As filed with the Securities and Exchange Commission on March 15, 1999.
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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)
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<TABLE>
<S> <C> <C>
Florida 2295 Corporate Blvd., N.W. 65-0429858
(State or other Boca Raton, FL 33431 (IRS employer
jurisdiction of (561) 241-1426 identification
incorporation or (Address, including zip code, and telephone number, including number)
organization) area code, of registrant's principal executive offices)
</TABLE>
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Norton Herrick
Co-Chief Executive Officer
Audio Book Club, Inc.
2295 Corporate Blvd., N.W.
Boca Raton, FL 33431
(561) 241-1426
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copy to:
Robert J. Mittman, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 885-5000
Facsimile: (212) 885-5001
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of each Amount Offering Aggregate Amount of
Class of Securities to be Price Per Offering Registration
to be Registered Registered(1) Security(2) Price(2) Fee
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Common stock, no par
value per share 3,779,827 (3) $10.06 $38,025,060 $10,570.97
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(1) Includes 925,000 shares of common stock 1,596,400 shares issuable upon
exercise of outstanding options or warrants and 1,258,427 shares issuable
upon conversion of a convertible note. All of the shares of common stock
being registered hereby are being offered for the accounts of selling
shareholders who acquired such shares or options or warrants or convertible
note to acquire shares in private transactions. No other shares of the
registrant's common stock are being registered pursuant to this offering.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended (the
"Securities Act"), based upon a price of $10.06 per share, the average of
the high and low sale prices as reported by the American Stock Exchange for
the registrant's common stock on March 9, 1999.
(3) Pursuant to Rule 416 of the Securities Act there are also being registered
hereunder such additional shares as may be issued to the selling
shareholders because of any future stock dividends, stock distributions,
stock splits or similar capital readjustments.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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AUDIO BOOK CLUB, INC.
3,779,827 Shares of Common Stock
This prospectus relates to an offering by certain selling shareholders of
an aggregate of up to 3,779,827 shares of the common stock of Audio Book Club,
Inc. All of the 3,779,827 shares 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." Our company 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 March 12, 1999, the closing sale price of the common stock as reported
by the American Stock Exchange was $12.5625.
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An investment in the common stock is speculative and involves a high degree
of risk. See "Risk Factors" Beginning on Page 8.
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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 ________, 1999.
<PAGE>
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 our company with the Securities
and Exchange Commission are incorporated herein by reference and shall be deemed
a part hereof:
(a) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997;
(b) Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1998;
(c) Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 1998;
(d) Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 1998;
(e) Current Report on Form 8-K for the event dated May 4, 1998;
(f) Current Report on Form 8-K for the event dated December 14, 1998;
(g) Current Report on Form 8-K for the event dated December 31, 1998;
(h) Current Report on Form 8-K/A (Amendment No. 1) for the event dated
December 14, 1998; and
(i) 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 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, as amended (the "Exchange Act") 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 such 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 such statement. Any statement so modified or superseded
shall not be deemed, except as so
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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 our
company 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
Our company is subject to the informational requirements of the 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 a direct marketer of audiobooks through Audio Book
Club, a membership club which markets and sells audiobooks by mail and via the
Internet. Since our inception, we have engaged in an aggressive membership
recruitment program to establish a core Audio Book Club member base and to
continually expand such member base.
In March 1995, we established an Internet website which offers visitors to
our site the opportunity to join Audio Book Club, execute club transactions
online, use the website's search engine to locate any of the website's thousands
of audiobook selections and sample clips of many of the website's selections. We
are continually seeking to expand our company's presence on the Internet by
increasing the number of audiobook titles to select and audio clips to preview,
providing additional content for our websites and entering into advertising
agreements with other Internet and online companies. In June 1998, we also
launched BooksAloud.com, our second Internet website and membership club,
designed for online customers. In 1998, we also completed the several
acquisitions discussed below which has resulted in our Audio Book Club
membership increasing to over 1,000,000 members.
Our principal executive offices are located at 2295 Corporate Boulevard.,
N.W., Suite 222, Boca Raton, Florida 33431 and our telephone number is (561)
242-1426. We also have offices located at 20 Community Place, Morristown, New
Jersey 07960. Our Internet website is located at www.audiobookclub.com and we
maintain another Internet website at www.BooksAloud.com.
RECENT DEVELOPMENTS
Radio Companies Acquisitions
In December 1998, through our wholly-owned subsidiary, Classic Radio
Holding Corp. ("Classic"), we acquired Radio Spirits, Inc. ("Radio Spirits") for
an aggregate base purchase price of approximately $340,000 (subject to
adjustment based upon the "Net Liability Value" (as defined in the purchase
agreement) of Radio Spirits), 425,000 shares of our common stock and options to
purchase an additional 175,000 shares of our common stock at an exercise price
of $13.125 per share. A total of 200,000 of the 425,000 shares and 100,000 of
the 175,000 options were placed in escrow and are subject to release if certain
specified "EBITDA" (as defined in the purchase agreement) levels for the
acquired company are met for the year ended December 31, 1998 and year ending
December 31, 1999 (with respect to the escrowed shares) and for the year ending
December 31, 2000 (with respect to the escrowed options). We also entered into a
put agreement which granted the seller and his designees the right, under
certain circumstances, commencing three years from the closing, to require our
company to repurchase up to 175,000 shares of common stock issued in connection
with the acquisition at prices ranging from $4.00 to $12.00 per share.
At the time of the acquisition, Radio Spirits specialized in the
syndication, sales and licensing of popular radio programs which originally
aired from the 1930's through the late 1950's. Radio Spirits also produced and
syndicated three national "classic" radio programs that are collectively heard
in more than 500 markets by over 3 million listeners weekly. Through its
in-house production and mail order services, Radio Spirits also produced and
distributed audiocassettes and compact discs of vintage comedy,
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mystery, detective, adventure and suspense programs to customers worldwide.
Radio Spirits also controlled the licensing rights to many popular serials and
had an exclusive licensing arrangement with the Smithsonian Institute to market
products under the Smithsonian name.
In connection with our acquisition of Radio Spirits, through our indirectly
wholly-owned subsidiary, Classic Radio Acquisition Corp. ("CRAC"), we also
acquired certain assets of Buffalo Productions, Inc. ("Buffalo"), an affiliate
of Carl Amari (who was the sole stockholder and Chairman of Radio Spirits prior
to the acquisition), for approximately $369,000, and Mr. Amari's 50% interest in
a joint venture engaged in producing, broadcasting, marketing and distributing a
series of old-time radio programs for $2,550,000. The assets acquired from
Buffalo were those relating to its business of duplicating pre-recorded compact
discs.
In December 1998, through CRAC, we acquired all of the assets used by
Metacom, Inc. ("Metacom") in connection with its "Adventures in Cassettes"
business of producing, marketing, and selling old-time radio programs for
$900,000, 50,000 shares of our common stock and options to purchase up to 50,000
shares of our common stock at an exercise price of $8.125 per share. In
addition, we granted Metacom the right, subject to certain limitations, to sell
the shares and the shares issuable upon exercise of the options received by it
back to our company at a price of $10.00 per share between the third and tenth
anniversary of the closing. Metacom's Adventures in Cassettes customer list
includes approximately 150,000 names.
In December 1998, through CRAC, we acquired all the assets used by Premier
Electronic Laboratories, Inc. ("Premier") in connection with its business of
licensing, producing, marketing and selling classic videos and radio programs
through mail order catalogs, phone solicitations and specialty mail
organizations for $240,000, 125,000 shares of our common stock and a certain
non-compete payment. We also granted Premier the right, under certain
circumstances and subject to certain limitations, to sell the 125,000 shares
received by it back to our company at prices ranging from $7.00 per share for
the first 25,000 shares so sold to $15.00 per share for the last 50,000 shares
so sold, at various times between the second and tenth year of the closing of
the acquisition. As of June 30, 1998, Premier had over 200,000 mail order
customers.
As part of the acquisition of Radio Spirits, Classic acquired Radio
Spirits' mailing list of over 70,000 individuals as well as all of the company's
assets. In connection with the Radio Spirits acquisition, we hired Carl Amari as
President of Classic, to manage the combined, post-merger radio operations
pursuant to a three-year employment agreement that provides for an annual salary
of $200,000 for the first 18 months and $300,000 for the next 18 months.
Acquisition of Columbia House's Audiobook Club Division
On December 31, 1998, our wholly-owned subsidiary acquired substantially
all of the assets used in the audiobook club division (the "CH AudioBook Club")
of The Columbia House Company ("Columbia House").
At the time of the acquisition, the CH Audiobook Club was the industry
leading direct marketer of audiobooks using a membership club format. As part of
the acquisition, we acquired Columbia House's audiobook club's membership file
of approximately 600,000 members, as well as substantially all of
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Columbia House's other assets relating exclusively to the CH Audiobook Club,
including inventory and certain accounts receivable. We also entered into a
mailing agreement which allows us to (i) use Columbia House's compact disc, VHS,
laser and DVD video club's membership lists for our Audio Book Club new member
acquisition campaigns, (ii) insert our new member acquisition material into
Columbia House's member mailing programs sent to various other clubs maintained
by Columbia House and (iii) be referred to as the Columbia House recommended
source for audiobooks in a club format, for a period of seven years. In
addition, Columbia House entered into a non-compete agreement pursuant to which
it agreed not to engage in certain activities which compete with our operation
of our Audio Book Club for a period of five years. Moreover, we entered into a
transitional services agreement with Columbia House.
As consideration for the acquisition and the related transactions,
including the mailing agreement, the non-compete agreement and the transitional
services agreement, Columbia House received from us cash consideration of
$30,750,000. In addition, we issued to Columbia House's designees (Sony Music
Entertainment Inc. and WCI Record Club Inc.) an aggregate of 325,000 shares of
our common stock (the "Shares") and warrants to purchase an additional 100,000
shares of our common stock (the "Warrant Shares") at a price of $11.125 per
share. We also granted to Columbia House (i) certain registration rights with
respect to the Shares and Warrant Shares and (ii) the right, under certain
circumstances, commencing six years from the Closing, to require us to purchase
from Columbia House and its designees the Shares at a price of $15.00 per Share.
Financings
In December 1998, we obtained financing for our recent acquisitions from
(i) Fleet National Bank ("Fleet") and ING (U.S.) Capital Corporation pursuant to
a credit agreement dated as of December 31, 1998 (the "Credit Agreement") among
our company, the banks, financial institutions and other institutional lenders
named therein, as initial lenders, and Fleet, as initial issuing bank, swingline
bank and administrative agent, and (ii) Norton Herrick, our Co-Chief Executive
Officer, pursuant to a $15,000,000 principal amount 9% Convertible Senior
Subordinated Promissory Note due December 31, 2004 (the "Note").
Pursuant to the Credit Agreement, we borrowed an aggregate of $27,000,000,
consisting of a $25,000,000 Term Advance (as defined in the Credit Agreement)
and a $2,000,000 Revolving Credit Advance (as defined in the Credit Agreement).
Subject to certain limitations set forth in the Credit Agreement, the maximum
principal amount of all advances under the Credit Agreement cannot exceed
$30,000,000 through and including March 30, 1999, thereafter increasing to a
maximum of $34,000,000. The principal amount outstanding under the Credit
Agreement is payable in quarterly installments commencing on March 31, 1999
through December 31, 2003. The quarterly payments begin at $250,000 on March 31,
1999 and increase by $500,000 increments on each March 31, to $2,250,000 on
March 31, 2003, provided, however, that the final principal installment on
December 31, 2003 will be equal to the aggregate principal amount outstanding on
such date. We granted to the lenders a security interest in substantially all of
our assets and the assets of our subsidiaries and pledged the capital stock of
our subsidiaries to the lenders as collateral under the Credit Agreement. We
also issued to the lenders three-year warrants to purchase up to an aggregate of
196,800 shares of our common stock at an exercise price of $10.00, subject to
adjustment in certain circumstances.
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Pursuant to the Note, we borrowed $15,000,000, of which $1,000,000 was
repaid on January 12, 1999. The Note is due December 31, 2004, bears interest at
the initial rate of 9% per annum, payable monthly in arrears and is convertible,
in whole or in part, at the holder's option, into shares of our common stock at
the rate of one share per $11.125 of principal or interest outstanding under the
Note, subject to adjustment. As additional consideration for the loan, our
company issued to Mr. Herrick five-year warrants to purchase 500,000 shares of
our common stock at an exercise price of $12.00 per share, subject to
adjustment. Pursuant to the terms of a letter agreement dated December 31, 1998
between our company and Mr. Herrick (the "Letter Agreement"), the interest rate
of the Note will increase to 11%, the conversion rate of the Note is subject to
adjustment and the exercise price of the warrants is subject to adjustment, in
the event that the Note is not refinanced on or prior to September 30, 1999.
Pursuant to the Letter Agreement, we also agreed that if the Note is refinanced
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 350,000 shares
of our common stock, which warrants shall be identical to the warrants issued to
him in connection with the Note. The Note is subordinated to our obligations
under the Credit Agreement and is secured by a second lien security interest of
certain assets of Classic and CRAC. Additionally, pursuant to the terms of a
letter agreement, Mr. Herrick agreed with Fleet not to take certain actions with
respect to the Note so long as he held the Note. The terms of Mr. Herrick's
investment were approved by the independent members of the Company's Board of
Directors. Prior to consummating the transaction the Board obtained a fairness
opinion from an investment banker.
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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.
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 and $3,993,346 during the
nine months ended September 30, 1998. We had an accumulated deficit of
$20,467,274 at September 30, 1998.
Significant Outstanding Indebtedness; Loan Covenants and Security
Interests. Our company has 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 September 30, 1998, on a pro forma basis, after giving effect to the
borrowing of approximately $27,000,000 pursuant to the Credit Agreement, the
issuance of the Notes, the application of the net proceeds therefrom and the
consummation of the acquisitions, described under "Recent Developments", we have
approximately $41 million of indebtedness outstanding, which is substantial in
relation to our total capitalization. Since our company's 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.
Security Interests and Restrictive Covenants. All of our assets and the
assets and capital stock of our subsidiaries are pledged to the lenders under
the Credit Agreement, and certain assets of Classic and CRAC are pledged to the
lender under the Note. The agreements relating to the Credit Agreement and to
the Note contain financial ratios and covenants requiring compliance by our
company. Upon the occurrence of an event of default under the Credit Agreement
or the Note, our indebtedness thereunder (subject, in the case of the senior
subordinated notes, to the subordination provisions thereof) could become
immediately due and payable and the lenders under the Credit Agreement and/or
Note could foreclose on our assets.
Risks Associated with Expansion and Acquisitions. 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 such transactions. We can not
assure you that we will be able to successfully integrate such businesses into
our operations or that we will be able to retain key personnel acquired in such
transactions. We will likely be materially adversely affected if we are unable
to successfully integrate acquired businesses and personnel into our operations.
We may seek to continue to expand our operations by acquiring additional
companies or businesses. We can not assure you that we will be able to further
expand our operations or that any future acquisitions will have a positive
effect on our company's business and prospects.
Amortization Expenses Due to Recent Acquisitions. As a result of our recent
acquisitions, our company is required to amortize the excess of costs over net
assets acquired (an aggregate of approximately $48 million) over a period of up
to 40 years. Although such amortization does not have an effect on our company's
available capital, it will be treated as an operating expense that will reduce
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our company's reported earnings or increase reported losses, as the case may be.
Future acquisitions could result in substantial additional amortization expenses
to our company which would reduce future earnings or increase losses, as the
case may be.
Contingent Liabilities; Other Obligations. 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. The sellers have the option under certain
conditions to sell the such shares of stock to us at prices ranging from $7.00
to $15.00 per share at various times commencing December 2000, unless the puts
are terminated as a result of our satisfying certain common stock price and/or
performance targets prior thereto. As of the date of this prospectus, the market
value of our common stock was below the guaranteed market prices for certain put
obligations. There can be no assurance that the market price of our common stock
will exceed the guaranteed market prices at the time that the puts are
exercisable or that the puts will terminate prior thereto. In addition, there
can be no assurance that we will have the necessary funds to meet any
obligations to repurchase stock pursuant to the puts and we could be materially
adversely affected if we are required to make such payments or are unable to
make such payments if so required.
Risks Relating to Member Recruitment Strategy. Our member recruitment
advertising efforts will continue to include direct mail campaigns. 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, including to
persons on the membership lists of the recently acquired Columbia House clubs
and more than 300,000 names acquired through our other recent acquisitions.
However, we cannot assure you that we will achieve improved response rates, be
able to reduce our per member acquisition costs or that our member recruitment
efforts will result in a substantially increased membership base.
Niche Market. Although audiobooks have been marketed to the public for
approximately 12 years and the market for audiobooks has expanded rapidly during
that period, this market 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. It is possible that the market for audiobooks may not continue to
grow at the current rate or that growth trends may reverse. A decline in the
popularity of audiobooks could adversely affect our business and prospects.
Changing Consumer Preferences. 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 asses 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 such inventory at a
reduced price. 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 such factors in a timely manner could have an adverse effect on our
operating results.
Dependence Upon Supply of Audio Books. We are dependent upon the continued
supply of audiobooks to offer to Audio Book Club members. Many of our license
agreements with audiobook publishers are short-term, non-exclusive agreements,
typically one or two years in length. Certain 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. Our failure to obtain the rights to audiobook libraries
or selected audiobook titles, on commercially reasonable terms, or at all, could
have a material adverse effect on our business and prospects. In addition, we
currently enjoy a cost advantage over traditional retailers of audiobooks. If
audiobook publishers were to change their policies, our cost advantage could be
adversely impacted.
Dependence on Third-Party Service Providers. National Fulfillment Services,
Inc. provides order processing, billing and data processing services to our
company and performs customer service functions. Centrobe, Inc. provides
warehousing and distribution services for our company. We are dependent upon
such third parties to process and deliver orders on a timely basis and upon
National Fulfillment Services, Inc. to provide friendly, efficient customer
service and to timely process and collect and accurately report customer
payments to avoid delays in collection. Failure by either of these service
providers to perform its services in accordance with our requirements could
result in adverse member perception of Audio Book Club and BooksAloud.com or
delay collections of receivables, either of which could have a material adverse
effect on our company. The unavailability or interruption of services from
either of these providers would result in a material interruption of our
operations.
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Risks Relating to Operation of a Web Site and Advertising on the Internet
and Online Computer Services. Key elements of our business strategy are to
expand our Internet web sites and increase Internet and online computer service
advertising. Accordingly, the satisfactory performance, reliability and
availability of our websites, transaction-processing systems and network
infrastructure are critical to our reputation and our ability to attract
visitors to our websites and maintain adequate customer service levels. 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 websites.
Accordingly, any system interruptions that result in the unavailability of our
websites or could adversely affect consumer perception of our membership clubs
and websites, either of which could have a material adverse effect on our
company.
Member Attrition. Our operating results are and will continue to be
significantly affected by member attrition. 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. Moreover, 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 our
company 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. Any significant
increase in member attrition could have a material adverse effect on our
company. We may not be able to recoup our costs associated with new members.
Competition. The audiobook and mail order club industries are intensely
competitive and highly fragmented. Although we recently acquired one of our
major competitors, we continue to compete with the other existing audiobook club
for prospective members. We are currently aware of one other negative option
audiobook club. We also compete with all other outlets through which audiobooks
are offered, including bookstores, audiobook stores (which primarily rent and,
to a lesser extent, sell only audiobooks), retail establishments such as
supermarkets, convenience stores, video rental stores, wholesale clubs and mail
order companies which offer audiobooks for rental and sale through their
catalogs and on the internet. Some of these competitors are well-established
companies which have greater financial, marketing, distribution, personnel and
other resources than we have, with the financial resources necessary to enable
them to withstand substantial price competition or downturns in the market for
audiobooks. In addition, we compete with mail order clubs and catalogs, Internet
marketers and other direct marketers that offer products with similar
entertainment value as audiobooks, such as music cassettes and compact discs,
printed books and videos, for discretionary consumer spending. Moreover, since
the audiobook club industry does not have any substantial barriers to
competition, other marketers of audiobooks may seek to establish audiobook clubs
and operators of other clubs may seek to expand their product line by adding
audiobooks. Any increase in competition could result in increased price
competition. We can not assure you that we will be able to compete successfully.
Product Returns. Mail order clubs which offer products on a negative option
basis, have historically experienced high product return rates. Our policy is to
accept promptly made returns of damaged products and, in order to maintain
favorable customer relations, we generally accept returns of unopened products.
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. We have recently
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experienced a product return rate of approximately 28.7%. Product returns which
significantly exceed our reserves would adversely affect our operating results.
Collection and Credit Risks. We are subject to all of the risks associated
with selling products on credit, including, delays in collection or
uncollectibility of accounts receivable. Our accounts receivable (less
allowances for sales returns and doubtful accounts) have historically increased
from period to period and are expected to increase as a result of the
anticipated expansion of Audio Book Club's and BooksAloud.com membership base.
As of September 30, 1998, allowances for sales returns and doubtful accounts
were $912,875, which we believe is currently adequate for the size and nature of
our receivables. Nevertheless, delays in collection or uncollectibility of
accounts receivable could have a material adverse effect on our liquidity and
working capital position and could require our company to increase our allowance
for doubtful accounts. Furthermore, as we seek to expand Audio Book Club's and
BooksAloud.com's membership bases, we will be required to continually evaluate
and assess the credit worthiness of new members.
Costs of Postage and Shipping. 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. Any unanticipated increase in postal rates could have an adverse
effect on our operating results to the extent that we are unable to offset such
increases by raising our prices or by implementing more efficient mailing,
delivery and order fulfillment methods.
Uncertainty of Protection of Proprietary Information. We believe that our
service marks have significant value and are important to the marketing of our
membership clubs and websites. However, we cannot assure you that our marks do
not or will not violate the proprietary rights of others or that our marks would
be upheld, or that we would not be prevented from using our marks, if
challenged. Any of the foregoing could have an adverse effect on our company. In
addition, we rely on trade secrets and proprietary know-how, and employ various
methods, to protect our ideas, concepts and membership database. However, such
methods may not afford us complete protection. Others may independently develop
similar know-how or obtain access to our know-how, ideas, concepts and
membership database. We typically obtain confidentiality agreements with our
executive officers, employees, list managers and appropriate consultants and
service suppliers. However, we can not assure you that such agreements will be
obtained or, if obtained will 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, our company may be adversely
affected.
Fluctuations in Operating Results. Our operating results vary from period
to period 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 which would not be easily reversed before the
following year. The foregoing may result in significant fluctuations in our
operating results in the future.
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Dependence Upon Key Personnel. Our success will largely depend 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.
We have entered into employment agreements with each of such officers. However,
the loss of the services of either such officer or other key personnel would
have a material adverse effect on company's business and prospects. Our success
will also depend on our ability to attract and retain experienced management and
industry personnel. We face considerable competition from other mail order
clubs, Internet marketers and direct marketing companies for such personnel,
many of which have significantly greater resources than we have. We can not
assure you that we will be able to attract and retain such personnel. Our
business and prospects could be materially adversely affected if we are unable
to do so.
Certain Relationships with Affiliates; Conflicts of Interest. From time to
time, we have relied on and benefitted from our relationships with certain
affiliates. We share office space with entities affiliated with officers of our
company and have relied on entities affiliated with Norton Herrick for the
provision of certain 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 our
company and certain of his other business ventures.
Control by The Herrick Family. As of the date of this prospectus, Norton
Herrick, Michael Herrick and Howard Herrick, in the aggregate, beneficially own
approximately 67.8% of the outstanding common stock of our company (or 61.3% on
a fully diluted basis). Accordingly, they are able to control our company and
generally direct our company's affairs, including electing a majority of our
directors and causing an increase in our company's authorized capital or the
dissolution, merger, or sale of our company or substantially all of our assets.
Classified Board of Directors; Possible Adverse Effects of Authorization of
Preferred Stock. Our by-laws divide our board of directors into three classes,
serving staggered three-year terms. The staggered board of directors may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, our company. In addition, our Articles of Incorporation authorize our board
of directors to issue up to 5,000,000 shares of "blank check" preferred stock
without shareholder approval, in one or more series and to fix the dividend
rights, terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restrictions applicable to each new series of preferred stock. The issuance of
shares of preferred stock in the future could, among other results, adversely
affect the voting power of the holders of common stock and, under certain
circumstances, could make it difficult for a third party to gain control of our
company, prevent or substantially delay a change in control, discourage bids for
the common stock at a premium, or otherwise adversely affect the market price of
the common stock. Although our company has no current plans to issue any shares
of preferred stock or designate new series of preferred stock our board of
directors may decide to do so in the future.
No Dividends. Our company has never paid any dividends on the common stock
and does not anticipate paying cash dividends in the foreseeable future. The
declaration and payment of future dividends, if any, will be at the sole
discretion of the board of directors and will depend upon our profitability,
financial condition, cash requirements, future prospects, and other factors
deemed relevant by the board of directors. In addition, the payment of dividends
and other distributions to our holders of common stock is prohibited by the
terms of certain financing agreements.
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Limitation of Liability of Directors and Officers. Our Articles of
Incorporation include provisions to eliminate, to the full extent permitted by
the Florida Business Corporation Act, the personal liability of our directors
for monetary damages arising from a breach of their fiduciary duties as
directors. The Articles of Incorporation also include provisions to the effect
that we will, to the maximum extent permitted under the law of the State of
Florida, indemnify, and upon request shall advance expenses to any director or
officer to the extent that such indemnification and advancement of expense is
permitted under such law.
Potential Volatility of Price of the Common Stock. The market price of our
common stock has experienced significant fluctuations since our initial public
offering in October 1997. The 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 actual or anticipated variations in
our quarterly operating results announcements by our company or our competitors,
factors affecting the audiobook industry generally, changes in national or
regional economic conditions, changes in securities analysts' estimates for our
company's competitors' or industry's future performance or general market
conditions. The market price of the 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.
Significant Outstanding Options, Warrants and Other Convertible Securities.
As of January 31, 1999, there were outstanding options, warrants and other
convertible securities to purchase an aggregate of approximately 4,600,000
shares of our common stock at exercise prices ranging from $3.50 to $16.50 per
share. To the extent that outstanding options and warrants are exercised,
dilution to the percentage ownership of our company's shareholders will occur
and any sales in the public market of our common stock underlying such 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 our
company than those provided in the outstanding options and warrants.
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 for cash of warrants and options made prior to the sale of any
of the shares of common stock underlying such warrants and options (except with
respect to "cashless exercises") being offered hereby. Such proceeds will be
added to our working capital.
DESCRIPTION OF CAPITAL STOCK
General
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Our company is authorized to issue 25,000,000 shares of common stock, no
par value, and 5,000,000 shares of preferred stock, no par value. As of March
10, 1999, there are 7,078,920 shares of common stock outstanding and no shares
of preferred stock outstanding.
Common Stock
The holders of 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
our company, 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 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.
The 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 our company, 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 the common stock.
Transfer Agent
The transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, New York, New York.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
selling shareholders:
<TABLE>
<CAPTION>
Beneficial
Ownership of Shares % of Shares
Shares of Common Beneficially Beneficially
Selling Stock Prior to Shares to be Sold Owned Owned After
Shareholder(1) Offering in the Offering(2) After Offering(3) Offering(3)
- -------------- -------- ------------------ ----------------- -----------
<S> <C> <C> <C> <C>
Norton Herrick 3,893,547(4) 1,758,427(5) 2,135,120 25.9%
Carl Wolf 95,000(6) 75,000 15,000 *
The Columbia
House Company 225,000 225,000 0 0
Sony Music
Entertainment Inc. 325,000(7) 325,000(8) 0 0
WCI Music Group,
Inc. 325,000(7) 325,000(8) 0 0
Premier Electronic
Laboratories, Inc. 125,000(9) 125,000 0 *
Metacom, Inc. 100,000(10) 100,000 0 *
Carl Amari 547,875(11) 547,875 0 *
Denis Levin 31,250(12) 31,250 0 0
Vince Amari 20,875(13) 20,875 0 0
Karen Olsen 5,000(14) 5,000 0 0
Christina Vrba 10,000(15) 10,000 0 0
Fleet National
Bank 98,400(16) 98,400 0 0
ING (U.S.) Captial
Corporation 98,400(17) 98,400 0 0
800 Long Distance,
Inc. 21,600(18) 21,600 0 0
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Jeffrey Busche 20,000(19) 20,000 0 0
Louis Lichtenfeld 10,000(20) 10,000 0 0
Gregory Presson 31,625(21) 31,625 0 0
Stephen Weinress 20,334(22) 20,334 0 0
Carl Frankson 27,125(23) 27,125 0 0
Patrick Bannister 6,291(24) 6,291 0 0
Darren Friend 23,000(25) 23,000 0 0
Andre Guardi 29,340(26) 29,340 0 0
Doug Dust 2,250(27) 2,250 0 0
Marjorie Goddard 5,518(28) 5,518 0 0
Michael Chenery 5,017(29) 5,017 0 0
Steven Kornfeld 20,000(30) 20,000 0 0
Steven Rothstein 49,400(31) 49,400 0 0
Craig Gould 7,500(32) 7,500 0 0
National Securities
Corporation 27,600(33) 27,600 0 0
Steven McLaughlin 158,000(34) 158,000 0 0
Frankfurt, Garbus,
Klein & Salz 20,000(35) 20,000 0 0
</TABLE>
- ----------
* Less than one percent.
(1) None of the selling shareholders has a material relationship with our
company other than, Norton Herrick who is a Director, Chairman of the Board
and Co-Chief Executive Officer, Michael Herrick who is a Director and
Co-Chief Executive Officer, Howard Herrick who is a Director and Executive
Vice President, Steven McLaughlin who is an Executive Vice President and
Chief Technology Officer, Carl Wolf who is a Director and Carl Amari who is
President of a wholly-owned subsidiary of our Company.
(2) Assumes as to each selling shareholder the exercise of all of the warrants,
options and other convertible securities owned by such selling shareholder
(other than options granted under the Company's 1997 Stock Option Plan)
whether or not currently exercisable and the sale of all of the shares. We
cannot assure you that any warrants, options or convertible securities will
be exercised or converted, as the case may be, or that any shares of common
stock offered by selling shareholders hereby will be sold.
(3) Each selling shareholder's beneficial ownership and percentage ownership is
determined by assuming 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.
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(4) Includes (i) 8,200 shares of common stock held by Norton Herrick, (ii)
488,460 shares of common stock held by Howard Herrick, (iii) 488,460 shares
of common stock held by the M.E. Herrick Irrevocable Trust, of which
Michael Herrick is the sole beneficiary and Howard Herrick is the sole
trustee, (iv) 250,000 shares issuable upon exercise of options granted on
June 16, 1998 at an exercise price of $3.50 per share, (v) 750,000 shares
of common stock issuable upon exercise of options granted September 10,
1998 at an exercise price of $7.25 per share, (vii) 150,000 shares of
common stock issuable upon exercise of options granted to Evan Herrick on
November 5, 1998 at an exercise price of $7.875 per share, (vii) 1,258,427
shares of common stock issuable upon conversion of the Note at an initial
conversion price of $11.125 per share and (viii) 500,000 shares of common
stock issuable upon exercise of a warrant ("Warrant") issued on December
31, 1998 at an initial exercise price of $12.00 per share. Does not include
2,714,180 shares held by the Norton Herrick Irrevocable ABC Trust of which
Norton Herrick is the sole beneficiary and Howard Herrick is the sole
trustee. 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
on November 5, 1998.
(5) Represents shares issuable upon exercise of the Note and the Warrant.
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<PAGE>
(6) Includes (i) 50,000 shares of common stock issuable upon exercise of
options granted March 18, 1998 at an exercise price of $5.00 per share,
(ii) 25,000 shares of common stock issuable upon exercise of options
purchased September 18, 1998 at an exercise price of $5.00 per share, and
(iii) 15,000 shares of common stock issuable upon exercise of options
granted on March 18, 1998 under our stock option plan at an exercise price
of $5.00 per share. Does not include options to purchase 7,500 shares of
common stock granted under our stock option plan which vest on March 18,
2000.
(7) Represents (i) 50,000 shares of common stock separately held by each of the
named selling shareholders, (ii) 225,000 shares of common stock held of
record by The Columbia House Company and which may be deemed to be
beneficially owned by each of the named selling shareholders and (iii)
50,000 shares of common stock issuable to each of the named selling
shareholders upon exercise of warrants issued to each of them on December
31, 1998 with an exercise price of $11.125. The shares of common stock and
warrants were issued in connection with our purchase of certain assets of
The Columbia House Company on December 31, 1998.
(8) Includes 225,000 shares owned of record by The Columbia House Company which
is separately listed as a selling shareholder of such shares.
(9) Represents 125,000 shares of common stock of our company issued in
connection with our purchase of certain assets of Premier Electronic
Laboratories, Inc. on December 31, 1998.
(10) Represents 50,000 shares of common stock and (ii) 50,000 shares of common
stock issuable upon exercise of options issued December 14, 1998 with an
exercise price of $8.125 per share. The common stock and options were
issued in connection with our purchase of certain assets of Metacom, Inc.
(11) Includes 395,125 shares of common stock (of which 200,000 are held in
escrow and are subject to release if certain "EBITDA" levels for the
acquired companies are met for the year ended December 31, 1998 and year
ending December 31, 1999) and 152,750 shares issuable upon exercise of
options issued on December 14, 1998 with an exercise price of $13.125 (of
which 100,000 options are held in escrow and subject to release if certain
"EBITDA" levels for the acquired companies are met for the year ended
December 31, 2000). The shares of common stock and options were issued in
connection with our purchase of certain assets of Radio Spirits, Inc.and
Buffalo Productions, Inc. and Carl Amari's interest in a joint venture.
(12) Represents (i) 13,750 shares of Common Stock and an additional 2,500 shares
of common stock issuable upon exercise of options with an exercise price of
$13.125 per share, all of which was issued on December 14, 1998 in
connection with our purchase of certain assets of Radio Spirits, Inc. and
(ii) 15,000 shares issuable upon exercise of options with an exercise price
of $13.125 per share granted on December 14, 1998 in connection with a
consulting agreement.
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(13) Represents (i) 16,125 shares of Common Stock and (ii) 4,750 shares of
Common Stock issuable upon exercise of an option issued on December 14,
1998 with an exercise price of $13.125 per share. The shares of Common
Stock and options wee issued in connection with our purchase of certain
assets of Radio Spirits, Inc.
(14) Represents 5,000 shares of Common Stock issuable upon exercise of options
issued on December 14, 1998 with an exercise price of $13.125 per share.
The options were issued in connection with our purchase of certain assets
of Radio Spirits, Inc.
(15) Represents 10,000 shares of Common Stock issuable upon exercise of options
issued on December 14, 1998 with an exercise price of $13.125 per share.
The options were issued in connection with our purchase of certain assets
of Radio Spirits, Inc.
(16) Represents 98,400 shares of common stock issuable upon exercise of warrants
with an exercise price of $10.00 per share issued to Fleet National Bank in
connection with the Credit Agreement on December 31, 1998.
(17) Represents 98,400 shares of common stock issuable upon exercise of warrants
with an exercise price of $10.00 per share issued to ING (U.S.) Capital
Corporation in connection with the Credit Agreement on December 31, 1998.
(18) Represents 21,600 shares of common stock issuable upon exercise of options
granted on April 17, 1998 at an exercise price of $4.40 per share.
(19) Represents 20,000 shares issuable upon exercise of options granted on May
30, 1998 exercisable at $4.81 per share.
(20) Represents 10,000 shares of common stock issuable upon exercise of options
granted on December 31, 1998 with an exercise price of $11.125 per share.
(21) Represents (i) 23,000 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share and (ii) 8,625 shares of common stock issuable upon
exercise of warrants issued on November 2, 1998 with an exercise price of
$8.375 per share.
(22) Represents (i) 17,125 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share and (ii) 3,209 shares of common stock issuable upon
exercise of warrants issued on November 2, 1998 with an exercise price of
$8.375 per share.
(23) Represents (i) 23,000 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share and (ii) 4,125 shares of common stock issuable upon
exercise of warrants issued on November 2, 1998 with an exercise price of
$8.375 per share.
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(24) Represents (i) 4,000 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share and (ii) 2,291 shares of common stock issuable upon
exercise of warrants issued on November 2, 1998 with an exercise price of
$8.375 per share.
(25) Represents (i) 23,000 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(26) Represents (i) 24,480 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share and (ii) 4,500 shares of common stock issuable upon
exercise of warrants issued on November 2, 1998 with an exercise price of
$8.375 per share.
(27) Represents 2,250 shares of common stock issuable upon exercise of warrants
issued on November 2, 1998 with an exercise price of $8.375 per share.
(28) Represents 5,518 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(29) Represents 5,017 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(30) Represents 20,000 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(31) Represents 49,400 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(32) Represents 7,500 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(33) Represents 27,600 shares of common stock issuable upon exercise of
underwriters' warrants issued in connection with our initial public
offering and are exercisable until October 22, 2002 at an exercise price of
$16.50 per share.
(34) Represents (i) 8,000 shares of common stock issuable upon exercise of
options granted on February 15, 1999 with an exercise of price of $.10 per
share and (ii) 150,000 shares of common stock issuable upon exercise of
options granted on Fefbruary 15, 1999 with and exercise price of $9.75 per
share.
(35) Represents 20,000 shares of common stock issuable upon exercise of options
granted on March 5, 1999 with an exercise price of $10.00 per share.
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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 have advised our company that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities.
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(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. Our company 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(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 our company shall
indemnify its directors and officers to the fullest extent permitted by the
Florida Business Corporation Act. The Florida Business
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<PAGE>
Corporation Act provides that no director or officer of our company shall be
personally liable to our company or our shareholders for damages for breach of
any duty owed to our company 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.
Our company has entered into indemnification agreements with certain
employees, officers and consultants. Pursuant to the terms of the indemnity
agreements, our company 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 our company and certain expenses
related thereto. Provided however, that the employee, officer or consultant
shall reimburse our company 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 of 1933, as amended, 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 of Audio Book Club, Inc. as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997,
incorporated by reference in this registration statement 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.
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<PAGE>
ADDITIONAL INFORMATION
Our company has filed with the Securities and Exchange Commission, a
Registration Statement with respect to the securities offered by this
prospectus. This prospectus, filed as part of such Registration Statement, does
not contain all of the information set forth in, or annexed as exhibits to, the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information with respect to our company and this
offering, reference is made to the Registration Statement, including exhibits
filed therewith, which may 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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<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...............................................
Incorporation of Certain Documents
by Reference..............................................................
Available Information.......................................................
The Company.................................................................
Recent Developments.........................................................
Risk Factors................................................................
Use of Proceeds.............................................................
Description of Capital Stock................................................
Selling Shareholders........................................................
Plan of Distribution........................................................
Indemnification.............................................................
Legal Matters...............................................................
Experts.....................................................................
Additional Information......................................................
================================================================================
3,779,827 Shares
Common Stock
AUDIO BOOK CLUB, INC.
-------------
PROSPECTUS
-------------
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*.
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant:
SEC registration.................................................. $10,570.97
Printing expenses................................................. 7,500.00
Legal fees and expenses........................................... 50,000.00
Accounting fees and expenses...................................... 40,000.00
Miscellaneous ................................................... 6,929.03.
-----------
Total..................................................... $115,000.00
===========
- ----------
* All amounts are estimated except the first item.
Item 15. Indemnification of Directors and Officers.
The Florida Business Corporation Act (the "Florida Act") contain 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. The Company's Articles of
Incorporation and By-Laws provide that the Company 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 Company shall be personally liable to the Company or its
shareholders for damages for breach of any duty owed to the Company 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.
II-1
<PAGE>
Our company has entered into indemnification agreements with certain
employees, officers and consultants. Pursuant to the terms of the indemnity
agreements, our company 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 our company and certain expenses
related thereto. Provided however, that the employee, officer or consultant
shall reimburse our company 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
of 1993, as amended (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 16. Exhibits
(a) Exhibits
Exhibit Number Description
- -------------- -----------
4.1 Form of Common Stock Certificate (1)
4.2 Articles of Incorporation of the Company, as amended (1)
4.3 Amended and Restated By-Laws of the Company (1)
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. as to the legality of
the securities being registered (2)
23.1 Consent of KPMG LLP (3)
23.2 Consent of BD&A Certified Public Accountants, Ltd. (3)
23.3 Consent of Atlas, Pearlman, Trop & Borkson, P.A. included in opinion
filed as Exhibit 5.
24 Power of Attorney, included in the signature page of this Registration
Statement
- ----------
II-2
<PAGE>
(1) Incorporated by reference to the company's Registration Statement on Form
SB-2 (No. 333-30665) effective October 22, 1997.
(2) Filed herewith.
(3) To be filed by amendment.
Item 17. 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; and
(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
price 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
(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 (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 and Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for purposes of determining any liability under the Securities
Act, 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.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
II-3
<PAGE>
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(5) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<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 of filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of Boca
Raton, State of Florida, on the 12th day of March, 1999.
AUDIO BOOK CLUB, INC.
By: /s/ Norton Herrick
----------------------------------------
Norton Herrick, Chief Executive Officer
Each person whose signature appears below hereby 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 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 on Form S-3 was signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Norton Herrick Director, Chairman of the Board March 12, 1999
- ---------------------------- and Co-Chief Executive Officer
Norton Herrick (Principal Executive Officer)
/s/ Michael Herrick Director and Co-Chief Executive Officer March 12, 1999
- ----------------------------
Michael Herrick
/s/ Howard Herrick Director and Executive Vice March 12, 1999
- ---------------------------- President
Howard Herrick
/s/ Jesse Faber Director and President March 12, 1999
- ----------------------------
Jesse Faber
/s/ John Levy Executive Vice President and Chief March 12, 1999
- ---------------------------- Financial Officer (Principal Financial
John Levy and Accounting Officer)
/s/ Carl Wolf Director March 12, 1999
- ----------------------------
Carl Wolf
/s/ Roy Abrams Director March 12, 1999
- ----------------------------
Roy Abrams
</TABLE>
[LETTERHEAD OF ATLAS, PEARLMAN, TROP & BORKSON, P.A.]
March 12, 1999
Audio Book Club, Inc.
2295 Corporate Boulevard, N.W.
Suite 222
Boca Raton, Florida 33431
Re: Audio Book Club, Inc. (the "Company")
Registration Statement on Form S-3
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 3,779,827 shares of Common Stock, no par value per share
(the "Shares"), as set forth in the above Registration Statement, of which
925,000 shares have been previously issued (the "Issued Shares") and 2,854,827
shares (the "Conversion Shares") are issuable upon exercise of outstanding
options ("Options") or warrants ("Warrants") or upon conversion of an
outstanding convertible note (the "Note").
In our capacity as counsel to the Company, we have examined the original or
certified copies of all such records of the Company and all such agreements,
certificates of public officials, certificates of officers or representatives of
the Company and others, and such other documents as we deem relevant and
necessary as a basis for the opinions hereinafter expressed. In such examination
we have assumed the genuineness of all signatures on original documents and the
conformity to original documents of all copies submitted to us as conformed or
photostat copies. As to various questions of fact material to such opinions, we
have relied upon statements or certificates of officials and representatives of
the Company and others.
<PAGE>
Audio Book Club, Inc.
March 12, 1999
Page 2
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Florida.
2. The Shares offered for the account of the Selling
Shareholders, as set forth in the Registration Statement,
have been duly and validly authorized.
3. The Issued Shares have been duly and validly issued and are
fully paid and non-assessable.
4. The Conversion Shares, when sold, paid for and issued upon
exercise of the Options or Warrants or conversion of the
Note, as the case may be, in accordance with the respective
terms thereof, will be duly and validly issued and fully
paid and non-assessable.
We hereby consent to filing of this opinion as an Exhibit to the
Registration Statement. 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.
