct, a direct response advertising agency.
The following information is with respect to incumbent directors in
Class II and Class III of the Board of Directors who are not nominees for
election at this Annual Meeting of Shareholders:
CLASS II DIRECTORS
(Term Expires in 1999)
Michael Herrick, 31, co-founded the Company and has been Vice Chairman
of the Board of the Company since January 1996, Chief Operating Officer of the
Company since January 1997, Co-Chief Executive Officer of the Company since
April 1998 and a director of the Company since its inception. Mr. Herrick has
held various other offices with the Company since its inception. Since August
1993, Michael Herrick has been an officer (since January 1994, Vice President)
of the corporate general partner of a limited partnership, which limited
partnership is a principal shareholder of The Walking Company, a nationwide
retailer of comfort and walking footwear and related apparel and accessories.
Since May 1989, Mr. Herrick has been employed by The Herrick Company, Inc., and
is currently one of its Vice Presidents. Mr. Herrick is also an officer of the
corporate general partners of numerous limited partnerships which acquire,
finance, manage and lease office, industrial and retail properties; and which
acquire, operate, manage, redevelop and sell residential rental properties.
Roy Abrams, 54, has been a director since October 1997. Since April
1993 and from 1986 through March 1990, Mr. Abrams has owned and operated Abrams
Direct Marketing, a marketing consulting firm. From April 1990 to April 1993,
Mr. Abrams was Vice President of New Business Development of Getting to Know
You, Inc., a new homeowner welcoming service. From 1981 through 1985, Mr. Abrams
was President of Margrace Corporation, a publicly-held direct marketing company.
From 1980 through 1981, Mr. Abrams
- 3 -
<PAGE>
was a director of mail order marketing of Hearst Corporation, a publishing
company. From 1976 to 1979, Mr. Abrams was employed by Columbia House, a
negative option and continuity direct marketing company, most recently as Vice
President, Merchandise and Continuity Marketing. From 1975 to 1976, Mr. Abrams
was director of Mail Order Merchandise Marketing for American Express Company.
CLASS III DIRECTORS
(Term Expires in 2000)
Howard Herrick, 33, has been a director of the Company since its
inception. Howard Herrick co-founded the Company and has been Executive Vice
President, Editorial Director and a director of the Company since its inception.
Since August 1993, Howard Herrick has been Vice President of the corporate
general partner of a limited partnership, which limited partnership is a
principal shareholder of The Walking Company. Since 1988, Mr. Herrick has been
an officer of The Herrick Company, Inc. and is currently its President. Mr.
Herrick is also an officer of the corporate general partners of numerous limited
partnerships which acquire, finance, manage and lease office, industrial and
retail properties; and which acquire, operate, manage, redevelop and sell
residential rental properties.
Carl T. Wolf, 54, has been a director of the Company since March 1998.
Carl T. Wolf is the managing partner of the Lakota Investment Group. Mr. Wolf
was formerly Chairman of the Board, President and Chief Executive Officer of
Alpine Lace Brands, Inc. ("Alpine Lace"). Mr. Wolf founded Alpine Lace and its
predecessors and had been the Chief Executive Officer of each of them since the
inception of Alpine Lace in 1983. Mr. Wolf became a director of Alpine Lace
shortly after its incorporation in February 1986. Alpine Lace was sold to Land
O' Lakes, Inc. in December 1997.
The Company has agreed that until October 22, 2000, if so requested by
the representative of the underwriters of its initial public offering, to use
its best efforts to nominate and elect a designee of the representative,
(reasonably acceptable to the Company), to serve on the Company's Board of
Directors. The representative has not yet exercised its right to designate such
a person.
The following is information with respect to certain of the Company's
officers:
John F. Levy, 42, has served as Executive Vice-President and Chief
Financial Officer of the Company since January 1998 and has been an employee of
the Company since November 1997. Prior to joining the Company, Mr. Levy was
Senior Vice President of Tamarix Capital Corporation and had previously served
as Chief Financial Officer of both public and private entertainment and consumer
goods companies. During 1994, Mr. Levy served as Chief Financial Officer of the
Continuum Group, Inc., a publicly-held record label which filed for protection
under Chapter 11 of the United States Bankruptcy Code in 1995 after Mr. Levy had
left the Company. Mr. Levy is a Certified Public Accountant with nine years
experience with the national public accounting firms of Ernst & Young, Laventhol
& Horwath and Grant Thornton.
During the fiscal year ended December 31, 1997, the Board of Directors
held two meetings. The meetings were attended by all of the directors, either in
person or by telephone. The Board also took action by unanimous written consent
in lieu of meetings.
The Company has established an Audit Committee which is responsible for
making recommendations concerning the engagement of independent public
accountants, reviewing the plans and results of the audit engagement with the
independent public accountants, approving professional services provided by the
independent public accountants and reviewing the adequacy of the Company's
internal accounting controls. The Audit Committee is currently comprised of
Messrs. Michael Herrick, Roy Abrams and Carl Wolf. The Audit Committee of the
Board of Directors did not hold any meetings during the fiscal year ended
December 31, 1997. The Company does not have a compensation committee or a
nominating committee.
- 4 -
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company
during the fiscal years ended December 31, 1995, 1996 and 1997 to its Chief
Executive Officer(s) and to each of its executive officers whose compensation
exceeded $100,000 during the fiscal year ended December 31, 1997 (the "Named
Executives"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Award
------------------------------------------ -----
Securities
Year Ended Other Annual Underlying
Name and Principal Position December 31, Salary($) Bonus($) Compensation(1) Options(#)
- --------------------------- ------------ --------- -------- --------------- ----------
Norton Herrick
<S> <C> <C> <C> <C> <C>
Co-Chief Executive Officer......... 1997 19,354 --- --- ---
1996 --- --- --- ---
1995 --- --- --- ---
Howard Herrick
Executive Vice President........... 1997 115,129 --- --- ---
1996 102,000 --- --- ---
1995 --- --- --- ---
Jesse Faber
President.......................... 1997 128,417 40,000 --- ---
1996 15,062 25,000 --- ---
1995 --- --- --- ---
</TABLE>
- ------------
(1) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive.
The following table sets forth information concerning stock options
granted in the year ended December 31, 1997 to the Named Executives:
Option Grants in Fiscal Year Ended December 31, 1997
Individual Grants
-----------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year(%) ($/Sh) Date
- ---- ----------- -------------- ------ -----------
Jesse Faber 50,000(1) 100.00 11.00 9/17/2008
- ------------
(1) On September 17, 1997, the Company granted to Mr. Faber options to purchase
50,000 shares of Common Stock at an exercise price equal to 110% of the
initial public offering price of the Common Stock which was in excess of
fair market value on the date of grant. Such options shall vest as to
one-fifth of the shares covered thereby annually over a five-year period
commencing on October 31, 1998, provided, however, that such options shall
terminate and be canceled if Mr. Faber is no longer employed by the Company
prior
- 5 -
<PAGE>
to the date on which such options vest. Such options shall be
exercisable for a period of five years commencing immediately upon the
applicable vesting period, provided, however, if Mr. Faber is no longer
employed by the Company, such options shall expire on the earlier of
the date Mr. Faber is no longer employed by the Company (or up to one
year thereafter under certain circumstances) or five years following
the date on which such options vest.
The following table sets forth information concerning the number of options
owned during the year ended December 31, 1997 and the value of unexercised stock
options held by the Named Executives as of December 31, 1997. No options were
exercised by the Named Executives during fiscal 1997:
Aggregated Option Exercises and Year End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1997 (#) at December 31, 1997 ($)
-------------------------- -------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jesse Faber -0- -0- -0- 50,000 --- ---
</TABLE>
Director Compensation
In his capacity as a director, Mr. Wolf has been granted options to
purchase 22,500 shares of the Company's common stock at $5.00 per share (fair
market value at the date of grant) which vest and are exercisable one-third on
March 18, 1998 (the "Grant Date") and one-third on the first and second
anniversaries of such Grant Date. In addition, Mr. Wolf will receive annual
compensation of $5,000, payable on the anniversary of his joining the Company's
Board of Directors. Moreover, in March 1998 the Company sold Mr. Wolf an option
to purchase 50,000 shares of Common Stock and, the right, under certain
circumstances, to purchase an additional option covering 25,000 shares of Common
Stock. See "Certain Relationships and Related Transactions."
Employment Agreements
The Company has entered into a two-year employment agreement,
effective as of October 22, 1997, with Norton Herrick which provides for an
annual base compensation of $100,000 and such increases and bonuses as the Board
of Directors may from time to time determine, based on criteria that it deems
appropriate at such time but which it has not yet established. The employment
agreement does not require that Mr. Herrick devote any fixed amount of time to
the business and activities of the Company. The employment agreement contains a
provision prohibiting Mr. Herrick from, on his own behalf or on behalf of any
other person, persons, firms, partnership, corporation or company, engaging or
participating in any activities which are in direct conflict with the interests
of the Company; and from soliciting or attempting to solicit the business or
patronage of any person, firm, corporation, company or partnership which had
previously been a customer of the Company, for the purpose of selling products
and services similar to those provided by the Company during the term of the
employment agreement and for a period of two years thereafter. There can be no
assurance, however, that a court will enforce such provision or only partially
enforce such provision. The employment agreement also provides that if Mr.
Herrick's employment is terminated under certain circumstances, including as a
result of a change in control, Mr. Herrick will be entitled to receive severance
pay equal to the greater of $200,000 or two times the total
- 6 -
<PAGE>
compensation received by Mr. Herrick from the Company during the twelve months
prior to the date of termination.
The Company has entered into a three-year employment agreement,
effective October 22, 1997, with Michael Herrick which provides for an annual
base compensation of $125,000 and such increases and bonuses as the Board of
Directors may from time to time determine, based on criteria that it deems
appropriate at such time but which it has not yet established. The employment
agreement requires Mr. Herrick to devote substantially all of his business time
to the Company's business and affairs. The employment agreement contains a
provision prohibiting Mr. Herrick from, on his own behalf or on behalf of any
other person, persons, firms, partnership, corporation or company, engaging or
participating in any activities which are in direct conflict with the interests
of the Company; and from soliciting or attempting to solicit the business or
patronage of any person, firm, corporation, company or partnership which had
previously been a customer of the Company, for the purpose of selling products
and services similar to those provided by the Company during the term of the
employment agreement and for a period of two years thereafter. There can be no
assurance, however, that a court will enforce such provision or only partially
enforce such provision. The employment agreement also provides that if Mr.
Herrick's employment is terminated under certain circumstances, including as a
result of a change in control, Mr. Herrick will be entitled to receive severance
pay equal to the greater of $375,000 or three times the total compensation
received by Mr. Herrick from the Company during the twelve months prior to the
date of termination.
In September 1997, the Company entered into a one-year employment
agreement with Mr. Faber which provides for his employment through October 31,
1998, at an annual base compensation of $140,000 and a bonus of $35,000,
provided that he is employed by the Company on October 31, 1998. On September
17, 1997, Company granted to Mr. Faber options to purchase 50,000 shares of
Common Stock at an exercise price of $11.00 per share (which exceeded fair
market value on the date of grant).
The Company has entered into a three-year employment agreement
effective as of October 22, 1997 with Howard Herrick which provides for an
annual base compensation of $125,000 and such increases and bonuses as the Board
of Directors may from time to time determine, based on criteria that it deems
appropriate at such time but which it has not yet established. The employment
agreement requires Mr. Herrick to devote substantially all of his business time
to the Company's business and affairs. The employment agreement contains a
provision prohibiting Mr. Herrick from, on his own behalf or on behalf of any
other person, persons, firms, partnership, corporation or company, engaging or
participating in any activities which are in direct conflict with the interests
of the Company; and from soliciting or attempting to solicit the business or
patronage of any person, firm, corporation, company or partnership which had
previously been a customer of the Company, for the purpose of selling products
and services similar to those provided by the Company during the term of the
employment agreement and for a period of two years thereafter. There can be no
assurance, however, that a court will enforce such provision or only partially
enforce such provision. The employment agreement also provides that if Mr.
Herrick's employment is terminated under certain circumstances, including as a
result of a change in control, Mr. Herrick will be entitled to receive severance
pay equal to the greater of $375,000 or three times the total compensation
received by the executive from the Company during the twelve months prior to the
date of termination.
In November 1997, the Company entered into a two year employment
agreement with John Levy which provides for an annual base compensation of
$135,000 in the first year of the agreement and an annual base compensation of
$150,000 in the second year of the agreement. Mr. Levy's agreement also provides
for a minimum bonus of $7,500 the first year of the agreement and a minimum
bonus of $12,500 the second year of the agreement, provided Mr. Levy is employed
by the Company on each such date. As of January 1, 1998, the Company granted to
Mr. Levy options to purchase 30,000 shares of Common
- 7 -
<PAGE>
Stock at an exercise price of $11.00 per share (which exceeded fair market value
on the date of grant). The options for 10,000 shares vest at the end of the
first year of the employment agreement and options for 20,000 shares vest at the
end of the second year of employment, provided Mr. Levy is employed by the
Company on the vesting dates. However, in the event of a change in control, all
options shall immediately vest and become exercisable.
- 8 -
<PAGE>
VOTING SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 18, 1998,
relating to the beneficial ownership of shares of Common Stock by (i) each
person or entity who is known by the Company to own beneficially 5% or more of
the outstanding Common Stock, (ii) each of the Company's directors, (iii) each
of the Named Executives, and (iv) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
Percentage of
Number of Shares Outstanding
of Common Stock Common Stock
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Beneficially Owned
- --------------------------------------- --------------------- ------------------
<S> <C> <C>
Norton Herrick(3)............................... 3,699,300 60.1%
Howard Herrick(4)............................... 3,691,100 60.0
Michael Herrick(5).............................. 488,460 7.9
Carl Wolf(6).................................... 62,500 1.0
John Levy(7).................................... 1,000 __
Jesse Faber(8).................................. __ __
Roy Abrams...................................... __ __
All directors and executive officers as a
group (7 persons)............................... 3,762,800(3)(4)(5)(6)(7)(8) 60.6%
</TABLE>
- ------------
* Less than 1%
(1) The address for each named individual or group is in care of Audio Book
Club, Inc., 2295 Corporate Boulevard, N.W., Suite 222, Boca Raton, Florida,
33431.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days of May 19, 1998 upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days of May 19, 1998 have been exercised
and converted.
(3) Represents (i) 8,200 shares held by Norton Herrick, (ii) 2,714,180 shares
held by N. Herrick Irrevocable ABC Trust of which Norton Herrick is the
sole beneficiary and Howard Herrick is the sole trustee (the "N. Herrick
Trust"), (iii) 488,460 shares of Common Stock held by Howard Herrick and
(iv) 488,460 shares of Common Stock held by M.E. Herrick Irrevocable Trust,
of which Michael Herrick is the sole beneficiary and Howard Herrick is the
sole trustee (the "M.E.H. Trust"). The N. Herrick Trust agreement provides
that Howard Herrick shall have sole voting and dispositive power over the
shares held by the trust. Howard Herrick has irrevocably granted to Norton
Herrick sole dispositive power with respect to the shares of Common Stock
held by Howard Herrick on his own behalf and on behalf of the M.E.H. Trust.
(4) Includes (i) the shares of Common Stock referred to in footnote 3(ii) above
and footnote (5) below. Does not include options to purchase 100,000 shares
of common stock granted February 12, 1998 at an exercise
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price of $4.75 fair (market value at date of grant). Such shares to vest as
to one-half of the shares covered thereby on February 9, 1999 and one-half
on February 9, 2000, provided, however, that such options shall terminate
and be canceled if the officer is no longer employed by the Company prior
to the date on which such options vest. Such options shall be exercisable
for a period of five years commencing immediately upon vesting, provided,
however, if the officer is no longer employed by the Company, such options
shall expire on the earlier of 90 days following the date the officer is no
longer employed by the Company or five years following the date on which
such options vest.
(5) Represents shares held by the M.E.H. Trust. The M.E.H. Trust agreement
provides that Howard Herrick shall have sole voting and dispositive power
over the shares held by the M.E.H. Trust and Howard Herrick has granted to
Norton Herrick sole dispositive power over the shares held by the M.E.H.
Trust. Does not include options to purchase 100,000 shares of common stock
granted February 12, 1998 at en exercise price of $4.75 (fair market value
at date of grant). Such shares to vest as to one-half of the shares covered
thereby on February 9, 1999 and one-half on February 9, 2000, provided,
however, that such options shall terminate and be canceled if the officer
is no longer employed by the Company prior to the date on which such
options vest. Such options shall be exercisable for a period of five years
commencing immediately upon vesting, provided, however, if the officer is
no longer employed by the Company, such options shall expire on the earlier
of 90 days following the date the officer is no longer employed by the
Company or five years following the date on which such options vest.
(6) Includes 50,000 shares issuable upon exercise of options. Does not include
(i) options to purchase 15,000 shares of Common Stock which vest at various
times commencing March 18, 1999 and (ii) options to purchase 25,000 shares
of Common Stock which Mr. Wolf has the right to purchase if he continues to
serve as a director of the Company on September 18, 1998. See "Certain
Relationships and Restated Transactions."
(7) Does not include options to purchase 30,000 shares of Common Stock which
vest at various times commencing January 1, 1999.
(8) Does not include options to purchase 50,000 shares of Common Stock which
vest at various times commencing October 31, 1998.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a sublease agreement with H.H. Realty
Investors, Inc., a company wholly-owned by Michael Herrick, Chief Operating
Officer, Vice Chairman of the Board and a director of the Company, Howard
Herrick, Executive Vice President and a director of the Company, and Evan
Herrick, a son of Norton Herrick and brother of Michael Herrick and Howard
Herrick. Pursuant to the agreement, the Company subleased 1,550 square feet of
space in Morristown, New Jersey at an annual rent of $24,000. H.H. Realty
Investors, Inc. leases such property from an independent third party. In January
1998, the Company amended the sublease agreement to provide for additional space
at its New Jersey location. Minimum monthly rent under the amended lease is
$2,900 per month through December, 1998 and is subject to two extension periods
of five years each under certain conditions.
On July 1, 1997, the Company entered into a new lease for office space
in Florida. The Herrick Company, Inc., a company wholly-owned by Norton Herrick,
Chairman of the Board, Chief Executive Officer and a principal shareholder of
the Company, guaranteed the Company's obligations under the Company's lease for
its Florida office.
On November 17, 1995, Norton Herrick entered into a loan agreement
pursuant to which Norton Herrick agreed to loan the Company up to $8,000,000,
including the $5,380,000 aggregate amount of loans made to the Company by Norton
Herrick as of such date. The loan agreement was subsequently amended to increase
permitted borrowings by the Company of up to $13,000,000 and Norton Herrick
subsequently assigned his rights under the loan agreement to N. Herrick
Irrevocable ABC Trust, of which Norton Herrick is the sole beneficiary and
Howard Herrick is the sole trustee (the "N. Herrick Trust"). Borrowings under
the loan agreement were non-interest bearing and were converted into equity upon
the consummation of the Initial Public Offering. The loan agreement between the
Company and Norton Herrick was terminated on October 22, 1997.
In May 1997, the Company used the proceeds from a $6,000,000 loan from
Bank of America National Trust and Savings Association (the "Bank") to repay a
portion of the outstanding indebtedness under the loan agreement with the N.
Herrick Trust. On August 2, 1997, the Company borrowed an additional $2,250,000
from the Bank to fund working capital. The loan was to be due October 31, 1998,
and had an interest rate which was 1/2% under the bank's reference rate and was
payable monthly.
On September 16, 1997, the Company borrowed an additional $750,000
from the Bank to fund working capital. The loan was also to be due October 31,
1998, and had an interest rate which was 1/2% under the bank's reference rate
and was payable monthly.
The Common Stock of the Company owned by Norton Herrick, the Chairman,
Chief Executive Officer and founder of the Company, was pledged as security for
the loans. Additionally, in the event the Company failed to repay the loans at
maturity, the personal guarantee of the Company's Chairman, Chief Executive
Officer and founder would become effective.
The Company used a portion of the proceeds of its initial public
offering to repay the loans from the Bank in the aggregate principal amount of
$9,000,000 plus accrued interest thereon of $56,167.
Immediately prior to the consummation of its initial public offering,
the N. Herrick Trust converted the outstanding $5,975,200 of indebtedness owed
to it by the Company under the loan agreement into 597,520 shares of Common
Stock at a price per share equal to the initial offering price of the Common
Stock.
On May 12, 1997, Howard Herrick entered into a consolidation and
restatement of loan agreements with the Company relating to the aggregate
$400,000 loaned to the Company by Howard Herrick (consisting of a $50,000 loan
made in June 1994 and a $350,000 loan made in February 1997). Such borrowings
did not bear interest through July 31, 1997 and, thereafter, bore interest at an
annual rate equal to the greater of 10% or the
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prime rate charged by Citibank, N.A. of New York ("Citibank"). This loan,
together with accrued interest, was repaid in September 1997.
On May 12, 1997, the M.E. Herrick Irrevocable Trust (the "M.E.H.
Trust"), of which Michael Herrick is the sole beneficiary and Howard Herrick is
the sole trustee, entered into a loan agreement with the Company relating to the
aggregate $400,000 loaned to the Company by the M.E.H. Trust (consisting of a
$50,000 loan made in June 1994 and a $350,000 loan made in May 1997). Such
borrowings did not bear interest through July 31, 1997 and, thereafter, bore
interest at an annual rate equal to the greater of 10% or the prime rate charged
by Citibank. This loan, together with accrued interest, was repaid in September
1997.
Companies wholly-owned by Norton Herrick have in the past provided
certain accounting, administrative and general office services to, and obtained
insurance coverage for, the Company at cost since the Company's inception, and
the Company paid to such entities for such services, in the aggregate, $38,928
and $60,000, during the years ended December 31, 1996 and 1997, respectively.
The Company anticipates obtaining similar services from time to time from
companies affiliated with Norton Herrick for which it will reimburse such
companies' cost to provide such services to the Company.
During 1997, Abrams Direct Marketing ("ADM"), a company wholly-owned
by Roy Abrams, a director designee of the Company, provided independent
marketing consulting services to the Company and has been paid approximately
$25,500 by the Company for such services. In June 1997, the Company entered into
a consulting agreement with ADM pursuant to which ADM assists the Company in
connection with marketing activities, including designing, implementing and
reviewing the results of direct marketing campaigns and selecting direct
marketing lists, on an as-needed basis at the rate of $250 per hour.
On March 18, 1998, (the "Wolf Purchase Date") the Company sold to Carl
Wolf an option ("Wolf Option") to purchase 50,000 shares of Common Stock at any
time commencing on the Wolf Purchase Date through the fifth anniversary of the
Wolf Purchase Date at an exercise price of $5.00 per share (market value at Wolf
Purchase Date.) The purchase price of the Wolf Option was $50,000. The Company
and Wolf also agreed that, if Wolf continues to serve as an active and
participating member of the Company's Board of Directors for six months from the
Wolf Purchase Date, that Wolf shall have the right, but not the obligation, to
purchase an additional option ("Additional Wolf Option") for an additional
25,000 shares for $25,000. The Additional Wolf Option shall have a five year
term from date of purchase of Additional Wolf Option and shall have an exercise
price of $5.00 per share.
The Company's policy with respect to transactions between the Company
and its officers, directors and 5% or greater shareholders is that each
transaction will be on terms no less favorable than could be obtained from
independent third parties.
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<PAGE>
PROPOSAL I
AMENDMENT OF 1997 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR
ISSUANCE THEREUNDER FROM 750,000 TO 2,000,000
---------------------------------------------
At the Annual Meeting, the Company's shareholders will be asked to
approve an amendment to the Company's 1997 Stock Option Plan (i) to increase the
number of shares of Common Stock reserved for issuance under the Plan from
750,000 to 2,000,000 and (ii) to increase the maximum number of shares of Common
Stock with respect to which options may be granted to any employee during the
term of the Plan from 250,000 to 1,000,000.
The Board believes that in order to enable the Company to continue to
attract and retain personnel of the highest caliber, provide incentive for
officers, directors, key employees and other key persons and continue to promote
the well-being of the Company, it is in the best interest of the Company and its
shareholders to provide to officers, directors, key employees, consultants and
other independent contractors who perform services for the Company, through the
granting of stock options, the opportunity to participate in the value and/or
appreciation in value of the Company's Common Stock. The Board has found that
the grant of options under the 1997 Stock Option Plan has proven to be a
valuable tool in attracting and retaining key employees. It believes that such
authority, in view of the substantial growth of the Company and need to continue
to grow, should be expanded to increase the number of options which may be
granted under the 1997 Stock Option Plan both generally and specifically to any
individual employee. The Board believes that such authority will provide the
Company with significant means to attract and retain talented personnel and
maintain current key employees.
Summary of the 1997 Stock Option Plan
In June 1997, the shareholders of the Company approved the 1997 Stock
Option Plan, pursuant to which 750,000 shares of Common Stock have been reserved
for issuance upon the exercise of options designated as either (i) options
intended to constitute incentive stock options under the Internal Revenue Code
of 1986, as amended, or (ii) non-qualified options. Incentive stock options may
be granted under the 1997 Stock Option Plan to officers and employees of the
Company. Non-qualified options may be granted to consultants, directors (whether
or not they are employees), employees or officers of the Company. In addition,
each employee may only be granted options to purchase up to a maximum of 250,000
shares of Common Stock during the term of the 1997 Stock Option Plan.
The purpose of the 1997 Stock Option Plan is to encourage stock
ownership by certain directors, officers and employees of the Company and other
persons instrumental to the success of the Company. The 1997 Stock Option Plan
is intended to qualify under Rule 16b-3 under the Securities Exchange Act of
1934. The Board of Directors, within the limitations of the 1997 Stock Option
Plan, determines the persons to whom options will be granted, the number of
shares to be covered by each option, whether the options granted are intended to
be incentive stock options, the duration and rate of exercise of each option,
the option purchase price per share and the manner of exercise, and the time,
manner and form of payment upon exercise of an option.
Incentive stock options may not be granted under the 1997 Stock Option
Plan at a price less than the fair market value of the Common Stock on the date
of grant (or 110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). The aggregate fair market value of
shares of Common Stock for which incentive stock options granted to any employee
are exercisable for the first time by such employee during any calendar year
(under all stock option plans of the Company and any related corporation) may
not exceed $100,000. Options granted under the 1997 Stock Option Plan will
expire not more than ten years from the date of grant (five years in the case of
incentive stock options granted to persons holding 10% or more of the voting
stock of the Company). All options granted under the 1997 Stock Option Plan are
not transferable during an optionee's lifetime (unless otherwise provided in the
option agreement) but
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are transferable at death by will or by the laws of descent and distribution. In
general, upon termination of employment of an optionee, all options granted to
such person which are not exercisable on the date of such termination
immediately terminate, and any options that are exercisable terminate 90 days
following termination of employment.
Certain Federal Income Tax Consequences of the 1997 Stock Option Plan
The following is a brief summary of the Federal income tax aspects of
grants made under the 1997 Stock Option Plan based upon statutes, regulations
and interpretations in effect on the date hereof. This summary is not intended
to be exhaustive, and does not describe state or local tax consequences.
1. Incentive Stock Options. The participant will recognize no taxable
income upon the grant or exercise of an Incentive Stock Option. Upon a
disposition of the shares after the later of two years from the date of grant
and one year after the transfer of the shares to the participant, (i) the
participant will recognize the difference, if any, between the amount realized
and the exercise price as long-term capital gain or long-term capital loss (as
the case may be) if the shares are capital assets in his or her hands; and (ii)
the Company will not qualify for any deduction in connection with the grant or
exercise of the options. The excess, if any, of the fair market value of the
shares on the date of exercise of an Incentive Stock Option over the exercise
price will be treated as an item of adjustment for his or her taxable year in
which the exercise occurs and may result in an alternative minimum tax liability
for the participant. In the case of a disposition of shares in the same taxable
year as the exercise where the amount realized on the disposition is less than
the fair market value of the shares on the date of exercise, there will be no
adjustment since the amount treated as an item of adjustment, for alternative
minimum tax purposes, is limited to the excess of the amount realized on such
disposition over the exercise price which is the same amount included in regular
taxable income.
If Common Stock acquired upon the exercise of an Incentive Stock
Option is disposed of prior to the expiration of the holding periods described
above, (i) the participant will recognize ordinary compensation income in the
taxable year of disposition in an amount equal to the excess, if any, of the
lesser of the fair market value of the shares on the date of exercise or the
amount realized on the disposition of the shares, over the exercise price paid
for such shares; and (ii) the Company will qualify for a deduction equal to any
such amount recognized, subject to the requirements of Section 162(m) of the
Code and that the compensation be reasonable. The participant will recognize the
excess, if any, of the amount realized over the fair market value of the shares
on the date of exercise, if the shares are capital assets in his or her hands,
as short-term or long-term capital gain, depending on the length of time that
the participant held the shares, and the Company will not qualify for a
deduction with respect to such excess.
Subject to certain exceptions for disability or death, if an Incentive
Stock Option is exercised more than three months following the termination of
the participant's employment, the option will generally be taxed as a
Non-Qualified Stock Option.
2. Non-Qualified Stock Options. With respect to NonQualified Stock
Options (i) upon grant of the option, the participant will recognize no income;
(ii) upon exercise of the option (if the shares are not subject to a substantial
risk of forfeiture), the participant will recognize ordinary compensation income
in an amount equal to the excess, if any, of the fair market value of the shares
on the date of exercise over the exercise price, and the Company will qualify
for a deduction in the same amount, subject to the requirements of Section
162(m) of the Code and that the compensation be reasonable; (iii) the Company
will be required to comply with applicable Federal income tax withholding
requirements with respect to the amount of ordinary compensation income
recognized by the participant; and (iv) on a sale of the shares, the participant
will recognize gain or loss equal to the difference, if any, between the amount
realized and the sum of the exercise price and the ordinary compensation income
recognized. Such gain or loss will be treated as short-term or long-term capital
gain or loss if the shares are capital assets in the participant's hands
depending upon the length of time that the participant held the shares.
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<PAGE>
The approval of the proposed amendment to the Company's 1997 Stock
Option Plan requires the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting, provided
a quorum exists.
The Board believes that the Proposed Amendment to the 1997 Stock
Option Plan will help the Company attract and retain qualified officers,
directors and key employees. Accordingly, the Board believes that the Amendment
to the 1997 Stock Option Plan is in the best interest of the Company and
unanimously recommends a vote FOR its approval.
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<PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP ("KPMG"), the Company's former independent
certified public accountants, were the Company's independent auditors who
reported on the financial statements of the Company for the fiscal years ended
December 31, 1996 and 1997. On May 9, 1998, the decision to dismiss KPMG as the
Company's independent certified public accountants and engage Deloitte & Touche
LLP as the Company's new independent certified public accountants was approved
by the Audit Committee of the Board of Directors of the Company. It is currently
anticipated that Deloitte & Touche LLP will examine and report on the financial
statements of the Company for the year ending December 31, 1998. During neither
of the past two years did the reports by KPMG on the financial statements of the
Company contain an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope, or accounting principles. During the
Company's two most recent fiscal years, there were no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
A representative of Deloitte & Touche LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if the
representative desires to do so, and is expected to be available to respond to
appropriate questions.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholders who wish to present proposals appropriate for
consideration at the Company's Annual Meeting of Shareholders to be held in 1999
must submit the proposal in proper form to the Company at its address set forth
on the first page of this Proxy Statement not later than February 1, 1999 in
order for the proposition to be considered for inclusion in the Company's proxy
statement and form of proxy relating to such annual meeting. Any such proposals,
as well as any questions related thereto, should be directed to the Secretary of
the Company.
OTHER INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31,
1997 IS BEING FURNISHED HEREWITH TO EACH SHAREHOLDER OF RECORD AS OF THE CLOSE
OF BUSINESS ON MAY 19, 1998.
The Board of Directors is aware of no other matters, except for those
incident to the conduct of the Annual Meeting, that are to be presented to
shareholders for formal action at the Annual Meeting. If, however, any other
matters properly come before the Annual Meeting or any adjournments thereof, it
is the intention of the persons named in the proxy to vote the proxy in
accordance with their judgment.
By order of the Board
of Directors,
Norton Herrick
Co-Chief Executive Officer
May 20, 1998
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<PAGE>
AUDIO BOOK CLUB, INC.
2295 Corporate Boulevard, N.W., Suite 222
Boca Raton, Florida 33431
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints NORTON HERRICK and MICHAEL HERRICK and
each of them, Proxies, with full power of substitution in each of them, in the
name, place and stead of the undersigned, to vote at the Annual Meeting of
Shareholders of Audio Book Club, Inc. (the "Company") on Friday, June 19, 1998,
at The Headquarters Plaza Hotel, 3 Headquarters Plaza, Morristown, New Jersey
07960 or at any adjournment or adjournments thereof, according to the number of
votes that the undersigned would be entitled to vote if personally present, upon
the following matters:
ELECTION OF CLASS I DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees listed below.
contrary below).
Norton Herrick and Jesse Faber
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.)
- --------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
<PAGE>
1. Approval of Amendment to the Company's 1997 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE.
IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES
AND THE PROPOSALS LISTED ABOVE.
DATED: ________________________________, 1998
Please sign exactly as name
appears hereon. When shares
are held by joint tenants,
both should sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
---------------------------
Signature
---------------------------
Signature if held jointly
Please mark, sign, date and return this proxy card using the enclosed envelope.
