As filed with the Securities and Exchange Commission on July 28, 1999.
Registration No.333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AUDIO BOOK CLUB, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0429858
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2295 Corporate Blvd., N.W., Suite 222, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
1997 Stock Option Plan and 1999 Stock Incentive Plan
(Full title of the plan)
Norton Herrick, Co-Chief Executive Officer
Audio Book Club, Inc.
2295 Corporate Blvd., N.W., Suite 222
Boca Raton, Florida 33431
(Name and address of agent for service)
(561) 241-1426
(Telephone number, including area code, of agent for service)
Copy to:
Robert J. Mittman, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Aggregate Aggregate Amount of
Title of Securities Amounts to be Price Per Offering Registra-
to be Registered Registered(1) Share(2) Price (2) tion Fee
- ------------------- ------------- -------- --------- --------
Common Stock, no 4,500,000 shares $9.5685 $43,058,447 $11,970.25
par value
(1) In addition, pursuant to Rule 416 under the Securities Act of 1933,
this Registration Statement also registers an indeterminate number of
shares of common stock which may be issued pursuant to the anti-dilution
provisions of the stock options granted by the Registrant under its 1997
Stock Option Plan ("97 Plan") and 1999 Stock Incentive Plan ("99 Plan").
(2) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933 and based upon (a) as
to the 1,974,300 shares of common stock issuable upon exercise of options
previously granted under the 97 Plan and the 881,500 shares of Common Stock
issuable upon exercise of options previously granted under the 99 Plan upon
the prices at which such options may be exercised, (b) as to the remaining
25,700 shares issuable upon exercise of options reserved for issuance under
the 97 Plan and (c) as to the remaining 1,618,500 shares reserved for
issuance upon exercise of options or other stock-based awards under the 99
Plan, on the basis of the average of the high and low prices for the common
stock as quoted on the American Stock Exchange on July 22, 1999.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information.*
Item 2. Registrant Information and Employee
Plan Annual Information.*
* Information required by Part I to be contained in the Section 10(a)
prospectus is omitted from this Registration Statement in accordance with Rule
428 under the Securities Act of 1933 and the Note to Part I of Form S-8.
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AUDIO BOOK CLUB, INC.
2,567,500 Shares of Common Stock
This prospectus relates to an offering by certain selling shareholders of
an aggregate of up to 2,567,500 shares of the common stock of Audio Book Club,
Inc. issuable upon exercise of options granted from time to time, since
September 1997, under either Audio Book Club's 1997 Stock Option Plan or 1999
Stock Incentive Plan as consideration for their employment and for services
rendered and/or to be rendered to us. All of the 2,567,500 of common stock are
being offered for resale by such selling shareholders pursuant to this
prospectus.
The common stock may be offered from time to time by the selling
shareholders through ordinary brokerage transactions in the over-the-counter
markets, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices and in certain other ways as described
in the "Plan of Distribution." Audio Book Club will not receive any of the
proceeds from the sale of common stock by the selling shareholders.
The common stock is traded on the American Stock Exchange under the symbol
"KLB". On July 27, 1999, the closing sale price of the common stock as reported
by the American Stock Exchange was $12.375.
An investment in the common stock is speculative and involves a high degree
of risk. See "Risk Factors" Beginning on Page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is July 28, 1999.
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SPECIAL INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this prospectus or in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve certain known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward- looking statements. Such factors include,
among others, the factors set forth below under "Risk Factors." The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. We caution you not to place undue reliance
on these forward-looking statements, which speak only as of the date the
statement was made. See "Risk Factors."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Audio Book Club with the
Securities and Exchange Commission are incorporated herein by reference and
shall be deemed a part of this prospectus:
(a) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998;
(b) Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1999;
(c) Current Report on Form 8-K for the event dated December 14, 1998;
(d) Current Report on Form 8-K for the event dated December 31, 1998;
(e) Current Report on Form 8-K/A (Amendment No. 1) for the event dated
December 14, 1998;
(f) Current Report on Form 8-K/A (Amendment No. 1) for the event dated
December 31, 1998;
(g) Current Report on Form 8-K/A (Amendment No. 2) for the event dated
December 31, 1998;
(h) Current Report on Form 8-K/A (Amendment No. 3) for the event dated
December 31, 1998;
(i) Current Report on Form 8-K for the event dated April 23, 1999;
(j) Current Report on Form 8-K for the event dated June 15, 1999;
(k) Current Report on Form 8-K for the event dated July 2, 1999;
(l) Current Report on Form 8-K/A (Amendment No. 1) for the event dated
June 15, 1999;
(m) Current Report on form 8-K/A (Amendment No. 2) for the event dated
June 15, 1999; and
(n) The description of our common stock contained in our Registration
Statement on Form 8-A declared effective October 22, 1997, together
with any amendment or report filed
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with the Securities and Exchange Commission for the purpose of
updating such description.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus and prior to
the termination of the offering of the securities hereby shall be deemed to be
incorporated by reference in this prospectus and to be a part hereof on the date
of filing of the documents. Any statement incorporated in this prospectus shall
be deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference in this prospectus modifies or supersedes the statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this prospectus or the registration
statement of which it is a part.
This prospectus incorporates documents by reference with respect to Audio
Book Club that are not presented herein or delivered herewith. These documents
are available without charge to any person, including any beneficial owner of
our company's securities, to whom this prospectus is delivered, upon written or
oral request to Mr. John Levy, Audio Book Club, Inc., 20 Community Place,
Morristown, New Jersey 07960, telephone: (973) 539-9528.
AVAILABLE INFORMATION
Audio Book Club is subject to the informational requirements of the
Securities Exchange Act. We file reports, proxy statements and other information
with the Securities and Exchange Commission. Such reports and other information
can be read and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. You can obtain copies of such
materials at prescribed rates from the Public Reference Room of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling
the Securities and Exchange Commission at 1-800-SEC-0330. Our electronic filings
made through the Securities and Exchange Commission's Electronic Data Gathering,
Analysis and Retrieval System are publicly available through the Securities and
Exchange Commission's worldwide web site (http://www.sec.gov).
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THE COMPANY
Audio Book Club, Inc. is the nation's largest membership club-based direct
marketer of audiobooks. Our membership club is modeled after the "negative
option" formula developed by the Book-of-the-Month Club. Each member of our
membership club is offered a limited number of audiobooks at a low introductory
discounted price and, in return, commits to purchase a minimum number of
additional audiobooks over a specified period of time at regular club prices.
Since commencing operations in 1994, we have invested heavily in our
membership recruitment programs to establish and expand our membership base. The
recruitment programs have consisted primarily of direct targeted mailings of new
member solicitation packages, marketing on the Internet and media advertising.
We have aggressively pursued marketing opportunities on the Internet by
entering into advertising arrangements with respect to audiobooks with various
Internet companies including Microsoft Corporation, for its MSNBC web site,
MSN.com portal, hot mail and webTV services and link exchange property;
Broadcast.com, Inc.; and mail.com. We have established an Internet web site that
offers visitors the opportunity to become club members, and offers club members
the opportunity to execute transactions online, search our database of tens of
thousands of titles and sample thousands of audiobook selections. In December
1998 and June 1999, we also completed the several acquisitions discussed below
which has resulted in our Audio Book Club total membership file increasing to
over 1.6 million and our total customer base, including our member file,
exceeding 2 million names.
We are seeking to expand our Internet presence and to take advantage of the
high volume of traffic that the Audio Book Club web site receives through the
creation of a media portal web site. We are currently designing our media portal
site to be a fully-integrated web site providing a variety of content and
e-commerce opportunities to visitors and customers alike. The site will enable
users to click through to our other web sites, to join Audio Book Club, to
purchase a variety of products from several different retail categories and to
experience the wealth of content that will be featured on the site in both audio
and video formats.
Our Radio Group produces, broadcasts, syndicates, sells and licenses
popular "classic" and old-time radio and video programs, including vintage
comedy, mystery, detective, adventure and suspense programs, and produces and
syndicates three national old-time radio programs broadcast on over 500 radio
stations per week with a cumulative audience of approximately 3,000,000 per
week. On many of its radio affiliates, it is the dominant number one listened to
program in its time slot. Our Radio Group has compiled a mailing list of over
450,000 names of buyers and prospective buyers of old-time radio audiocassettes
and video cassettes.
Our principal executive offices are located at 2295 Corporate Boulevard.,
N.W., Suite 222, Boca Raton, Florida 33431 and our telephone number is (561)
241-1426. We also have offices located at 20 Community Place, Morristown, New
Jersey 07960. The Audio Book Club network of websites includes
www.audiobookclub.com; www.mediabay.com, our media portal site;
www.audiobook.com, a retail audiobook site; radiospirits.com, our old-time radio
site; and www.videoyesteryear.com, our old-time video site.
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RECENT DEVELOPMENTS
Acquisition of Doubleday's Audiobooks Direct Club
On June 15, 1999, our wholly-owned subsidiary acquired from Doubleday
Direct, Inc. its business of direct marketing and distribution of audiobooks and
related products through Doubleday's Audiobooks Direct Club. At the time of the
acquisition, the Audiobooks Direct Club was one of the industry's leading direct
marketers of audiobooks using a membership club format. As part of the
acquisition, we acquired Audiobooks Direct Club's total membership file of over
500,000 members as well as some of Doubleday's other assets relating exclusively
to the Audiobooks Direct Club.
We also entered into a reciprocal marketing arrangement with Doubleday
pursuant to which we received the exclusive rights, with respect to audiobooks,
for three years, subject to a one-year extension at no additional cost, and an
additional three years at market rates, to insert our new member acquisition
materials into the member mailings of Doubleday's consumer book clubs and
Doubleday Select's professional book clubs, as well as distributing our member
solicitation packages via direct mail campaigns to the active and inactive
Doubleday and Doubleday Select book club membership lists. Subject to
exceptions, we will also be Doubleday's exclusive source for audiobooks.
In addition, Doubleday agreed not to engage in designated activities which
compete with our Audio Book Club for five years.
At the time of the acquisition, together with Doubleday, we announced the
launch of a co-branded website to be coupled with an online cross-marketing and
advertising campaign. We currently anticipate the launch of this site in August
1999.
Financings
In June 1999, in connection with our acquisition of Doubleday's Audiobooks
Direct Club, we, Fleet National Bank and ING (U.S.) Capital Corporation amended
the terms of our existing credit agreement to provide for our borrowing of an
additional $6,000,000 as a term advance under the credit agreement and an
additional $4,350,000 from Norton Herrick, and modified the interest rate we pay
under the credit agreement. At July 6, 1999, an aggregate of $37.5 million
principal amount of indebtedness was outstanding under the credit agreement. The
principal amount outstanding under the term advance is payable in quarterly
installments commencing on March 31, 1999 through December 31, 2003 as follows:
a quarterly payment of $250,000 on March 31, 1999, payments of $330,000 for each
of the next three quarters, four quarterly payments of $930,000 in the year
2000, four quarterly payments of $1,550,000 in the year 2001, four quarterly
payments of $2,170,000 in the year 2002 and four quarterly payments of
$2,790,000 during 2003. We have made the required payments through June 30,
1999.
In connection with the additional loan in June 1999, we granted the lenders
three-year warrants to purchase up to 119,546 shares of our common stock at an
exercise price of $14.25, subject to adjustment. As of the date of this
prospectus, as a result of anti-dilution adjustments, these warrants are
currently exercisable to purchase 119,940 shares of our common stock at an
exercise price of $14.20 per share. As of the date of this prospectus, as a
result of anti-dilution adjustments, the warrants we issued
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to the lenders in December 1998 in connection with the initial loan under the
credit agreement are currently exercisable to purchase 197,448 shares of our
common stock at an exercise price of $9.967 per share.
In June 1999, we borrowed $4,350,000 from Norton Herrick by issuing a 9%
convertible senior subordinated promissory note due December 31, 2004. In a
separate letter agreement, we agreed, subject to shareholder approval, that if
we refinance or replace the note with debt or equity financing provided by
anyone other than Mr. Herrick or a family member or affiliate of Mr. Herrick, we
will issue to Mr. Herrick warrants to purchase an additional 125,000 shares of
common stock, which warrants shall also be identical to the warrants issued to
him in connection with the financing Mr. Herrick provided to us in December
1998. In July 1999, we repaid the $4,350,000 note, plus accrued and unpaid
interest, from the proceeds received from the sale of equity securities
described below.
The terms of Mr. Herrick's financings were approved by the independent
members of our Board of Directors.
In June 1999, we sold 50,000 shares of our common stock for gross proceeds
of $550,000 to three qualified institutional buyers.
In July 1999, we sold 540,000 shares of our common stock for gross proceeds
of $7,020,000 to three qualified institutional buyers.
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RISK FACTORS
Prospective investors should consider carefully the following risk factors
before purchasing any shares of the common stock offered hereby by the selling
shareholders.
We have historically experienced significant losses.
Since our inception, we have incurred significant losses, including losses
of $6,242,491 during the year ended December 31, 1996, $4,920,851 during the
year ended December 31, 1997, $6,985,264 during the year ended December 31, 1998
and $665,000 for the three months ended March 31, 1999. We had an accumulated
deficit of $24,124,000 at March 31, 1999.
We have outstanding indebtedness which requires us to make timely principal
and interest payments.
We have outstanding indebtedness which is substantial in relation to our
shareholders' equity, as well as interest and debt service requirements which
are significant compared to our cash flow from operations. As of March 31, 1999,
we have approximately $44 million of indebtedness outstanding, which is
substantial in relation to our total capitalization. In addition, after March
31, 1999, we increased our outstanding borrowings under our credit agreement by
$6 million. Our outstanding indebtedness requires us to make timely interest
payments and principal payments. If we do not generate sufficient cash flow from
operations or obtain other sources of funds to finance these payments, we may
default on our obligations under our indebtedness. Moreover, since our
borrowings under the credit agreement are at variable interest rates, we are
subject to the risk of paying higher rates on advances under the credit
agreement.
A default under our outstanding indebtedness could have a material adverse
effect on our business, including foreclosure by the lenders on our assets.
Upon the occurrence of an event of default under the credit agreement or
the senior subordinated note, our indebtedness thereunder could become
immediately due and payable and the lenders under the credit agreement and/or
note could foreclose on our assets. All of our assets and the assets and capital
stock of our subsidiaries are pledged to the lenders under the credit agreement,
and assets of Classic Radio Holding Corp. and Classic Radio Acquisition Corp.
are pledged to the lender under the note.
Our loan agreements contain restrictive covenants which could limit our
ability to implement our business plan.
The terms of our loan agreements with our creditors could limit our ability
to implement our business strategy. In addition to substantially prohibiting us
from incurring additional indebtedness, our loan agreements limit or prohibit us
from:
o declaring or paying cash dividends;
o merging or consolidating with another corporation;
o selling all or substantially all of our assets; or
o materially changing the nature of our business.
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Our business would likely be harmed if we are unable to successfully
integrate our recently acquired business.
We have expanded our operations through internal growth and acquisitions,
which has placed and is expected to continue to place a significant strain on
our management, administrative, operational, financial and other resources. We
are dependent upon the services of key personnel acquired in these transactions.
We cannot assure you that we will be able to successfully integrate these
businesses into our operations or that we will be able to retain key personnel
acquired in these transactions. We will likely be materially adversely affected
if we are unable to successfully integrate acquired businesses and personnel
into our operations.
The amortization of the goodwill from our recent acquisitions will
adversely impact our future operating results.
As a result of our recent acquisitions, we are required to amortize the
excess of costs over net assets and other intangibles acquired, an aggregate of
approximately $64.1 million, over periods of up to 20 years. Although this
amortization does not have an effect on our available funds, it will be treated
as an operating expense that will reduce our reported earnings or increase
reported losses. Future acquisitions could result in additional amortization
expenses resulting from additional goodwill and other intangibles acquired which
would reduce future earnings or increase future losses, as the case may be.
We may not be able to meet our obligations to repurchase shares of our
common stock if the holders of put rights exercise their rights in the future.
We may not have the necessary funds to meet any obligations to repurchase
stock pursuant to puts we have granted. In connection with our recent
acquisitions, we granted the sellers the option to sell back to us up to an
aggregate of 675,000 shares of our common stock issued to the sellers in
connection with the acquisitions. Although the sellers' put options have
terminated as to 320,000 of the shares, the sellers outstanding put options
require us to purchase from them shares of our common stock, unless the put
rights are terminated as a result of our common stock satisfying specified price
targets and trading volume requirements, as follows:
o 25,000 shares at a price of $7.00 per share beginning on December
31, 2000;
o 25,000 shares at a price of $12.00 per share beginning on October
31, 2001;
o 25,000 shares at a price of $14.00 per share beginning on
December 31, 2003;
o up to 230,000 shares at a price of $15.00 per share beginning on
December 31, 2004; and
o 50,000 shares at a price of $15.00 per share beginning on
December 31, 2005.
Of these shares, 125,000 shares are pledged to us until December 31, 1999 as
collateral to secure the sellers' indemnification obligations in the event we
suffer an indemnifiable loss. If we suffer a loss and retain any of these shares
as indemnification for the loss, the put obligation will terminate as to the
shares we retain.
As of the date of this prospectus, the market value of our common stock was
below the guaranteed market prices for most of the remaining put obligations.
The market price of our common
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stock may not exceed the guaranteed market prices at the time that the puts are
exercisable and the puts may not terminate.
Our member recruitment strategy is subject to many risks which, if not
successfully addressed, could result in increased member acquisition costs.
If our direct mail and other marketing strategies are not successful, our
per member acquisition costs may increase and we may not be able to
significantly increase our membership base. The success of direct mail campaigns
is subject to a high degree of risk and uncertainties, including the ability to
target the type of persons which we believe are likely to join Audio Book Club.
We use a variety of modeling and list analysis procedures and techniques as part
of our efforts to efficiently target our direct mail campaigns and we intend to
increase the number of prospective members to which member solicitation packages
will be mailed.
Because the market for audiobooks is still evolving and is a niche market,
it is not certain that the market will continue to grow.
It is possible that the market for audiobooks may not continue to grow at
the current rate or growth trends may reverse. The audiobook market has expanded
rapidly, is still evolving and is currently a niche market. The sale of
audiobooks through mail order clubs is an emerging retail concept. As is
typically the case for products in an evolving industry, the ultimate level of
demand and market acceptance for audiobooks is subject to a high degree of
uncertainty. A decline in the popularity of audiobooks could adversely affect
our business and prospects.
Failure to respond to factors affecting our business could result in lost
sales opportunities or excess inventory from the inability to sell selected
titles.
Our success is largely dependent upon our ability to anticipate and respond
to these and other factors affecting the industry, such as economic factors
affecting discretionary consumer spending, changes in consumer demographics and
the availability of other forms of entertainment. Failure to respond to factors
affecting the audiobook industry in a timely manner could result in lost sales
opportunities or excess inventory from the inability to sell selected titles.
The audiobook market is characterized by continuous introductions of new titles
and is subject to changing consumer preferences, which may adversely affect our
ability to plan for catalog offerings, anticipate order lead time and accurately
assess inventory requirements. While we evaluate many factors to anticipate the
popularity and life cycle of selected titles, the ultimate level of demand for
specific audiobook titles is subject to a high level of uncertainty. Moreover,
sales of a specific audiobook title typically decline rapidly after the first
few months following release. Any unanticipated decline in popularity of
selected titles could result in excess inventory or require us to sell this
inventory at a reduced price.
Interruption of our supply of audiobooks could result in increased product
costs or loss of sales opportunities.
Our failure to obtain the rights to audiobook libraries or selected
audiobook titles, on commercially reasonable terms, or at all, could result in
increased product costs or loss of sales opportunities. Many of our license
agreements with audiobook publishers are short-term, non-exclusive agreements,
typically one or two years in length. A portion of our agreements expire over
the next several months, unless renewed. Our success is dependent upon our
ability to renew existing license and supply arrangements with respect to
audiobook publishers' libraries and to enter into additional arrangements for
the supply of new audiobook titles. In addition, we currently enjoy a cost
advantage
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over traditional retailers of audiobooks. If audiobook publishers were to change
their policies, our cost advantage could be adversely impaired.
Our operations could be interrupted if our third-party service providers
fail to perform their services.
We engage third-party service providers to perform processing, billing and
data processing services, and warehousing and distribution services. We are
dependent upon these third parties to process and deliver orders on a timely
basis, and provide friendly, efficient customer service and timely process and
collect and accurately report customer payments to avoid delays in collection.
Failure by our service providers to perform their services in accordance with
our requirements could result in adverse member perception of Audio Book Club or
delay collections of receivables, either of which could have a material adverse
effect on Audio Book Club. The unavailability or interruption of services from
these providers would result in a material interruption of our operations.
If we incur system interruptions which affect customers' and potential
customers' ability to access our web sites, we could be harmed by adverse
consumer perception and lost sales opportunities.
We anticipate that new member and other revenues will become partially
dependent on the number of visitors who join as members from and who shop on our
web sites. Accordingly, any system interruptions that result in the inability of
customers or potential customers to access our web sites could adversely affect
consumer perception of our membership clubs and web sites or affect or ability
to conduct business over the Internet. Our business strategy includes expanding
our Internet web sites and increasing Internet and online computer service
advertising. Accordingly, the satisfactory performance, reliability and
availability of our web sites, transaction-processing systems and network
infrastructure are critical to our reputation and our ability to attract
visitors to our web sites and maintain adequate customer service levels.
An increased rate of member loss could adversely affect our revenues and
operating results.
Any significant increase in member attrition could have a material adverse
effect on our revenues and operating results. Although we provide various
incentives for members to continue in our club, once a member has satisfied his
or her commitment to purchase four audiobooks at regular prices, the member has
no further commitment to our club. We incur significant upfront expenditures in
connection with acquiring new members, including the costs associated with
member recruitment advertising and mailings of member welcome packages, as well
as the costs of supplying the audiobooks ordered at Audio Book Club's low
introductory price, which is significantly below our cost. A member may not
honor his or her commitment or membership may be terminated by us for several
reasons, including failure to pay for purchases or excessive returns or
cancelled orders. The member attrition rate for mail order clubs is typically
high and, we believe that Audio Book Club's member attrition rate has been
typical of the negative option mail order industry. We may not be able to recoup
our costs associated with new members.
Increased rate of product returns would adversely affect our operating
results.
Product returns which significantly exceed our reserves would adversely
affect our operating results. At the time a member orders an audiobook, we
establish a reserve for future returns based upon historical return rates and an
evaluation of current return trends. Mail order clubs which offer products on a
negative option basis have historically experienced high product return rates.
We have recently
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experienced a product return rate of approximately 26%. Our policy is to accept
prompt returns of damaged products and, in order to maintain favorable customer
relations, we generally accept returns of unopened products.
Because we sell products on credit, our liquidity and operating results
could be adversely impacted if we are unable to collect our receivables.
We are subject to the risks associated with selling products on credit,
including, delays in collection or uncollectibility of accounts receivable.
Delays in collection or uncollectibility of accounts receivable could have a
material adverse effect on our liquidity and working capital position and could
require us to increase our allowance for doubtful accounts. Our accounts
receivable have historically increased from period to period and are expected to
increase as a result of the anticipated expansion of Audio Book Club's
membership base. As of March 31, 1999, allowances for sales returns and doubtful
accounts were $2,539,000, which we believe is currently adequate for the size
and nature of our receivables.
The Year 2000 problems may result in decreased sales for us if
certifications we received from our service providers are inaccurate or if our
customers and suppliers do not adequately address their Year 2000 concerns.
Many currently installed computer systems and software products are coded
to accept only two- digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. This year 2000 issue
potentially affects all individuals and companies, including us, our customers,
business partners, vendors, suppliers, service providers and the banks we
utilize.
While we believe our systems, and those of our primary service providers
and vendors are year 2000 compliant, we are continuing our communications with
our principal service providers and vendors to ensure that they are year 2000
compliant. We do not currently anticipate that we will incur significant
operating expenses or be required to invest in computer system improvements to
be Year 2000 compliant.
We are developing contingency plans that identify alternative vendors,
suppliers and service providers in the event our current vendors, suppliers or
service providers suffer significant disruption as a result of year 2000
compliance failures. If third parties with whom we interact have year 2000
problems that are not remedied, the following problems could result:
o in the case of vendors and suppliers, in disruption of supply;
o in the case of service providers, in the receipt of inaccurate or
out-of-date data, loss of customer orders, invoices, billing and
payment information and disruption in order fulfillment services;
o in the case of banks, in the disruption of cash flow potentially
resulting in liquidity stress; and
o in the case of customers, in their inability to place orders.
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Increases in costs of postage and shipping could reduce our net income or
increase our net loss if we are unable to pass on the costs to our customers.
Any unanticipated increase in postal rates could have an adverse effect on
our operating results to the extent that we are unable to offset these increases
by raising our prices or by implementing more efficient mailing, delivery and
order fulfillment methods. Postage and shipping are significant expenses in the
operation of our business. As is customary in the mail order industry, we pass
on the costs of order fulfillment directly to the member but do not directly
pass on the costs of member mailings and member solicitation packages.
Third parties could obtain access to our member and customer databases and
other proprietary information because of the limited protection for our
intellectual property.
Third parties may copy or obtain access to, and use, our member and
customer databases and other proprietary know-how, ideas and concepts. In
addition, the confidentiality agreements with our executive officers, employees,
list managers and appropriate consultants and service suppliers may not
adequately protect our trade secrets. In the event competitors independently
develop or otherwise obtain access to our know-how, concepts, trade secrets or
membership database, we may be adversely affected.
Fluctuations in operating results could impact the trading price of our
common stock.
Because our operating results vary from period to period, comparisons of
quarterly results may not be meaningful and should not be relied upon.
Fluctuations in quarterly operating results may adversely affect the trading
price of our common stock if they are below the expectations of market analysts
and investors. Our operating results vary as a result of purchasing patterns of
members, the timing, cost, magnitude and success of direct mail campaigns and
other member recruitment advertising, member attrition, timing and popularity of
new audiobook releases and product returns. Unanticipated events, including
delays in securing an adequate supply of popular audiobook titles at the time of
peak sales, delays in direct mailing or significant decreases in sales,
particularly during peak sales periods, could result in losses during a period
which would not be easily reversed before the following year.
The loss of our key personnel would likely disrupt our operations and have
a material adverse effect on our business and prospects.
Our success is largely dependent upon the efforts of Norton Herrick,
Chairman of the Board and Co-Chief Executive Officer, and Michael Herrick,
Co-Chief Executive Officer and Vice Chairman of the Board. The loss of the
services of either of these officers or other key personnel, despite their
having entered into employment agreements would likely disrupt our operations
and have a material adverse effect on our business and prospects.
We could be harmed if affiliates which provide services to us do not
continue to provide these services.
Our business could be harmed if affiliates of ours which currently provide
services to us do not continue to provide these services. We share office space
with entities affiliated with our officers and have relied on entities
affiliated with Norton Herrick for the provision of travel, accounting,
administrative and general office services and to obtain general business
insurance. Moreover, Mr. Herrick may have a conflict of interest in the
allocation of his business time among Audio Book Club and of his other business
ventures.
11
<PAGE>
The Herrick family has significant control over stockholder matters which
impacts the ability of other stockholders to have a say in our activities.
As of the date of this prospectus, Norton Herrick, Michael Herrick and
Howard Herrick, in the aggregate, own approximately 43.9% of the actual
outstanding common stock of Audio Book Club. Accordingly, they are able to
direct our affairs, including electing a majority of our directors and causing
an increase in our authorized capital or the dissolution, merger, or sale of
Audio Book Club or substantially all of our assets.
Our stock price has been and could continue to be extremely volatile.
The market price of our common stock has experienced significant
fluctuations since our initial public offering in October 1997. Our common stock
is quoted on the American Stock Exchange, which market has experienced, and is
likely to experience in the future, significant price and volume fluctuations
which could adversely affect the market price of the common stock without regard
to the operating performance. In addition, the trading price of the common stock
could be subject to significant fluctuations in response to:
o actual or anticipated variations in our quarterly operating results;
o announcements by us or other industry participants;
o factors affecting the audiobook industry;
o changes in national or regional economic conditions, changes in
securities analysts' estimates for our competitors' or industry's
future performance; and
o general market conditions.
The market price of our common stock could also be affected by general market
price declines or market volatility in the future or future declines or
volatility in the prices of stocks for companies in the Internet and online
industries.
The exercise or conversion of outstanding options, warrants or convertible
securities by the holders will result in dilution to our shareholders and could
adversely affect the market price for our common stock and our ability to obtain
additional equity capital.
To the extent that outstanding options and warrants are exercised, dilution
to the percentage ownership of our shareholders will occur and any sales in the
public market of our common stock underlying options and warrants may adversely
affect prevailing market prices for our common stock. Moreover, the terms upon
which we will be able to obtain additional equity capital may be adversely
affected since the holders of outstanding options and warrants can be expected
to exercise them at a time when we would, in all likelihood, be able to obtain
any needed capital on terms more favorable to us than those provided in the
outstanding options and warrants. As of July 6, 1999, there were outstanding
options, warrants and other convertible securities to purchase an aggregate of
approximately 6,000,000 shares of our common stock at exercise prices ranging
from $3.50 to $16.50 per share.
12
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from any sales of shares of common stock
made from time to time hereunder by the selling shareholders. We have agreed to
bear certain expenses in connection with the registration of the common stock
being offered and sold by the selling shareholders. We will receive proceeds
from any exercise by the selling shareholders for cash of options made prior to
the sale of any of the shares of common stock underlying such options (except
with respect to "cashless exercises") being offered hereby. Such proceeds will
be added to our working capital.
DESCRIPTION OF CAPITAL STOCK
General
Audio Book Club is authorized to issue 75,000,000 shares of common stock,
no par value, and 5,000,000 shares of preferred stock, no par value. As of July
27, 1999, there were 8,418,920 shares of common stock outstanding and no shares
of preferred stock outstanding.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders, including the election of
directors, and, subject to preferences that may be applicable to any preferred
stock outstanding at the time, are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the board of directors out of
funds legally available therefor. In the event of liquidation or dissolution of
Audio Book Club, the holders of common stock are entitled to receive all assets
available for distribution to the shareholders, subject to any preferential
rights of any preferred stock then outstanding. The holders of our common stock
have no preemptive or other subscription rights, and there are no conversion
rights or redemption or sinking fund provisions with respect to the common
stock. All outstanding shares of common stock are, and the shares of common
stock offered hereby upon issuance and sale will be, fully paid and
non-assessable. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the right of the holders
of any shares of preferred stock which our board of directors may designate in
the future.
Preferred Stock
Authorized but undesignated shares of preferred stock may be issued from
time to time in one or more series upon authorization by our board of directors.
Our board of directors, without further approval of the shareholders, is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and other rights,
preferences, privileges and restrictions applicable to each series of preferred
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes could, among
other things, adversely affect the voting power of the holders of common stock
and, under certain circumstances, make it more difficult for a third party to
gain control of Audio Book Club, prevent or substantially delay a change of
control, discourage bids for our common stock at a premium or otherwise
adversely affect the market price of our common stock.
13
<PAGE>
Classified Board of Directors
Our by-laws divide our board of directors into three classes, serving
staggered three-year terms. The staggered terms of the classes of directors may
make it more difficult for a third party to gain control of our board or to
acquire Audio Book Club and may discourage bids for our common stock at a
premium.
Transfer Agent
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, New York, New York.
14
<PAGE>
SHAREHOLDERS FOR WHICH SHARES ARE BEING REGISTERED FOR SALE
The following table sets forth certain information with respect to the
certain shareholders for which shares are being registered for sale:
<TABLE>
<CAPTION>
Beneficial
Ownership of
Shares of % of Shares
Shareholders Common Shares Beneficially
for Which Stock, Beneficially Owned
Shares are Including Shares Owned Assuming Assuming
Being Position Shares Reg- Registered for Sale the Sale of the the Sale of
Registered for with the istered Following Exercise Shares the Shares
Sale Company for Sale of Stock Options Registered Registered
- -------------- -------- ----------- ------------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Norton Herrick Co-Chief Executive 3,893,547 1,925,000 2,893,547 28.4%
Officer and
Director
Howard Herrick Executive Vice 3,941,100 250,000 3,691,100 42.6
President and
Director
Michael Herrick Co-Chief Executive 250,000 250,000 0 0
Officer and
Director
John Levy Executive Vice 51,000 50,000 1,000 *
President and Chief
Financial Officer
Roy Abrams Director 10,000 10,000 0 0
Carl Wolf Director 95,000 22,500 72,500 *
Evan Herrick Consultant 150,000 150,000 0 0
Jesse Faber President and 60,000 60,000 0 0
Director
</TABLE>
- ----------
* Less than one percent.
All of the shares registered for sale are issuable upon exercise of options
granted from time to time, since September 1997, under the 1997 Stock
Option Plan and 1999 Stock Incentive Plan as consideration for the option
holders' employment and for services rendered and/or to be rendered to us.
The above table assumes as to each shareholder named in the above table, or
a selling shareholder, the exercise of all of the options granted to such
selling shareholder under the Company's 1997 Stock Option Plan and 1999
Stock Incentive Plan whether or not currently exercisable and sale of all
of the shares issuable upon exercise of such options but no other options,
warrants or convertible securities held by the selling shareholder. We
cannot assure you that any options will be exercised or that any shares of
common stock offered by selling shareholders hereby will be sold. The
selling shareholders are not required to exercise any of the options or to
sell any of the shares of common stock offered by selling shareholders.
The above table also assumes for calculating each selling shareholder's
beneficial and percentage ownership that options, warrants or convertible
securities that are held by such selling shareholder (but not held by any
other selling shareholder or person) and are exercisable within 60 days
from the date of this prospectus have been exercised and converted.
15
<PAGE>
The shares beneficially owned by Norton Herrick includes (i) 8,200 shares
of common stock held directly by Norton Herrick, (ii) 488,460 shares of
common stock held by Howard Herrick, (iii) 488,460 shares of common stock
owned of record by the M.E. Herrick Irrevocable Trust, of which Michael
Herrick is the sole beneficiary and Howard Herrick is the sole trustee,
(iv) 1,000,000 shares issuable upon exercise of options granted under the
1997 Stock Option Plan, (v) 150,000 shares of common stock issuable upon
exercise of options granted to Evan Herrick under the 1997 Stock Option
Plan, (vi) 1,258,427 shares of common stock issuable upon conversion of a
promissory note of Audio Book Club and (vii) 500,000 shares of common stock
issuable upon exercise of a warrant.
The shares beneficially owned by Norton Herrick do not include 2,714,180
shares held by the Norton Herrick Irrevocable Trust of which Norton Herrick
is the sole beneficiary and Howard Herrick is the sole trustee and 775,000
shares of common stock issuable upon exercise of options granted under the
1999 Stock Incentive Plan that are not exercisable until October 1999.
These 775,000 shares are, however, included in the table as shares
registered for sale by Norton Herrick. The Norton Herrick Irrevocable ABC
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 in his own behalf and
on behalf of the M.E. Herrick Irrevocable Trust.
Evan Herrick has irrevocably granted to Norton Herrick sole voting and
dispositive power with respect to the shares of common stock issuable upon
exercise of the 150,000 options granted to Evan Herrick. Accordingly, these
150,000 shares have been included in the table as shares registered for
sale by each of Norton Herrick and Evan Herrick.
16
<PAGE>
PLAN OF DISTRIBUTION
Our company is registering the shares on behalf of the selling
shareholders. As used herein, "selling shareholders" includes donees and
pledgees selling shares received from a named selling shareholder after the date
of this prospectus. We have agreed to bear certain expenses in connection with
the registration of the shares offered and sold by the selling shareholders.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares will be borne by the selling shareholders. Sales of shares may be
effected by selling shareholders from time to time in one or more types of
transactions (which may include block transactions) on the American Stock
Exchange, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Such transactions may or may not involve brokers
or dealers.
The selling shareholders may effect such transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling shareholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling shareholders and any broker-dealers that act in connection with
the sale of shares of common stock might be deemed to be "underwriters" within
the meaning of Section 2(a)(11) of the Securities Act and any commissions
received by such broker-dealers and any profit on the resale of the shares sold
by them while acting as principals might be deemed to be underwriting discounts
or commissions under the Securities Act. Audio Book Club has agreed to indemnify
certain of the selling shareholders against certain liabilities, including
liabilities arising under the Securities Act. The selling shareholders may agree
to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares of common stock against certain
liabilities, including liabilities arising under the Securities Act.
Because selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(a)(11) of the Securities Act, the selling shareholders will
be subject to the prospectus delivery requirements of the Securities Act, which
may include delivery through the facilities of the American Stock Exchange
pursuant to Rule 153 under the Securities Act.
Selling shareholders also may resell all or a portion of the shares of
common stock in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of such rule.
INDEMNIFICATION
Our Articles of Incorporation and By-Laws provide that we shall indemnify
our directors and officers to the fullest extent permitted by the Florida
Business Corporation Act. The Florida Business Corporation Act provides that
none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to Audio Book Club or our
shareholders, except for liability for (i) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (ii) any
unlawful payment of a dividend or unlawful stock repurchase or redemption in
violation of the Florida Business Corporation Act, (iii) any transaction from
which the director received an improper personal benefit or (iv) a violation of
a criminal law.
We have entered into indemnification agreements with certain of our
employees, officers and consultants. Pursuant to the terms of the indemnity
agreements, we have agreed to indemnify, to the fullest extent permitted under
applicable law, against any amounts which the employee, officer or consultant
may become legally obligated to pay in connection with any claim arising from or
out of the employee, officer or consultant acting, in connection with any
services performed by or on behalf of us and certain expenses related thereto.
Provided however, that
17
<PAGE>
the employee, officer or consultant shall reimburse us for such amounts if the
such individual is found, as finally judicially determined by a court of
competent jurisdiction, not to have been entitled to such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have 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 our company of expenses incurred or paid by a director, officer
or controlling person of our company 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, we 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.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby was passed
upon for our company by Atlas, Pearlman, Trop & Borkson, P.A., Ft. Lauderdale,
Florida.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from Audio Book Club, Inc.'s Annual
Report on Form 10-KSB as of and for the year ended December 31, 1998 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Audio Book Club, Inc. as of December 31, 1997
and for the year ended December 31, 1997, incorporated by reference in this
prospectus have been audited by KPMG LLP, independent certified public
accountants. Such financial statements have been incorporated herein in reliance
upon the report of KPMG LLP and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Radio Spirits, Inc. as of December 31, 1997 and
for the years then ended, incorporated in this prospectus by reference to the
Current Report on Form 8-K/A of Audio Book Club, Inc. for the event dated
December 14, 1998 have been so incorporated in reliance on the report of BD&A
Certified Public Accountants, Ltd., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The audited carve-out financial statements of The Columbia House Audiobook
Club as of December 19, 1997 and December 20, 1996 and for the years then ended,
incorporated in this prospectus by reference to the Current Report on Form 8-K/A
of Audio Book Club, Inc. for the event dated December 31, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The audited financial statements of Audio Books Direct as of June 30, 1998
and June 30, 1997 and for the years then ended, incorporated by reference from
Audio Book Club, Inc.'s Form 8-K/A dated July 20, 1999 have been audited by KPMG
LLP, independent certified public accountants. Such financial statements have
been incorporated herein in reliance upon the report of KPMG LLP, also
incorporated by reference, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG LLP includes an explanatory
paragraph stating that the club has been operated as an integral part of
Doubleday Direct, Inc. and has no separate legal existence.
18
<PAGE>
WHERE YOU CAN FIND INFORMATION
Audio Book Club has filed with the SEC, a Registration Statement with
respect to the securities offered by this prospectus. This prospectus does not
contain all of the information set forth in, or annexed as exhibits to, the
Registration Statement, portions of which have been omitted in accordance with
the rules and regulations of the SEC. For further information with respect to
Audio Book Club and this offering, reference is made to the Registration
Statement, including exhibits filed therewith, which may be read and copied at
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New
York 10048. You can obtain copies of these materials at prescribed rates from
the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. Our electronic filings made through the
SEC's electronic data gathering, analysis and retrieval system are publicly
available through the SEC's worldwide web site (http://www.sec.gov).
19
<PAGE>
We have not authorized any dealer, sales person or any other person to give
any information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information. This prospectus does not offer to
sell or buy any securities in any jurisdiction where it is unlawful.
================================================================================
TABLE OF CONTENTS
Page
Special Information Regarding
Forward Looking Information................................. 1
Incorporation of Certain Documents
by Reference................................................ 1
Available Information......................................... 2
The Company................................................... 3
Recent Developments........................................... 4
Risk Factors.................................................. 6
Use of Proceeds............................................... 13
Description of Capital Stock.................................. 13
Shareholders for Which Shares are
Being Registered for Sale .................................. 15
Plan of Distribution.......................................... 17
Indemnification............................................... 17
Legal Matters................................................. 18
Experts....................................................... 18
Where You Can Find Information................................ 19
================================================================================
================================================================================
2,567,500 Shares
Common Stock
AUDIO BOOK CLUB, INC.
-------------
PROSPECTUS
-------------
July 28, 1999
================================================================================
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents previously filed by the Registrant with the
Securities and Exchange Commission (the "Commission") are incorporated by
reference in this Registration Statement:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998;
2. Current Report on Form 8-K for the event dated December 14, 1998;
3. Current Report on Form 8-K/A (Amendment No. 1) for the event dated
December 14, 1998;
4. Current Report on Form 8-K for the event dated December 31, 1998;
5. Current Report on Form 8-K/A (Amendment No. 1) for the event dated
December 31, 1998;
6. Current Report on Form 8-K/A (Amendment No. 2) for the event dated
December 31, 1998;
7. Current Report on Form 8-K/A (Amendment No. 3) for the event dated
December 31, 1998;
8. Current Report on Form 8-K for the event dated April 23, 1999;
9. Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999;
10. Current Report on Form 8-K for the event dated June 15, 1999;
11. Current Report on Form 8-K for the event dated July 2, 1999;
12. Current Report on Form 8-K/A (Amendment No. 1) for the event dated
June 15, 1999;
13. Current Report on Form 8-K/A (Amendment No. 2) for the event dated
June 15, 1999; and
14. The description of the Company's common stock contained in its
Registration Statement on Form 8-A declared
II-1
<PAGE>
effective on October 22, 1997, together with any amendment or report
filed with the Securities and Exchange Commission for the purpose of
updating such description.
All documents subsequently filed by the Registrant pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the
filing of a post-effective amendment which indicates that all securities offered
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in this Registration Statement and to
be a part hereof from the respective date of filing of such documents. Any
statement contained in a document incorporated by reference herein is modified
or superseded for all purposes to the extent that a statement contained in this
Registration Statement or in any other subsequently filed document which is
incorporated by reference modifies or replaces such statement.
Any reference herein shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein 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 Registration
Statement.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable
Item 6. Indemnification of Directors and Officers.
The Florida Business Corporation Act (the "Florida Act") contains
provisions entitling the Registrant's directors and officers to indemnification
from judgments, settlements, penalties, fines, and reasonable expenses
(including attorney's fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Registrant. In its Articles of Incorporation, the Registrant has included a
provision that limits, to the fullest extent now or hereafter permitted by the
Florida Act, the personal liability of its directors to the Registrant or its
shareholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the Florida Act as currently in effect, this
provision limits a director's liability except where such director breaches a
duty.
II-2
<PAGE>
The Registrant's Articles of Incorporation and By-Laws provide that the
Registrant shall indemnify, and upon request shall advance expenses to, its
directors and officers to the fullest extent permitted by the Florida Act. The
Florida Act provides that no director or officer of the Registrant shall be
personally liable to the Registrant or its shareholders for damages for breach
of any duty owed to the Registrant or its shareholders, except for liability for
(i) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (ii) any unlawful payment of a dividend or
unlawful stock repurchase or redemption in violation of the Florida Act, (iii)
any transaction from which the director received an improper personal benefit or
(iv) a violation of a criminal law. This provision does not prevent the
Registrant or its shareholders from seeking equitable remedies, such as
injunctive relief or rescission. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have any
effective remedy against actions taken by directors that constitute negligence
or gross negligence.
The Registrant has entered into indemnification agreements with certain
employees, officers and consultants. Pursuant to the terms of the indemnity
agreements, the Registrant has agreed to indemnify, to the fullest extent
permitted under applicable law, against any amounts which the employee, officer
or consultant may become legally obligated to pay in connection with any claim
arising from or out of the employee, officer or consultant acting, in connection
with any services performed by or on behalf of the Registrant and certain
expenses related thereto. Provided however, that the employee, officer or
consultant shall reimburse the Registrant for such amounts if the such
individual is found, as finally judicially determined by a court of competent
jurisdiction, not to have been entitled to such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission") such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Item 7. Exemption from Registration Claimed.
Not Applicable.
II-3
<PAGE>
Item 8. Exhibits.
Exhibit No. Description
----------- -----------
5 Opinion of Atlas, Pearlman, Trop & Borkson,
P.A.
23.1 Consent of Deloitte & Touche LLP
23.2(a) Consent of KPMG LLP
23.2(b) Consent of KPMG LLP
23.3 Consent of BD&A Certified Public
Accountants, Ltd.
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Atlas, Pearlman, Trop & Borkson,
P.A. (included in Exhibit 5)
24.1 Power of Attorney (included on Page II-7 of
this Registration Statement)
- -------
Item 9. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
prices represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
II-4
<PAGE>
(iii) To 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;
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 with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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) To remove from registration by means of a post- effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 such Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boca Raton, State of Florida, on this 27th day of
July 1999.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
------------------------------------------
Norton Herrick, Co-Chief Executive Officer
Each person whose signature appears below authorizes each of Norton Herrick
and Michael Herrick, or either of them as his true and lawful attorney-in-fact
with full power of substitution to execute in the name and on behalf of each
such person, individually and in each capacity stated below, and to file any and
all amendments to this Registration Statement, including any and all
post-effective amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following person in the capacities and
on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Norton Herrick
- ----------------------------- Director, Chairman of the July 27, 1999
Norton Herrick Board and Co-Chief Executive
Officer (Principal Executive
Officer)
/s/ Michael Herrick
- ----------------------------- Director and Co-Chief July 27, 1999
Michael Herrick Executive Officer
/s/ Howard Herrick
- ----------------------------- Director and Executive Vice July 27, 1999
Howard Herrick President
/s/ Jesse Faber
- ----------------------------- President and Director July 27, 1999
Jesse Faber
/s/ John Levy
- ----------------------------- Executive Vice President and July 27, 1999
John Levy Chief Financial Officer
(Principal Financial and
Accounting Officer)
- ----------------------------- Director July 27, 1999
Carl Wolf
- ----------------------------- Director July 27, 1999
Roy Abrams
II-6
<PAGE>
Exhibit Index
Exhibit No. Description Page
----------- ----------- ----
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
23.1 Consent of Deloitte & Touche LLP
23.2(a) Consent of KPMG LLP
23.2(b) Consent of KPMG LLP
23.3 Consent of BD&A certified Public Accountants, Ltd.
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Atlas, Pearlman, Trop & Borkson, P.A.
(included in Exhibit 5)
24.1 Power of Attorney (included on page II-7 of the
Registration Statement)
Exhibit 5
[letterhead of Atlas, Pearlman, Trop & Borkson]
July 26, 1999
Audio Book Club, Inc.
The Herrick Company
2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
Re: Registration Statement on Form S-8; Audio Book Club, Inc.;
(the "Company"); 4,500,000 Shares of Common Stock
Dear Sir/Madam:
We refer to the Registration Statement (the "Registration Statement") filed
by Audio Book Club, Inc., a Florida corporation, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, in connection
with the sale of up to 4,500,000 shares of Common Stock, no par value per share,
(the "Plan Shares"), as set forth in the above Registration Statement, issuable
upon the exercise of stock options (the "Plan Options") available for grant
under the Company's 1997 Stock Option Plan and the Company's 1999 Stock
Incentive Plan.
In our capacity as counsel to the Company, we have examined the original,
certified, conformed, photostat or other copies of the Company's Articles of
Incorporation, By-Laws, the plans and various agreements and written options to
be provided to officers, directors, key employees and consultants to the
Company, corporate minutes provided to us by the Company and such other
documents and instruments as we deemed necessary. In all such examinations we
have assumed the genuineness of all signatures on original documents and the
conformity to original or certified documents of all copies submitted to us as
conformed, photostat or other copies. In passing upon certain corporate records
and documents of the Company, we have necessarily assumed the correctness and
completeness of the statements made or included therein by the Company, and we
express no opinion thereon.
Based upon and in reliance of the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the State of Florida.
2. The Plan Shares have been duly and validly authorized and, when sold,
paid for and issued as contemplated by the Plan Options, will be duly
and validly issued and fully paid and non-assessable.
<PAGE>
We hereby consent to the use of this opinion in the Registration Statement
on Form S-8 to be filed with the Commission. We also hereby consent to the use
of our name under "Legal Matters" in the Prospectus constituting part of the
Registration Statement.
Very truly yours,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Audio Book Club, Inc. on Form S-8, expected to be filed on July 26, 1999, of our
report dated March 22, 1999, appearing in the Annual Report on Form 10-KSB of
Audio Book Club, Inc. for the year ended December 31, 1998 and to the reference
to us under the heading "Experts" in the Prospectus which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
July 23, 1999
Exhibit 23.2(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Audio Book Club, Inc.:
We consent to the use of our report dated March 13, 1998, related to the
financial statements of Audio Book Club, Inc. as of December 31, 1997 and for
the year then ended, incorporated herein by reference and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
New York, New York
July 26, 1999
Exhibit 23.2(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Doubleday Direct, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-8 of Audio Book Club, Inc. of our report dated March 12, 1999, with
respect to the balance sheets of Audio Books Direct, a wholly-owned operation of
Doubleday Direct, Inc. (the "Club"), as of June 30, 1998 and 1997, and the
related statements of operations, divisional deficit, and cash flows for the
years then ended, which report appears in the Form 8-K/A of Audio Book Club,
Inc. dated July 20, 1999. Our report includes an explanatory paragraph stating
that the Club has been operated as an integral part of Doubleday Direct, Inc.
and has no separate legal existence. We also consent to the reference to our
firm under the heading "Experts" in the registration statement.
KPMG LLP
/s/ KPMG LLP
New York, New York
July 26, 1999
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Audio Book Club, Inc.
Boca Raton, Florida
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of Audio Book Club, Inc. of our report dated November 20,
1998 relating to the financial statements of Radio Spirits, Inc. as of December
31, 1997 and for the year then ended appearing in Audio Book Club, Inc.'s
Current Report on Form 8-K/A for the event dated December 14, 1998.
/s/ BD&A Certified Public Accountants, Ltd.
Elmhurst, Illinois
July 23, 1999
Exhibit 23.4
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report on the carve-out financial statements of The
Columbia House Company Audiobook Club dated December 30, 1998 which appears in
the Audio Book Club, Inc.'s Current Report on Form 8-K/A dated April 27, 1999.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
July 27, 199
