<PAGE>
As filed with the Securities and Exchange Commission on June 17, 1999
Registration 333-76985
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AUDIBLE, INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 22-3407945
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
Andrew J. Huffman
President and Chief Executive Officer
Audible, Inc.
65 Willowbrook Boulevard
Wayne, N.J. 07470
(973) 890-4070
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Edwin M. Martin, Jr., Esquire Brian D. Goldstein, Esquire
Nancy A. Spangler, Esquire Testa, Hurwitz & Thibeault, LLP
Piper & Marbury L.L.P. 125 High Street
1200 19th Street, N.W. Boston, MA 02110
Washington, D.C. 20036 (617) 248-7000
(202) 861-3900
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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(d)
under the Securities Act of 1933, 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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Title of Each Class Amount Maximum Aggregate Amount of
of Securities To Be To Be Offering Price Offering Registration
Registered Registered Per Unit Price(1) Fee(2)
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<S> <C> <C> <C> <C>
Shares of Common Stock,
par value $.01......... 4,600,000 Shares $10.00 $46,000,000 $0
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act.
(2) A registration fee of $12,788 was paid at the time of the initial filing
of this registration statement based on the estimated aggregate offering
price.
----------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 17, 1999
4,000,000 Shares
Common Stock
--------
All of the shares of common stock are being offered by Audible. Prior to this
offering, there has been no public market for the common stock. The initial
public offering price is expected to be between $8.00 and $10.00 per share.
We have granted the underwriters a 30-day option to purchase a maximum of
600,000 additional shares to cover over allotments of shares.
We have applied to list the common stock on the Nasdaq National Market under
the symbol "ADBL."
Investing in the common stock involves risks. See "Risk Factors" starting on
page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds
Public Commissions to Audible
-------- ------------- ----------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
J.P. Morgan & Co.
Volpe Brown Whelan & Company
Wit Capital Corporation
The date of this prospectus is , 1999
<PAGE>
[Graphics]
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Historical Financial Data.. 18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......... 20
Business............................ 29
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management............................................................ 41
Related Transactions and Relationships................................ 48
Principal Stockholders................................................ 51
Description of Capital Stock.......................................... 54
Shares Eligible for Future Sale....................................... 58
Underwriting.......................................................... 60
Notice to Canadian Residents.......................................... 63
Validity of the Shares................................................ 64
Experts............................................................... 64
Additional Information................................................ 64
Index to Financial Statements......................................... F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
----------------
Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to unsold allotments
or subscriptions.
----------------
We have applied for federal registration of the marks Audible, audible.com,
AudibleReady, AudibleManager and Audible MobilePlayer. Other trademarks and
service marks appearing in this prospectus are the property of their respective
holders.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in the prospectus.
The summary is not complete and does not contain all the information you should
consider before buying shares in this offering. You should read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors," including the risk that we are a development
stage company with a limited operating history with which you can evaluate our
business and our future prospects. Except where we state otherwise, we present
information in this prospectus assuming (1) the conversion of all outstanding
shares of convertible preferred stock into an aggregate of 13,400,996 shares of
common stock upon the closing of this offering, (2) our common stock will be
sold at $9.00 per share, which is the mid-point of the range shown on the cover
of this prospectus, (3) the underwriters will not exercise their over-allotment
option and (4) the filing of the amended and restated certificate of
incorporation. All share numbers reflect a three for two stock split effected
as a stock dividend on May 26, 1999.
Audible
We are a leading provider of premium spoken audio content, such as audio
versions of books and newspapers and radio programs, that is delivered over the
Internet and can be played back on personal computers and hand-held electronic
devices. The Audible service allows consumers to purchase and download content
from our Web site, store it in digital files and play it back on personal
computers and electronic devices. Our Web site, audible.com, contains the
largest and most diverse collection of premium digital spoken audio content
available for download on the Internet, most of which is currently available
only through us either through exclusive arrangements or because, to our
knowledge, no one else currently has digital rights to this content. Visitors
to audible.com can browse through descriptions of audio titles and listen to
samples online before purchasing their selections. A customer can download
content immediately or schedule download for a later time. A customer can also
schedule recurring delivery of many subscription-based periodicals and radio
programs.
More than 15,000 hours of premium audio content are available at
audible.com, including over 3,000 audio versions of books from publishers such
as Bantam Doubleday Dell Publishing and Random House Publishing, each a
division of Random House, Inc., Dove Audio, Harper Audio, Simon & Schuster
Audio and Time Warner AudioBooks. We also have audio versions of periodicals
such as The New York Times, The Wall Street Journal and The Economist, and
radio programs such as Car Talk, Fresh Air, Marketplace and News From Lake
Wobegon.
The market for the Audible service results from the increasing usage of the
Internet and the recent introduction of a variety of hand-held electronic
devices that have audio capabilities. Unlike traditional radio broadcasts, the
Audible service offers customers access to content of their choice and the
ability to listen to what they want, when and where they want--whether
commuting, exercising, relaxing or sitting at their personal computers. Unlike
traditional and online bookstores, which are subject to physical inventory
constraints and shipping delays, we provide a selection that is readily
available in a digital format that can be quickly delivered over the Internet.
In addition, we provide customers with lower priced spoken audio content
because we do not incur the manufacturing and distribution costs of audio
content stored on cassette tapes and compact discs.
Customers use our AudibleManager software on their personal computers to
download and playback audio content or transfer it to hand-held electronic
devices that, enabled with our Audible Player or similar software, are
compatible with our service. We have discontinued the manufacture of our own
device, the Audible MobilePlayer, to focus our efforts on enabling the Audible
service to be used on a variety of electronic devices. We have historically
derived the majority of our revenue from the sale of the MobilePlayer devices,
3
<PAGE>
and we expect this revenue to decrease and eventually phase out as we sell our
remaining inventory. In the future, we will depend upon others to manufacture
and promote as "AudibleReady" devices capable of playing our content. The first
of these AudibleReady devices only became commercially available in March 1999.
We have agreements with Casio, Compaq, Everex and Philips to bundle our
software with their hand-held electronic devices and promote our service. These
devices may be available in limited quantities for the next several quarters.
We also have an agreement with Diamond Multimedia to make the next version of
its Rio Internet Music Player compatible with the Audible service.
We help publishers, producers, authors, device manufacturers and our Web
site affiliates to create incremental sources of revenue. We provide a new
source of revenue for publishers of newspapers, magazines, journals,
newsletters, professional publications and business information and producers
of radio broadcasts by creating a new market for content that is too timely for
distribution on cassette tape and too specialized for widely broadcast radio
programs. In addition, our service provides companies that distribute or
promote our service and manufacturers of hand-held audio-enabled electronic
devices with a wide selection of content to offer to their customers. We also
derive revenue from other services, including technology integration services.
We were incorporated in 1995 and commenced commercial operations in October
1997. Our principal executive offices are located at 65 Willowbrook Boulevard,
Wayne, New Jersey 07470, and our telephone number at that location is (973)
890-4070.
4
<PAGE>
The Offering
<TABLE>
<CAPTION>
<C> <S>
Common stock offered......................... 4,000,000 shares.
Common stock to be outstanding after this 25,003,265 shares.
offering....................................
Use of proceeds.............................. We estimate that we will
receive approximately $32.5
million from this offering. We
expect to use the net proceeds
from this offering for
marketing activities, for the
acquisition and production of
new audio content and the
extension and renewal of
existing content licensing
arrangement, for acquisition of
companies or technologies and
for general and corporate
purposes, including obtaining
and extending technology
licensing arrangements,
increasing personnel,
increasing production and
server system capacities, and
to finance operating losses
that we expect to incur as we
expand our customer base.
Proposed Nasdaq National Market symbol....... ADBL
</TABLE>
- --------------------
This table is based on shares outstanding as of March 31, 1999. This table
excludes:
. 9,000,000 shares of common stock we have reserved for issuance under
our 1999 Stock Incentive Plan; and
. 1,769,905 shares of common stock issuable upon exercise of
outstanding warrants.
5
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
November 3, 1995 Ended
(inception) to Year Ended December 31, March 31,
December 31, ------------------------- ----------------
1995 1996 1997 1998 1998 1999
---------------- ------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue:
Content and services... $ -- $ -- $ 3 $ 132 $ 30 $ 58
Hardware............... -- -- 57 244 90 57
Other.................. -- -- -- -- -- 200
------ ------- ------- ------- ------- -------
Total revenue.......... -- -- 60 376 120 315
------ ------- ------- ------- ------- -------
Operating expenses:
Cost of content and
services revenue...... -- -- 78 372 75 152
Cost of hardware
revenue............... -- -- 252 556 255 63
Production expenses.... -- 684 1,982 1,639 486 495
Research and
development........... 49 1,810 2,672 1,641 389 320
Write-down related to
hardware business..... -- -- -- 952 -- --
Sales and marketing.... -- 256 1,227 1,453 272 396
General and
administrative........ -- 787 1,921 1,838 481 431
------ ------- ------- ------- ------- -------
Total operating
expenses............. 49 3,536 8,133 8,453 1,958 1,857
------ ------- ------- ------- ------- -------
Loss from operations. (49) (3,536) (8,073) (8,076) (1,838) (1,542)
------ ------- ------- ------- ------- -------
Other (income)
expense, net........ -- (27) (44) 62 6 (68)
------ ------- ------- ------- ------- -------
Net loss................ $ (49) $(3,509) $(8,029) $(8,138) $(1,844) $(1,474)
====== ======= ======= ======= ======= =======
Basic and diluted net
loss per common share.. $(0.02) $ (1.10) $ (1.49) $ (1.15) $ (0.28) $ (0.20)
Weighted average shares
outstanding............ 2,250 3,177 5,379 7,097 6,558 7,452
Pro forma basic and
diluted net loss per
common share (1)....... (0.50) (0.07)
Pro forma weighted
average shares
outstanding (1)........ 16,292 20,728
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------
Pro Forma
Actual Pro Forma(2) As Adjusted(3)
----------- ------------ --------------
(unaudited)
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents............... $ 9,652 $9,652 $42,132
Total assets............................ 10,991 10,991 43,471
Noncurrent liabilities.................. 377 377 377
Redeemable preferred stock.............. 28,719 -- --
Total stockholders' (deficit) equity ... (20,950) 7,769 40,249
</TABLE>
- --------
(1) The "pro forma" summary statement of operations data for the year ended
December 31, 1998 and the three months ended March 31, 1999 reflects the
conversion of the outstanding shares of preferred stock into 13,400,996
shares of common stock as though this event occurred as of the beginning of
each period.
(2) The "pro forma" summary balance sheet data as of March 31, 1999 reflects
the event described in note 1 as if such event had occurred as of March 31,
1999.
(3) The "pro forma as adjusted" summary balance sheet data as of March 31, 1999
reflects the event described in note 2 and the issuance of our common stock
in this offering and the application of the net proceeds as described in
"Use of Proceeds."
6
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock.
We are a development stage company with a limited operating history with which
you can evaluate our business and our future prospects.
Our limited operating history and small number of customers makes predicting
our future operating results difficult. We are a development stage company.
From the time we were incorporated in November 1995 until September 1997, we
generated no revenue while we developed our secure delivery system and a
prototype audio playback device, created our audible.com Web site and
established relationships with providers of audio content. Although we began
earning limited revenue in October 1997, we have continued to focus our
resources on refining and enhancing our Web site and our playback and
management software and in expanding our content selections and developing
relationships with manufacturers of hand-held electronics devices. We have
limited history of selling content to users of hand-held electronic devices
manufactured by other parties which only recently became AudibleReady. We have
spent only limited resources on promoting and marketing our service to
consumers. We expect to spend significant resources on expanding and developing
our service and brand name over the next several quarters. As a result, we have
a limited history of operations and a small number of initial customers upon
which you can evaluate our business model and our prospects.
We have limited revenue, we have a history of losses and we may not be
profitable in the future.
Our limited revenue and history of losses makes it uncertain when or if we
will become profitable. Our failure to achieve profitability within the time
frame expected by investors may adversely affect our business and the market
price of our common stock. We had total revenue of $376,000 for the year ended
December 31, 1998 and $315,000 for the three months ended March 31, 1999. 65%
of this revenue during 1998 was derived from sales of hardware, which we expect
to decline as we sell our remaining inventory of the Audible MobilePlayer. We
had content and services revenue of only $132,000 for the year ended December
31, 1998 and $58,000 for the three months ended March 31, 1999. We had
operating expenses of $8.4 million for 1998 and $1.9 million for the three
months ended March 31, 1999. As of March 31, 1999, we have incurred net
operating losses of approximately $21.2 million since inception, and we expect
to continue to incur significant losses for the foreseeable future.
Our business is changing rapidly, which could cause our quarterly operating
results to vary and our stock price to fluctuate.
We have both limited revenue and a limited operating history. Accordingly,
predicting our future quarterly results based on past quarters' results is
largely speculative. Our limited revenue will make relatively minor
fluctuations in revenue much more significant on a percentage basis. Our
revenue is dependent on the availability and sales of AudibleReady devices and
a steady growth in sales of our content to purchasers of these devices. Our
operating results may also be affected by the availability of content and
technical difficulties with our Web site and the Internet. Our revenues and
operating results can vary significantly from quarter to quarter due to a
number of factors, not all of which are in our control, and some of which are
described in these Risk Factors. Because most of our expenses, such as employee
compensation and rent, are relatively fixed in the short term, we may be unable
to adjust our spending to compensate for unexpected revenue shortfalls.
Accordingly, any significant shortfall in relation to our expectations could
cause significant declines in our operating results. This would likely affect
the market price of our common stock in a manner which may be unrelated to our
long-term operating performance.
The market for our service is uncertain and consumers may not be willing to use
the Internet to purchase spoken audio content.
Downloading of audio content from the Internet is a relatively new method of
distribution and its growth and market acceptance is highly uncertain. Our
success will depend in large part on consumer willingness to purchase and
download spoken audio content over the Internet. Purchasing this content over
the Internet involves changing purchasing habits, and if consumers are not
willing to purchase and download this content over the Internet, our revenue
will be limited and our business will be materially adversely affected. We
believe
7
<PAGE>
that acceptance of this method of distribution may be subject to network
capacity constraints, hardware limitations, company computer security policies,
the ability to change user habits and the quality of the audio content
delivered.
We may not be able to license or produce sufficiently compelling audio content
to attract and retain customers and grow our revenue.
If we are unable to obtain licenses from the creators and publishers of
content to have that content available on our Web site on terms acceptable to
us or if a significant number of content providers terminate their agreements
with us, we would have less content available for our customers, which would
limit our revenue growth and materially adversely affect our financial
performance. Our future success depends upon our ability to accumulate and
deliver premium spoken audio content over the Internet. Although we currently
collaborate with the publishers of periodicals and other branded print
materials to convert their written material into original spoken audio content,
the majority of our content originates from producers of audiobooks, radio
broadcasts, conferences, lectures and other forms of spoken audio content.
Although many of our agreements with content providers are for initial terms of
one to three years, our content providers may choose not to renew their
agreements with us or may terminate their agreements early if we do not fulfill
our contractual obligations. We cannot be certain that our content providers
will enter into new agreements with us on the same or similar terms as those
currently in effect or that additional content providers will enter into
agreements on terms acceptable to us.
Manufacturers of electronic devices may not manufacture, make available or sell
a sufficient number of products suitable for our service, which would limit our
revenue growth.
If manufacturers of electronic devices do not manufacture, make available or
sell a sufficient number of devices promoted as AudibleReady, or if these
devices do not achieve sufficient market acceptance, we will not be able to
grow revenue and our business will be materially adversely affected. The Compaq
Aero, the first third party device promoted as AudibleReady, only became
commercially available in March 1999 and is available only in limited
quantities. Compaq and Everex have experienced delays in their delivery
schedule of their electronic devices due to parts shortages. Although the
content we sell can be played on personal computers, we believe that a key to
our future success is the ability to playback this content on hand-held
electronic devices. Because we do not intend to continue to manufacture our own
AudibleReady devices, we depend on manufacturers, such as Philips, Casio,
Everex, Compaq and Diamond Multimedia, to develop and sell their own products
and promote them as AudibleReady.
We must establish, maintain and strengthen our brand names, trademarks and
service marks in order to acquire customers and generate revenue.
If we fail to promote and maintain our brand names, our business, operating
results and financial condition could be materially adversely affected. We
believe that building awareness of the "Audible," "audible.com" and
"AudibleReady" brand names is critical to achieving widespread acceptance of
our service by customers, content providers, device manufacturers and marketing
and distribution companies with which we have business relationships. To
promote our brands, we will need to substantially increase our marketing
expenditures. We have applied for trademark and service mark registrations of
our brand names in the United States. The application for "audible.com" has
been allowed and the applications for "Audible" and "AudibleReady" have
received adverse actions by the Patent and Trademark Office. There can be no
assurance that any of our brand names will be registered as trademarks or that
we will effectively protect the use of these names.
Increasing availability of digital audio technologies may increase competition
and reduce our gross margins, market share and profitability.
If we do not continue to enhance our service and adapt to new technology, we
will not be able to compete with new and existing distributors of spoken audio,
we will lose market share and our business will be materially adversely
effected. The market for the Audible service is new, rapidly evolving and
intensely competitive. We expect competition to intensify as advances in and
standardization of digital audio distribution, download, security, management
and playback technologies reduce the cost of starting a digital audio delivery
system or a service that gathers audio content. To remain competitive, we must
continue to either license or internally develop technology that will enhance
the features of the Audible service, our software that manages
8
<PAGE>
the downloading and playback of audio content, our ability to compress audio
files for downloading and storage and our download, security and playback
technologies. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our financial performance.
Our industry is highly competitive and we cannot assure you that we will be
able to compete effectively.
We face competition in all aspects of our business and we cannot assure you
that we will be able to compete effectively. We compete for consumers of audio
content with other Internet-based audio distributors and distributors of audio
on cassette tape or compact disc. We compete with others for relationships with
manufacturers of electronic devices with audio playback capabilities. The
business of providing content over the Internet is experiencing rapid growth
and is characterized by rapid technological changes, changes in consumer habits
and preferences and the emergence of new and established companies. We compete
with (1) traditional and online retail stores, catalogs, clubs and libraries
that sell, rent or loan audiobooks on cassette tape or compact disc, such as
AudioBook Club, Borders, Barnes & Noble and Amazon.com, (2) Web sites that
offer streaming access to spoken audio content using tools such as the
RealPlayer or Windows Media Player, such as Broadcast.com, (3) other companies
offering services similar to ours, such as Audiohighway.com and Command Audio
and (4) on-line and Internet portal companies such as America Online, Inc.,
Yahoo! Inc., Excite, Inc., Lycos Corporation, Infoseek Corporation and
Microsoft Network, with the potential to offer audio content. Many of these
companies have financial, technological, promotional and other resources that
are much greater than those available to us and could use or adapt their
current technology, or could purchase technology, to provide a service directly
competitive with the Audible service.
Capacity constraints and failures, delays or overloads could interrupt our
service and reduce the attractiveness of our service to existing or potential
customers.
Any capacity constraints or sustained failure or delay in using our Web site
could reduce the attractiveness of the Audible service to consumers, which
would materially adversely affect our financial performance. Our success
depends on our ability to electronically distribute spoken audio content
through our Web site to a large number of customers efficiently and with few
interruptions or delays. Accordingly, the performance, reliability and
availability of our Web site, our transaction processing systems and our
network infrastructure are critical to our operating results. We have
experienced periodic systems interruptions including planned system
maintenance, hardware and software failures triggered by high traffic levels,
and network failure in the Internet and our Internet service providers. We
believe the complexities of our software and hardware and the potential
instability of the Internet due to rapid user growth mean that periodic
interruptions to our service are likely to continue. A significant increase in
visitors to our Web site or simultaneous download requests could strain the
capacity of our Web site, software, hardware and telecommunications systems,
which could lead to slower response times or system failures. These
interruptions may make it difficult to download audio content from our Web site
in a timely manner.
We could be liable for substantial damages if there is unauthorized duplication
of the content we sell.
We believe that we are able to license premium audio content in part because
our service has been designed to reduce the risk of unauthorized duplication
and playback of audio files. If these security measures fail, our content may
be vulnerable to unauthorized duplication or playback. If others duplicate the
content we provide without authorization, content providers may terminate their
agreements with us and hold us liable for substantial damages. Although we
maintain general liability insurance, including insurance for errors or
omissions, we cannot assure you that the amount of coverage will be adequate to
compensate us for these losses. Security breaches might also discourage other
content providers from entering into agreements with us. We may be required to
expend substantial money and other resources to protect against the threat of
security breaches or to alleviate problems caused by these breaches.
9
<PAGE>
Errors in our proprietary software, including AudibleManager 2.0, could
discourage potential customers and damage our reputation.
Our proprietary software may contain undetected errors, failures or bugs
which could result in customer dissatisfaction, adverse publicity, loss of
reputation, delay in market acceptance of the AudibleReady format or in legal
claims against us by customers or others. We have in the past discovered
errors, failures and bugs in our software and have experienced customer
dissatisfaction. Version 2.0 of our AudibleManager software is required for
customers to use our service with hand-held electronic devices that use
Microsoft's Windows CE operating system. Version 2.0 has only recently become
commercially available and may contain errors and bugs of which we are unaware.
We do not have a disaster recovery plan or back-up systems, and a disaster
could severely damage our operations.
If our computer systems are damaged or interrupted by a disaster for an
extended period of time, our business, results of operations and financial
condition would be materially adversely affected. We do not have a disaster
recovery plan in effect and do not have fully redundant systems for the Audible
service at an alternate site. Our operations depend upon our ability to
maintain and protect our computer systems, all of which are located in our
headquarters and at a third party, offsite hosting facility, both of which are
located in northern New Jersey. Although we maintain insurance against general
business interruptions, we cannot assure you that the amount of coverage will
be adequate to compensate us for our losses.
Problems associated with the Internet could discourage use of Internet-based
services like ours.
If the Internet fails to develop or develops more slowly than we expect as a
commercial medium, our business may also grow more slowly than we anticipate,
if at all. Our success will depend in large part on increasing use of the
Internet. There are critical issues concerning the commercial use of the
Internet which we expect to affect the development of the market for the
Audible service, including:
. the secure transmission of customer credit card numbers and other
confidential information;
. the reliability and availability of Internet service providers;
. the cost of access to the Internet;
. the availability of sufficient network capacity; and
. the ability to download audio content through computer security measures
employed by businesses.
Our Chief Financial Officer only recently became an employee of Audible which
may affect our ability to successfully manage our operations.
We hired our Chief Financial Officer on June 1, 1999. Accordingly, our
financial team does not have a history of working together. We cannot assure
you that our CFO will be able to work effectively or successfully to manage our
operations. We believe that the successful integration of our CFO with our
management team is critical to our ability to effectively manage our operations
and support our anticipated future growth.
The loss of key employees could jeopardize our growth prospects.
The loss of the services of any of our executive officers or other key
employees could materially adversely affect our business. Our future success
depends on the continued service and performance of our senior management and
other key personnel, particularly Andrew J. Huffman, our President, and Donald
R. Katz, our Founder and Chairman of the Board. We do not have employment
agreements with any of our executive officers or other key employees.
Our inability to hire new employees may hurt our growth prospects.
The failure to hire new personnel could damage our ability to grow and
expand our business. Our future success depends on our ability to attract, hire
and retain highly skilled technical, managerial, editorial, marketing and
customer service personnel, and competition for these individuals is intense.
In particular, we have experienced difficulty in hiring software and Web site
developers. Our failure to hire these technical employees could delay
improvements in, and enhancements to, the Audible service.
10
<PAGE>
We have no experience in acquiring companies or technologies and any
acquisitions of this type may disrupt our business or distract our management,
due to difficulties in assimilating acquired personnel and operations.
We have no experience in acquiring businesses, technologies, services or
products. From time to time, we engage in discussions and negotiations with
companies regarding our acquiring or investing in such companies' businesses,
products, services or technologies. If we acquire or invest in another company,
we could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in integrating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. Furthermore, we may incur indebtedness or
issue equity securities to pay for any future acquisitions. The issuance of
equity securities would be dilutive to our existing stockholders. As of the
date of this prospectus, we have no agreement to enter into any material
investment or acquisition transaction.
Year 2000 problems could interrupt our service.
Any Year 2000 compliance problem of ours or our vendors or suppliers could
have a material adverse effect on our ability to service our customers, and on
our business, results of operations and financial condition. Virtually every
computer operation will be affected in some way by the rollover of the two
digit year value to 00. It is unclear whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous data
or cause a system to fail. In the most reasonably likely worst case scenario,
the Audible service would be inoperable until the problem is corrected and this
correction could take weeks or months. During this period, we may be unable to
bill our customers or deliver subscriptions to our customers, and the
AudibleManager software may not download audio content at the scheduled
intervals. This type of interruption could damage our reputation and cause
customers to lose interest in the Audible service. We are in the process of
reviewing our systems and working with our software and systems suppliers to be
prepared for the year 2000. We have identified changes that we must make in
order to be prepared for the year 2000. For example, we are in the process of
upgrading to more recent versions of software and database applications that
are certified to be ready for the year 2000. We cannot be sure that all
software and hardware components are or will be Year 2000 compliant. Neither
can we accurately estimate the potential costs of achieving Year 2000
compliance or the effects on our operations if we are unsuccessful.
We may not be able to protect our intellectual property.
If we fail to protect our intellectual property, we may be exposed to
expensive litigation or risk jeopardizing our competitive position. The steps
we have taken may be inadequate to protect our technology and other
intellectual property. Our competitors may learn or discover our trade secrets
or may independently develop technologies that are substantially equivalent or
superior to ours. We rely on a combination of patents, licenses,
confidentiality agreements and other contracts to establish and protect our
technology and other intellectual property rights. We have one patent and have
filed eight patent applications. We also rely on unpatented trade secrets and
know-how to maintain our competitive position. We may have to litigate to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. This
litigation could result in substantial costs and the diversion of our
management and technical resources which would harm our business.
Other companies may claim that we infringe their copyrights or patents.
If the Audible service violates the proprietary rights of others, we may be
required to redesign our software, and re-encode the Audible content, or seek
to obtain licenses from others to continue offering the
11
<PAGE>
Audible service without substantial redesign and such efforts may not be
successful. We do not conduct comprehensive patent searches to determine
whether our technology infringes patents held by others. In addition, software
development is inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies. Any
claim of infringement could cause us to incur substantial costs defending
against the claim, even if the claim is invalid, and could distract our
management from our business. A party making a claim could secure a judgment
that requires us to pay substantial damages. A judgment could also include an
injunction or other court order that could prevent us from offering the Audible
service. Any of these events could have a material adverse effect on our
business, operating results and financial condition.
We could be sued for content that we distribute over the Internet.
A lawsuit based on the content we distribute could be expensive and damaging
to our business. Our service involves delivering spoken audio content to our
customers. As a distributor and publisher of content over the Internet, we may
be liable for copyright, trademark infringement, unlawful duplication,
negligence, defamation, indecency and other claims based on the nature and
content of the materials that we publish or distribute to customers. Although
we generally require that our content providers indemnify us for liability
based on their content and we carry general liability insurance, the indemnity
and the insurance may not cover claims of these types or may not be adequate to
protect us from the full amount of the liability. If we are found liable in
excess of the amount of indemnity or of our insurance coverage, we could be
liable for substantial damages and our reputation and business may suffer.
Future government regulations may increase our cost of doing business on the
Internet.
Laws and regulations applicable to the Internet covering issues such as user
privacy, pricing and copyrights are becoming more prevalent. The adoption or
modification of laws or regulations relating to the Internet could force us to
modify the Audible service in ways that could adversely affect our business.
We may become subject to sales and other taxes for direct sales over the
Internet.
Increased tax burden could make our service too expensive to be competitive.
We do not currently collect sales or other similar taxes for download of
content into states other than in New Jersey and Texas. Nevertheless, one or
more local, state or foreign jurisdictions may require that companies located
in other states collect sales taxes when engaging in online commerce in those
states. If we open facilities in other states, our sales into such states may
be taxable. If one or more states or any foreign country successfully asserts
that we should collect sales or other taxes on the sale of our content, the
increased cost to our customers could discourage them from purchasing our
services, which would materially adversely affect our business.
Our executive officers and directors will continue to control approximately 43%
of our common stock.
After this offering, our executive officers and directors will continue to
control approximately 43% of our common stock and will exercise significant
influence over stockholder voting matters which will limit the influence of our
new stockholders. If our officers and directors act together, they will be able
to influence the composition of our board of directors, and will continue to
have significant influence over our affairs in general.
Our contractual obligations, charter and by-laws could discourage an
acquisition of our company that would benefit our stockholders.
Provisions of our agreement with Microsoft and of our certificate of
incorporation and bylaws may make it more difficult for a third party to
acquire control of our company, even if a change in control would benefit our
stockholders. These provisions include:
. prior to discussing with anyone the sale of our company, we must notify
Microsoft and Microsoft has a right to negotiate exclusively with us for
21 days to acquire our company. We are not obligated to accept any offer
from Microsoft. If we do not reach agreement during this period, we may
discuss with others the sale of our company;
12
<PAGE>
. our board of directors, without stockholder approval, may issue
preferred stock on terms that they determine. This preferred stock could
be issued quickly with terms that delay or prevent the change in control
of our company or make removal of management more difficult. Also, the
issuance of preferred stock may cause the market price of our common
stock to decrease;
. our board of directors is "staggered" so that only a portion of its
members are elected each year;
. only our board of directors, our chairman of the board, our president or
stockholders holding a majority of our stock can call special
stockholder meetings; and
. special procedures which must be followed in order for stockholders to
present proposals at stockholder meetings.
These provisions could have the effect of delaying, deterring or preventing
a change in the control of our company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of a sale of
our company, or may otherwise discourage a potential acquirer from attempting
to obtain control of us, which in turn could materially adversely affect the
market price of our common stock.
There is no prior market for our common stock and the price may decline after
this offering.
Our common stock has not been traded in the public market before this
offering. We have applied to the Nasdaq National Market to list our common
stock, but we do not know whether active trading in our common stock will
develop or continue after this offering. If active trading does not develop, it
could cause the market price of our common stock to decrease. We will determine
the price you will pay for our common stock through negotiations with the
underwriters. You may not be able to resell your shares at or above the price
you will pay for our common stock.
Future sales of our common stock may lower our stock price.
If our existing stockholders sell a large number of shares of our common
stock, the market price of the common stock could decline significantly. The
perception in the public market that our existing stockholders might sell
shares of common stock could depress our market price. Immediately after this
offering, approximately 25,003,265 shares of our common stock will be
outstanding. Of these shares, 4,000,000 of the shares included in this offering
will be available for immediate resale in the public market. The remaining 84%,
or 21,003,265 shares of our total outstanding shares, will become available for
resale in the public market as shown on the chart below. All of these remaining
21,003,265 shares are subject to lock-up agreements restricting the sale of
such shares for 180 days from the date of this prospectus. However, the
underwriters can waive this restriction and allow these stockholders to sell
their shares at any time.
<TABLE>
<CAPTION>
Number of Shares/
% of Outstanding Date of First Availability for Resale
- ----------------- -------------------------------------------------------------------
<S> <C>
1,633,650/6.5% Immediately after the date of this prospectus, all of which shares
are subject to lock-up agreements
19,048,098/76.2% 90 days after the date of this prospectus, all of which shares are
subject to lock-up agreements
321,517/1.3% At various times between 90 days and 180 days after the date of the
prospectus, all of which shares are subject to lock-up agreements
</TABLE>
After this offering, the holders of 13,400,996 shares of common stock and
holders of warrants to purchase an aggregate of 1,575,001 shares of our common
stock and warrants to purchase 55,261 shares of our preferred stock, which
preferred stock warrants will be exercisable for 82,891 shares of common stock
following this offering, will have the right to require us to register the sale
of their shares, subject to limitations and the lock-up agreements with the
underwriters. These holders also have the right to require us to include their
shares in any future public offerings of our equity securities. Within
approximately 180 days after this offering, we
13
<PAGE>
intend to file one or more registration statements under the Securities Act to
register 9,000,000 shares of common stock reserved for issuance under our stock
plan, subject to the lock-up agreements.
Investors will experience immediate and substantial dilution of $7.39 in the
book value of their investment.
If you purchase shares of our common stock in this offering, you will
experience immediate dilution of $7.39 per share because the price that you pay
will be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that our
earlier investors paid substantially less than the public offering price when
they purchased their shares. You will experience additional dilution upon the
exercise of stock options or warrants to purchase common stock.
We will have broad discretion in using the proceeds from this offering.
We have not identified specific uses for $21.5 million of the proceeds from
this offering, and we will have broad discretion in how we use them independent
of what the stockholders might believe is best for our company. We are unable
to determine how much of the proceeds will be used for any identified purpose
because circumstances regarding our planned uses of the proceeds may change.
You will not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive approximately $32.5 million in net proceeds
from the offering (approximately $37.5 million if the underwriters' exercise
their over-allotment in full), based upon an assumed initial public offering
price of $9.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses.
We expect to use the net proceeds from this offering as follows:
. approximately $6.0 million for marketing activities;
. approximately $5.0 million for the acquisition and production of new
audio content, and extending existing content licensing arrangement; and
. approximately $21.5 million for working capital and general corporate
purposes, including obtaining and extending technology licensing
arrangements, increasing personnel, increasing production and server
system capacities, and to finance operating losses that we expect to
incur as we expand our customer base. A portion of the proceeds may also
be used for acquisition of companies or technologies.
However, changing business conditions and unforeseen circumstances could cause
the actual amounts used for these purposes to vary from these estimates.
Pending such uses, we will invest the proceeds of this offering in short-
term, interest-bearing, investment-grade securities, certificates of deposit or
direct or guaranteed obligations of the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis giving effect to the conversion of all outstanding
shares of convertible preferred stock into common stock; and
. on a pro forma as adjusted capitalization to give effect to the sale of
4,000,000 shares of common stock offered hereby at an assumed initial
public offering price of $9.00 per share in this offering, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
This information should be read in conjunction with our financial statements
and notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------------- ---------------- ------------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Lease obligations, long-
term portion........... $ 188 $ 188 $ 188
Redeemable convertible
preferred stock (non-
cumulative), $.01 par
value per share;
9,843,000 shares
authorized: 8,934,000
shares issued and
outstanding, actual; no
shares issued and
outstanding, pro forma
and pro forma as
adjusted............... 28,719 -- --
Stockholders' deficit:
Preferred stock, $.01
par value per share:
none authorized,
issued and outstanding
actual; 10,000,000
authorized,
none issued and
outstanding, pro forma
and pro forma as
adjusted.............. -- -- --
Common stock, par value
$.01 per share:
50,000,000 shares
authorized, 7,602,269
shares issued and
outstanding actual;
21,003,265 shares
issued and
outstanding, pro forma
and 25,003,265 shares
issued and outstanding
pro forma as adjusted. 76 210 250
Additional paid-in
capital............... 1,236 29,821 62,261
Notes due from
stockholders for
common stock.......... (1,063) (1,063) (1,063)
Deficit accumulated
during the development
stage................. (21,199) (21,199) (21,199)
---------------- ---------------- ---------------
Total stockholders'
equity (deficit)... (20,950) 7,769 40,249
---------------- ---------------- ---------------
Total
capitalization..... $ 7,957 $ 7,957 $ 40,437
================ ================ ===============
</TABLE>
16
<PAGE>
DILUTION
Our pro forma net tangible book value at March 31, 1999 was $7,769,185 or
$0.37 per common share. Pro forma net tangible book value is the amount of
total tangible assets less total liabilities. Pro forma net tangible book value
per common share is net tangible book value divided by the pro forma number of
shares of common stock outstanding as of March 31, 1999. Net pro forma as
adjusted tangible book value per common share is determined by dividing our net
tangible book value as adjusted by the number of shares of our common stock
outstanding after giving effect to this offering. Assuming no changes in our
net tangible book value, other than to give effect to the sale of the common
stock offered by this prospectus at an assumed initial public offering price of
$9.00 per share, the mid-point of the range on the cover of this prospectus,
and the application of the net offering proceeds as described under "Use of
Proceeds," our pro forma as adjusted net tangible book value at March 31, 1999
would have been $40,249,185, or $1.61 per common share.
This represents an immediate increase in pro forma net tangible book value
of $1.24 per common share to existing stockholders, and an immediate dilution
in pro forma net tangible book value of $7.39 per common share to new investors
purchasing our common stock in this offering. The following table illustrates
this per share dilution.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per common share........... $9.00
Pro forma net tangible book value per common share at March 31,
1999........................................................... $0.37
Increase per share attributable to new investors................ 1.24
-----
Pro forma as adjusted net tangible book value per common share
after this offering............................................. 1.61
-----
Dilution per common share to new investors....................... $7.39
=====
</TABLE>
The following table summarizes at March 31, 1999:
. the number of shares of our common stock purchased by existing
stockholders, the total consideration and the average price per share
paid to us for these shares;
. the number of shares of our common stock purchased by new investors, the
total consideration and the price per share paid by them for these
shares; and
. the percentage of shares purchased by the existing stockholders and new
investors and the percentages of consideration paid to us for these
shares.
This table assumes that none of the warrants outstanding upon the closing of
this offering will be exercised.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Common Share
---------- ------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 21,003,265 84.0% $30,175,301 46.0% $1.44
New Investors............ 4,000,000 16.0 36,000,000 54.0 $9.00
---------- ----- ----------- -----
Total................... 25,003,265 100.0% $66,175,301 100.0% $2.65
========== ===== =========== =====
</TABLE>
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial information appearing elsewhere in this prospectus. The
selected financial data set forth below as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998, are derived from, and are
qualified by reference to, our audited financial statements included elsewhere
in this prospectus. The balance sheet data as of December 31, 1995 and 1996 and
the statement of operations data for the period from November 3, 1995, the date
of inception, through December 31, 1995 are derived from our audited financial
statements not included elsewhere in this prospectus. The selected historical
financial data as of March 31, 1999 and for the three month periods ended March
31, 1998 and 1999 have been derived from our unaudited financial statements
included elsewhere in this prospectus. In the opinion of our management, such
unaudited financial statements have been prepared on a basis consistent with
the audited financial statements and include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
for these periods and as of such date. The selected financial data set forth
below for the three months ended March 31, 1999 are not necessarily indicative
of our future results of operations or financial performance.
<TABLE>
<CAPTION>
Period
November 3,
1995
(date of Three
inception) Months Ended
to Year Ended December 31, March 31,
December 31, ------------------------- ----------------
1995 1996 1997 1998 1998 1999
------------ ------- ------- ------- ------- -------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue:
Content and services... $ -- $ -- $ 3 $ 132 $ 30 $ 58
Hardware............... -- -- 57 244 90 57
Other.................. -- -- -- -- -- 200
------ ------- ------- ------- ------- -------
Total revenue......... -- -- 60 376 120 315
------ ------- ------- ------- ------- -------
Operating expenses:
Cost of content and
services revenue...... -- -- 78 372 75 152
Cost of hardware
revenue............... -- -- 252 556 255 63
Production expenses.... -- 684 1,982 1,639 486 495
Research and
development........... 49 1,810 2,672 1,641 389 320
Write-down related to
hardware business..... -- -- -- 952 -- --
Sales and marketing.... -- 256 1,227 1,453 272 396
General and
administrative........ -- 787 1,921 1,838 481 431
------ ------- ------- ------- ------- -------
Total operating
expenses............. 49 3,536 8,133 8,453 1,958 1,857
------ ------- ------- ------- ------- -------
Loss from operations. (49) (3,536) (8,073) (8,076) (1,838) (1,542)
------ ------- ------- ------- ------- -------
Other (income)
expense, net........ -- (27) (44) 62 6 (68)
------ ------- ------- ------- ------- -------
Net loss................ $ (49) $(3,509) $(8,029) $(8,138) $(1,844) $(1,474)
====== ======= ======= ======= ======= =======
Basic and diluted net
loss per common share.. $(0.02) $ (1.10) $ (1.49) $ (1.15) $ (0.28) $ (0.20)
Weighted average shares
outstanding............ 2,250 3,177 5,379 7,097 6,558 7,452
Pro forma basic and
diluted net loss per
common share (1)....... (.50) (.07)
Pro forma weighted
average shares
outstanding (1)........ 16,292 20,728
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
---------------------------------- ------------------------
1995 1996 1997 1998 Actual Pro Forma(2)
------- ------- ------- ------- ----------- ------------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and cash
equivalents............ $ 388 $ 758 $ 646 $10,526 $ 9,652 $ 9,652
Total assets............ 435 1,036 3,013 11,600 10,991 10,991
Noncurrent liabilities.. -- 128 842 478 377 377
Redeemable preferred
stock.................. 389 3,430 12,378 27,725 28,719 --
Total stockholders'
(deficit) equity....... (19) (3,488) (11,427) (19,529) (20,950) 7,769
</TABLE>
- --------
(1) The "pro forma" selected statement of operations data for the year ended
December 31, 1998 and the three months ended March 31, 1999 reflects the
conversion of the outstanding shares of preferred stock into 13,400,996
shares of common stock as though this event occurred as of the beginning of
each period.
(2) The "pro forma" selected balance sheet data as of March 31, 1999 reflects
the event described in note 1 as if such event occurred as of March 31,
1999.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with "Selected Historical Financial
Data" and our financial statements and notes thereto appearing elsewhere in
this prospectus. This discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including, but not limited to, those set forth
under "Risk Factors" and elsewhere in this prospectus.
This prospectus contains forward-looking statements and information relating
to our company. We generally identify forward-looking statements in this
prospectus using words like "believe," "intend," "will," "expect," "may,"
"should," "plan," "project," "contemplate," "anticipate," "seek" or similar
terminology. These statements are based on our beliefs as well as assumptions
we made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties and assumptions. Actual results may differ significantly
from the results discussed in these forward-looking statements.
Overview
We are a leading provider of Internet-delivered premium spoken audio content
for playback on personal computers and hand-held electronic devices. We have
the largest and most diverse collection of premium digital spoken audio content
available for purchase and download from the Internet, most of which is
currently available only through us. We were incorporated in 1995, commenced
commercial operations in October 1997 and are currently in the development
stage.
In order to test consumer behavior, demonstrate to content providers the
viability of digital distribution of audio content and test our business model,
we designed, created and sold limited numbers of our own Internet-enabled
mobile audio playback device, the Audible MobilePlayer. We have historically
derived the majority of our revenue through the sale of this device. Sales of
the MobilePlayer accounted for 95% of our revenue in 1997, 65% of our revenue
in 1998 and 18% of our revenue for the three months ended March 31, 1999. We
expect this revenue to decrease and eventually phase out because we
discontinued the production of the player in April 1999 and expect to sell the
majority of our remaining inventory by the end of 1999. Our primary focus is
the aggregation and delivery of digital spoken audio content, and, in the
future, we will depend upon computer and consumer electronics companies to
manufacture and sell devices that are promoted as AudibleReady. The first of
these devices became commercially available in March 1999. Revenue from the
sale of audio content through our Web site has increased in each of the last
four quarters. We expect that trend to continue and, over the next several
quarters, sales of audio content will increase and eventually account for the
majority of our revenue. As of March 31, 1999, more than 3,900 customers had
purchased content from our Web site.
Although we have experienced revenue growth in our content sales in recent
periods, there can be no assurance that such growth rates are sustainable, and
therefore such growth rates should not be considered indicative of future
operating results. There can also be no assurance that we will be able to
continue to increase our revenue or attain profitability or, if increases in
revenue and profitability are achieved, that they can be sustained. We believe
that period-to-period comparisons of our historical operating results are not
meaningful and should not be relied upon as an indication of future
performance.
We recognize revenue from content sales in the period when content is
downloaded. Typically, we pay our content providers a 12% royalty based upon
net sales of the content downloaded by our customers. Some of our content
agreements require us to make advance royalty payments for minimum guarantees
which are amortized on a straight-line basis over the term of the agreement or
are expensed as royalties are earned, whichever is sooner.
We recognize revenue from subscriptions pro rata over the subscription term.
Royalty expense on subscriptions is currently accrued on the full subscription
price in the month the subscription is purchased. We
20
<PAGE>
plan to implement a financial reporting system that will allow us to pro rate
the accrual on the subscription royalty over the term of the subscription.
We recognize revenue from sales of the Audible MobilePlayer upon shipment.
We recognize revenue from audio production and hosting services which we
provide to corporations as the services are performed.
In November 1998, we entered into an agreement with Microsoft, one of our
stockholders, to integrate some of our products, grant various rights and
licenses and provide for Microsoft to be paid future royalties for content
distributed as a result of the customized software developed under the
agreement. Microsoft committed a minimum of $2.0 million in payments to us over
the course of the five-year term of the agreement to integrate products and
acquire various rights and licenses. $200,000 of these payments related to
technology integration services which have been performed and therefore the
related revenue was recognized as other revenue in the quarter ended March 31,
1999. $1.5 million of these payments relates to a fee paid by Microsoft for the
right to distribute software on electronic books that will enable electronic
book customers to purchase and access Audible content in conjunction with text
which we do not provide. This payment was advanced in the three months ended
December 31, 1998, and will be recognized as revenue on a straight line basis
over the initial term of the agreement which runs through the second quarter of
2001, beginning in the quarter ended June 30, 1999. Also under the agreement,
we will deliver a license for technology rights in exchange for $250,000, for
which revenue will be recognized upon acceptance, and we will deliver 300
Audible MobilePlayers in exchange for $50,000, for which revenue will be
recognized when shipped. In addition, Microsoft will be paid a royalty on
content licensed and distributed by Audible to each end user that accesses its
content using the developed software. Microsoft has options under the agreement
to acquire additional rights and licenses and extend the term of the agreement
for additional financial consideration.
We are party to several joint marketing agreements, including ones with
device manufacturers such as Casio, Compaq, Diamond Multimedia, Everex and
Philips. Under these agreements, our device manufacturers may receive a portion
of the revenue generated over a specified period of time by each new Audible
customer referred by them through the purchase of a new device. For example, a
purchaser of Compaq's hand-held electronic device known as Aero will be able to
use the device and our AudibleManager software to access audible.com and
download content. Compaq will receive a percentage of the revenue related to
content downloaded by this purchaser. These revenue sharing arrangements
typically last one or two years from the date the device user becomes an
Audible customer.
We have only a limited operating history with which to evaluate our business
and prospects. Our limited operating history and emerging nature of the market
for Internet-delivered audio content makes predicting our future operating
results difficult. In addition, our prospects must be considered in light of
the risks and uncertainties encountered by companies in the early stages of
development in new and rapidly evolving markets, specifically the rapidly
evolving market for delivery of audio content over the Internet. These risks
include our ability to:
. acquire and retain customers;
. build awareness and acceptance of audible.com, the AudibleReady format
and AudibleReady devices;
. extend existing and acquire new content provider relationships; and
. manage growth to stay competitive and fulfill customer demand.
If we fail to manage these risks successfully, it would materially adversely
affect our financial performance.
As of March 31, 1999, we had not entered into any derivative financial
instruments, other financial instruments or derivative commodity investments
that expose us to material market risk. We currently do not and do not plan to
engage in derivative instruments or hedging activities.
We have incurred significant losses since inception, and as of March 31,
1999, we had an accumulated deficit of approximately $21.2 million. We believe
that our success will depend largely on our ability to extend our leadership
position as a provider of premium digital spoken audio content over the
Internet. Accordingly, we plan to invest heavily in sales and marketing and
content acquisition and production over the next several quarters, to add
additional personnel and to make capital expenditures to upgrade our systems
capacity.
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Results of Operations
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenue during 1997, 1998 and for the three
months ended March 31, 1998 and 1999. We had no revenue in 1996.
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
---------------- --------------
1997 1998 1998 1999
------- ------ ------ -----
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Content and services...... 5% 35% 25% 18%
Hardware.................. 95 65 75 18
Other..................... -- -- -- 64
------- ------ ------ -----
Total revenue........... 100% 100% 100% 100%
------- ------ ------ -----
Operating expenses:
Cost of content and
services revenue......... 130 99 63 48
Cost of hardware revenue.. 418 148 212 20
Production expenses....... 3,289 436 403 157
Research and development . 4,433 437 323 102
Write-down related to
hardware business........ -- 253 -- --
Sales and marketing....... 2,037 386 226 126
General and
administrative........... 3,187 489 399 136
------- ------ ------ -----
Total operating
expenses............... 13,494 2,248 1,626 589
------- ------ ------ -----
Loss from operations........ (13,394) (2,148) (1,526) (489)
------- ------ ------ -----
Other (income) expense:
Interest income........... (251) (14) (9) (26)
Interest expense.......... 178 30 14 5
------- ------ ------ -----
Total other (income)
expense................ (73) 16 5 (21)
------- ------ ------ -----
Net loss.................... (13,321)% (2,164)% (1,531)% (468)%
======= ====== ====== =====
</TABLE>
Three months ended March 31, 1999 and 1998
Total revenue. Total revenue for the three months ended March 31, 1999, was
$315,000, as compared to $120,000 for the three months ended March 31, 1998, an
increase of $195,000, or 162%.
Content and services. Content and services revenue for the three months
ended March 31, 1999, was $58,000, as compared to $30,000 for the three months
ended March 31, 1998, an increase of $28,000, or 92%. Content and services
revenue increased primarily as a result of our increased customer base.
Hardware. Hardware revenue for the three months ended March 31, 1999, was
$57,000, as compared to $90,000 for the three months ended March 31, 1998, a
decrease of $33,000, or 37%. Hardware revenue decreased as we de-emphasize the
sale of the Audible MobilePlayer in anticipation of the adoption of mobile
devices produced by other manufacturers. Hardware revenue also decreased due to
the sale of the MobilePlayer at a reduced introductory price with a minimum
monthly content purchase commitment.
Other. Other revenue for the three months ended March 31, 1999, was
$200,000, as compared to no other revenue for the three months ended March 31,
1998. Other revenue consisted of services provided to create an AudibleReady
software player for Microsoft's Windows CE product.
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Operating expenses.
Cost of content and services revenue. Cost of content and services revenue
consists primarily of amortized minimum guarantees and royalties earned in
excess of the amortized minimum guarantees. These amortized amounts consist of
advance royalties paid or guaranteed to be paid to our content providers
regardless of the amount of content used by us during that period. These
amounts are amortized on a straight-line basis over the terms of the content
agreements or are expensed as royalties when earned, whichever is sooner. Cost
of content and services revenue was $152,000, or 262% of content and services
revenue, for the three months ended March 31, 1999, as compared to $75,000, or
250% of content and services revenue, for the three months ended March 31,
1998. This increase was primarily due to the acquisition of additional content
licenses and resulting amortization of new content agreement guarantees. Earned
royalties were $11,000, or 19% of content and services revenue, for the three
months ended March 31, 1999, and $4,000, or 13% of content and services
revenue, for the three months ended March 31, 1998. Amortization of minimum
guarantees was $141,000 for the three months ended March 31, 1999, and $72,000
for the three months ended March 31, 1998.
Cost of hardware revenue. Cost of hardware revenue consists primarily of the
cost of manufacturing the Audible MobilePlayers sold, write-down of
MobilePlayers in inventory to their estimated net realizable value prior to
September 30, 1998, packaging and collateral material, and fulfillment and
shipping costs. Cost of hardware revenue was $63,000, or 110% of hardware
revenue, for the three months ended March 31, 1999, as compared to $255,000, or
283% of hardware revenue, for the three months ended March 31, 1998. This
decrease was primarily due to write-downs of inventory units to their net
realizable value.
Production expenses. Production expenses consist primarily of personnel and
outsourced costs to support our infrastructure and systems including our Web
site, internal data communications, audio production activities and acquisition
of content. Production expenses were $495,000 for the three months ended March
31, 1999, as compared to $486,000 for the three months ended March 31, 1998, an
increase of $9,000, or 2%. This increase was primarily due to increased audio
production.
Research and development. Research and development expenses are expensed as
incurred and consist of costs incurred in the development of our Web site and
AudibleManager, the software that enables customers to download and manage our
audio content. In 1998, research and development costs consisted primarily of
costs incurred under agreements for the continued design and manufacture of the
Audible MobilePlayer. Research and development costs were $320,000 for the
three months ended March 31, 1999, as compared to $389,000 for the three months
ended March 31, 1998, a decrease of $69,000, or 18%. This decrease was
primarily due to reduced costs resulting from discontinuing the design of the
Audible MobilePlayer, offset by increased personnel and outsourced costs in the
development of new AudibleReady formats.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, advertising, travel, promotional materials, tradeshows and
public relations. Sales and marketing expenses were $396,000 for the three
months ended March 31, 1999, as compared to $272,000 for the three months ended
March 31, 1998, an increase of $124,000, or 46%. This increase was primarily
due to an increase in personnel and advertising costs.
General and administrative. General and administrative expense consists
primarily of administrative and business development personnel costs, legal and
accounting fees, recruiting costs and facility costs. General and
administrative expense was $431,000 for the three months ended March 31, 1999,
as compared to $481,000 for the three months ended March 31, 1998, a decrease
of $50,000, or 10%. This decrease was primarily due to reduced administrative
personnel costs as a result of lower headcount.
Interest income. Interest income, consists primarily of interest income
earned on our cash and cash equivalents balances. Interest income was $83,000
for the three months ended March 31, 1999, as compared to $11,000 for the three
months ended March 31, 1998, an increase of $72,000. This increase was
primarily due to additional interest income resulting from a higher average
cash and cash equivalent balance during the three months ended March 31, 1999.
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Interest expense. Interest expense consists of interest paid in connection
with our capital equipment lease line. Interest expense was $15,000 for the
three months ended March 31, 1999, as compared to $17,000 for the three months
ended March 31, 1998, a decrease of $2,000. This decrease was primarily due to
the lower principal balance on our capital equipment lease line.
Years ended December 31, 1998 and 1997
Total revenue. Total revenue for the year ended December 31, 1998, was
$376,000, as compared to $60,000 for the year ended December 31, 1997, an
increase of $316,000, or 524%.
Content and services. Content and services revenue for the year ended
December 31, 1998, was $132,000, as compared to $3,000 for the year ended
December 31, 1997, an increase of $129,000. Content and services revenue
increased as a result of our increased customer base.
Hardware. Hardware revenue for the year ended December 31, 1998, was
$244,000, as compared to $57,000 for the year ended December 31, 1997, an
increase of $186,000, or 324%. Hardware revenue increased as the number of
MobilePlayers sold increased which was partly offset by a reduction in their
price.
Operating expenses.
Cost of content and services revenue. Cost of content sales and services
revenue was $372,000, or 281% of content and services revenue, for the year
ended December 31, 1998, as compared to $78,000, for the year ended December
31, 1997. This increase was primarily due to the acquisition of additional
content and resulting amortization of minimum guarantees of new content
contract. Earned royalties were $24,000, or 18% of content and services
revenue, for the year ended December 31, 1998, and $2,000, or 82% of content
and services revenue, for the year ended December 31, 1997. Amortization of
contract guarantees was $349,000 for the year ended December 31, 1998, and
$76,000 for the year ended December 31, 1997.
Cost of hardware revenue. Cost of hardware revenue was $556,000, or 228% of
hardware revenue, for the year ended December 31, 1998, as compared to $252,000
for the year ended December 31, 1997, an increase of $304,000, or 120%. This
increase was primarily due to the increase in the total number of MobilePlayers
sold.
Production expenses. Production expenses were $1.6 million for the year
ended December 31, 1998, as compared to $2.0 million for the year ended
December 31, 1997, a decrease of $343,000, or 17%. This decrease was primarily
due to the reduction of personnel and outsourced costs following the completion
and launch of our Web site and the production of our initial audio content in
1997.
Research and development. Research and development expenses were $1.6
million for the year ended December 31, 1998, as compared to $2.7 million for
the year ended December 31, 1997, a decrease of $1.0 million, or 39%. This
decrease was primarily due to completion of the development in 1997 of the
Audible MobilePlayer, the completion of our Web site and of Version 1.0 of the
AudibleManager software.
Write-down related to hardware business. Write-down related to hardware
business was $952,000 for the year ended December 31, 1998. This charge
comprises a reduction of $370,000 in the carrying value of the remaining
inventory of Audible MobilePlayers, the impairment loss of $181,000 on
MobilePlayer molds and manufacturing equipment and a charge of $401,000 to
satisfy any remaining purchase commitments under the agreement.
Sales and marketing. Sales and marketing expenses were $1.5 million for the
year ended December 31, 1998, as compared to $1.2 million for the year ended
December 31, 1997, an increase of $226,000, or 18%. This increase was primarily
due to increased personnel and advertising costs.
General and administrative. General and administrative expense was $1.8
million for the year ended December 31, 1998, as compared to $1.9 million for
the year ended December 31, 1997, a decrease of $83,000, or 4%. This decrease
was primarily due to a reduction in administrative personnel costs.
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Interest income. Interest income was $53,000 for the year ended December 31,
1998, as compared to $151,000 for the year ended December 31, 1997, a decrease
of $98,000, or 65%. This decrease was primarily due to a lower average cash and
cash equivalent balance during the year ended December 31, 1998.
Interest expense. Interest expense was $115,000 for the year ended December
31, 1998, as compared to $107,000 for the year ended December 31, 1997, an
increase of $8,000, or 7%. This increase was primarily due to additional
interest expense resulting from increased obligations under our capital
equipment lease line during 1998.
Years ended December 31, 1997 and 1996
Total revenue. Total revenue for the year ended December 31, 1997 was
$60,000 primarily from the sale of Audible MobilePlayers, and we had no revenue
for the year ended December 31, 1996.
Operating expenses.
Production expenses. Production expenses were $2.0 million for the year
ended December 31, 1997, as compared to $684,000 for the year ended December
31, 1996, an increase of $1.3 million, or 190%. This increase was primarily due
to increased personnel in connection with audio production, content acquisition
and Web site development and outsourced costs in preparation for the launch of
the Audible service in late 1997.
Research and development. Research and development expenses were $2.7
million for the year ended December 31, 1997, as compared to $1.8 million for
the year ended December 31, 1996, an increase of $862,000, or 48%. This
increase was primarily due to increased personnel in connection with the
development of the Audible MobilePlayers and outsourced development costs in
preparation for the launch of the Audible service in late 1997.
Sales and marketing. Sales and marketing expenses were $1.2 million for the
year ended December 31, 1997, as compared to $256,000 for the year ended
December 31, 1996, an increase of $971,000, or 379%. This increase was
primarily due to increased personnel as we commenced our sales and marketing
activities and other marketing costs in preparation for the launch of the
Audible service in late 1997.
General and administrative. General and administrative expense was $1.9
million for the year ended December 31, 1997, as compared to $787,000 for the
year ended December 31, 1996, an increase of $1.1 million or 144%. This
increase was primarily due to increased personnel and facility costs in
preparation for the launch of the Audible service in late 1997.
Interest income. Interest income was $151,000 for the year ended December
31, 1997, as compared to $28,000 for the year ended December 31, 1996, an
increase of $123,000, or 435%. This increase was primarily due to the interest
income resulting from a higher average cash and cash equivalent balance during
1997.
Interest expense. Interest expense was $107,000 for the year ended December
31, 1997, as compared to $750 for the year ended December 31, 1996. This
increase was primarily due to additional interest expense resulting from the
origination of obligations under our lease line which was used to purchase
capital equipment during 1997.
Factors Affecting Operating Results
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future as a result of
a variety of factors, many of which are outside of our control. Factors that
may affect our quarterly operating results include but are not limited to: (1)
the demand for the Audible service; (2) the availability of premium audio
content; (3) sales and consumer usage of AudibleReady devices; (4) the
introduction of new products or services by a competitor; (5) the cost and
availability of acquiring sufficient web site capacity to meet our customers'
needs; (6) technical difficulties with our computer system or the Internet or
system downtime; (7) the cost of acquiring audio content; (8) the amount and
timing
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of capital expenditures and other costs relating to the expansion of our
operations; and (9) general economic conditions and economic conditions
specific to electronic commerce and online media. In the past, we experienced
fluctuations in demand for the Audible service based on the level of marketing
expenditures, the occurrence of external publicity and the quality of our
software and Website. Any one of these factors could cause our revenue and
operating results to vary significantly in the future. In addition, as a
strategic response to changes in the competitive environment, we may from time
to time make pricing, service or marketing decisions or acquisitions that could
cause significant declines in our quarterly operating revenue.
Our limited operating history and the emerging nature of our market make
prediction of future revenue difficult. We have no assurance that we will be
able to predict our future revenue accurately. Because we have a number of
fixed expenses, we may be unable to adjust our spending in a timely manner to
compensate for unexpected revenue shortfalls. Accordingly, any significant
shortfall in relation to our expectations could cause significant declines in
our operating results. We believe that our quarterly revenue, expenses and
operating results could vary significantly in the future, and that period-to-
period comparisons should not be relied upon as indications of future
performance. Due to the foregoing factors, it is likely that in some future
quarters our operating results will fall below the expectations of securities
analysts and investors, which could have a material adverse effect on the
trading price of our common stock.
Liquidity and Capital Resources
From inception, we have financed our operations through private sales of our
redeemable convertible preferred stock and warrants. Net proceeds from
inception to March 31, 1999 are approximately $28.7 million. At March 31, 1999,
our principal source of liquidity was approximately $9.6 million of cash and
cash equivalents. At March 31, 1999, our principal commitments consisted of
obligations under our capital lease line, which allows us to purchase up to
$1.8 million of equipment, operating lease commitments, contractual commitments
with content providers and revenue sharing commitments pursuant to agreements
with device manufacturers. At March 31, 1999, we had leased approximately $1.2
million in equipment on this line and had an outstanding balance of
approximately $659,000. Our cash and cash equivalents and capital lease line
will support our liquidity needs in the short-term.
Net cash used in operating activities was $2.6 million for 1996, $8.6
million for 1997, $5.0 million for 1998 and $1.7 million for the three months
ended March 31, 1999. Net cash used in all such periods was primarily
attributable to increases in inventory, offset in part by increases in
advances, accounts payable and accrued liabilities.
Net cash used in investing activities was $56,000 for 1996, $276,000 for
1997, $4,000 for 1998 and $97,000 for the three months ended March 31, 1999.
Net cash used in investing activities in all such periods were primarily
related to purchases of property and equipment and during 1997, we invested
$100,000 in an interest bearing note issued to a stockholder.
Net cash provided by financing activities was $3.0 million for 1996, $8.8
million for 1997, $14.9 million for 1998 and $908,000 for the three months
ended March 31, 1999. During 1998, we had a $1.0 million bank agreement to
provide letters of credit which expired in April 1999 and under which we did
not draw any amounts. During 1997, we had a $500,000 bank line of credit
agreement under which we drew the full amount. This line expired in December
31, 1997 and prior to such time, the balance had been paid in full. Net cash
provided by financing activities resulted primarily from the issuance of our
redeemable convertible preferred stock offset by capital lease payments.
As of December 31, 1998, we had available net operating loss carryforwards
totaling $10.7 million, which expire beginning in 2010. The Tax Reform Act of
1986 imposes limitations on our use of net operating loss carryforwards because
certain stock ownership changes have occurred.
We believe the net proceeds from this offering, together with our current
cash and cash equivalents, will be sufficient to meet our anticipated cash
requirements for at least the next 12 months. We plan to use the
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proceeds of this offering to increase our sales and marketing efforts, acquire
new content, extend our arrangements with our current content providers, add
additional personnel and make capital expenditures to upgrade our systems
capacity. Our current plans provide that approximately $21.5 million of the
proceeds from this offering will be available for use by us at the discretion
of our management. In the future, we may need to raise additional funds
through public or private financing, or other arrangements. We have no
assurance that such additional financing, if needed, will be available on
terms favorable to us or to our stockholders.
Year 2000 Readiness
General
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit
format. If not addressed, these computer systems will be unable to properly
interpret dates beyond the year 1999, which could lead to business
disruptions. The potential costs and uncertainties associated with the Year
2000 issue will depend on a number of factors, including software, hardware
and the nature of the industry in which a company operates.
We have instituted a company-wide project for addressing the Year 2000
issue. We are integrating this project with a project involving the upgrade of
our Web site. The Year 2000 project is divided into two parts--System
Infrastructure Upgrades and Vendor Compliance. These sections are discussed
separately below. The project is on schedule for completion by the end of the
third quarter 1999.
System Infrastructure Upgrades
We intend to achieve Year 2000 compliance for our internal systems by the
end of the third quarter of 1999. Our limited number of personal computers and
application systems are anticipated to facilitate rapid progress toward full
Year 2000 compliance. We are in the process of upgrading to more recent
versions of operating systems software that are certified to be ready for the
Year 2000.
We intend to continue to work to achieve Year 2000 compliance for our
systems using a methodology that incorporates the following steps:
. update the inventory of computer hardware, software and miscellaneous
network components,
. evaluate application development environment compliance,
. conduct overall assessment of systems infrastructure compliance,
. complete business risk analysis,
. take remedial actions (upgrade, repair, replace, retire or retain),
and
. develop appropriate contingency plans, and develop and implement
regimes to test Year 2000 compliance for mission-critical systems.
We are at the remedial action stage, and we currently anticipate completion
of this process by the end of the third quarter 1999 in order to avoid Year
2000 impact on our systems.
Vendor Compliance
This section includes the process of identifying and prioritizing critical
suppliers of technology and communicating with them about their plans and
progress in addressing the Year 2000 problem. This process will include not
only manufacturers with which we have agreements, but also providers of
insurance, financial and other services.
Our vendor compliance program will include the following steps:
. catalog and classify all vendors,
. on-site review and testing of out-sourced services or systems,
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. review responses from vendors to determine the level of compliance,
. determine the timing, method and cost of vendor solutions,
. assess vendor Year 2000 compliance and business risks, and
. develop remedial actions or contingency plans, as necessary.
We are at the remedial action stage of this program. Achievement of vendor
Year 2000 compliance is anticipated to be an on-going effort during 1999. The
current target to achieve compliance or complete contingency plans is by the
end of the third quarter 1999.
Costs
The estimated cost to compete the Year 2000 compliance project is
approximately $100,000, not including software and hardware upgrades already
budgeted as part of our next generation Web site. These costs are expected to
be incurred throughout 1999. These costs will be incurred primarily for the use
of outside consultants, setting up Year 2000 testing environments and the
replacement of existing software and hardware.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, our Web site and some of our normal business
activities or operations. Such failures could materially and adversely affect
our business, financial condition and results of operations. Moreover, even if
we successfully remediate our Year 2000 issues, we can be materially and
adversely affected by failures of our vendors to remediate their own Year 2000
issues. The failure of our vendors with which we have financial or operational
relationships to remediate their computer and non-information technology
systems issues in a timely manner could result in a material financial risk to
us. Due to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of vendors, we are
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on our business, financial condition and results of
operations. Accordingly, we may experience business interruption or shutdown,
financial loss, damage to our reputation and legal liability. We believe that,
with the implementation of new business systems and completion of the project
as scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Our expectations about future costs and the timely completion of our Year
2000 project are subject to uncertainties that could cause actual results to
differ materially from what has been discussed above. Factors that could
influence the amount of future costs and the effective timing of remediation
efforts include our success in identifying computer programs and non-
information technology systems that contain two-digit year codes, the nature
and amount of programming and testing required to upgrade or replace each of
the affected programs and systems, the rate and magnitude of related labor and
consulting costs, and the success of our vendors in addressing the Year 2000
issue.
In addition, we cannot assure you that Internet access companies, utility
companies and telecommunications providers will be Year 2000 compliant. The
failure by these companies to be Year 2000 compliant could result in a
systematic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could prevent us from
delivering the Audible service to our customers, decrease the use of the
Internet or prevent users from accessing audible.com, would have a material
adverse effect on our business, results of operations and financial condition.
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BUSINESS
We are a leading provider of premium spoken audio content, such as audio
versions of books and newspapers and radio programs, that is delivered over the
Internet and played back on personal computers and hand-held electronic
devices. The Audible service allows consumers to purchase and download our
content from our Web site, store it in digital files and play it back on
personal computers and electronic devices. More than 15,000 hours of audio
content are available on our Web site, including audio versions of books,
periodicals and radio programs. Several manufacturers have agreed to support
and promote the playback of our content on their hand-held audio-enabled
electronic devices.
The market for the Audible service results from the increasing usage of the
Internet and the recent introduction of hand-held electronic devices that have
audio capabilities. In contrast to traditional radio broadcasts, the Audible
service offers customers access to content of their choice and the ability to
listen to what they want, when and where they want--whether commuting,
exercising, relaxing or sitting at their personal computers. Unlike traditional
and online bookstores which are subject to physical inventory constraints and
shipping delays, we provide a selection that is readily available in digital
format that can be quickly delivered over the Internet directly to our
customers.
We help publishers, producers, authors, device manufacturers and our Web
site affiliates create incremental sources of revenue. We provide new sources
of revenue for publishers of newspapers, magazines, journals, newsletters,
professional publications and business information and producers of radio
broadcasts. In addition, our service provides companies that distribute or
promote our service and manufacturers of hand-held audio-enabled electronic
devices with a wide selection of content to offer to their customers.
Industry Overview
Public demand for entertainment, information and educational media continues
to grow as sources for this content proliferate. Veronis, Suhler & Associates
estimates that the communications industry exceeded $300 billion in revenues in
1997, increasing from less than $60 billion in 1977. During 1997, Americans on
average spent more than 3,300 hours reading, watching or listening to media
content from a large number of disparate sources. We believe that many
consumers seek a better way to manage this content.
Listening is a way for individuals to consume this content at times when
they are unable to read, such as when they are driving. A 1996 market study by
the Yankee Group indicates that 87% of automobile commuters listened to the
radio an average of 50 minutes a day while commuting. According to the
Department of Transportation, in 1990, 84 million people drove to and from work
alone, an increase of 35% from 1980. As individuals look to use their commuting
time more efficiently and manage an increasing amount of available content,
audiobooks have emerged as a personalized "pay-to-listen" alternative to radio,
which does not allow listeners to control when they listen to a particular
program. Americans spent $2.2 billion on spoken word audio tapes in 1998, an
increase from $1.6 billion in 1996. This increasing usage of audiobooks exists
despite limited types of content, high prices and the limitations of cassette
tape players. For instance, the audiobook market does not address timely print
content such as newspapers, newsletters, magazines and journals.
Recently, the Internet has emerged as a significant global communications
medium enabling millions of people to access and share information. Through the
Internet, users have the ability to quickly receive information in various
forms, from text and multimedia to newer technologies such as streaming audio.
Jupiter Communications estimates that over 33% of all Internet users listen to
Internet-delivered audio on their personal computers. However, the current
audio environment available on the Internet generally restricts consumers to
listening at their personal computers. Consumer electronics and computer
manufacturers are addressing this constraint by developing a new generation of
mobile devices that are capable of playing back downloaded audio content.
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IDC estimates that shipments of hand-held companion devices exceeded 4.5
million units worldwide in 1998 and will increase to over 14 million worldwide
by 2002. We believe seven million of these mobile devices will be audio-enabled
by the year 2002. This estimate does not include the recent appearance of
Internet-connected music players. According to Forrester Research, the
installed base of Internet-connected music players are estimated to reach one
million units in 1999 and 17 million units in 2002.
The confluence of the Internet as an increasingly accepted media
distribution channel, the widespread adoption of audio-enabled mobile devices
and the continuing growth in consumer demand for content in a variety of
formats, has resulted in new challenges for the media industry. These
challenges include creating a system that takes advantage of revenue
opportunities by making content readily accessible through the Internet while
compensating publishers and other content creators and preventing unauthorized
duplication and distribution. This creates an opportunity for a provider who
can establish a secure system for Internet delivery of premium audio content.
Our Solution
We have created the Audible service to give consumers the ability to
download spoken audio content of their choice from the Internet and to listen
to this audio when, where and how they want. The Audible service addresses the
market opportunity created by consumer demand for audio content and the
emergence of the Internet and hand-held audio-enabled electronic devices. We
have created the first service for secure delivery of premium digital spoken
audio content over the Internet for playback on personal computers and these
devices. Our service allows customers to program their listening time with
personalized selections from a wide collection of spoken audio content
available on audible.com, our Web site, including entertainment, news,
education and business information. We have assembled the largest and most
diverse collection of premium spoken audio content available for download on
the Internet for playback on personal computers and hand-held electronic
devices in most cases, currently available only through us and, in many cases,
pursuant to exclusive license rights. We have more than 15,000 hours of audio
content available on our Web site, including audio versions of books and
periodicals such as The New York Times, The Wall Street Journal and The
Economist, and radio programs such as Car Talk, Fresh Air, Marketplace and News
From Lake Wobegon. We provide over 3,000 audio versions of books from
publishers, including Bantam Doubleday Dell Audio Publishing and Random House
Audio Publishing, each a division of Random House, Inc., Dove Audio, Harper
Audio, Simon & Schuster Audio and Time Warner AudioBooks, and written by
authors such as Dave Barry, John Grisham, Stephen King, Sidney Sheldon and Amy
Tan. We believe that our extensive audio content collection and our secure
delivery system provide benefits to our customers, content providers,
manufacturers of AudibleReady hand-held electronic devices and other companies
which distribute or promote our service.
Benefits to Customers:
Unlike the traditional ways consumers select, organize and consume audio
content, Audible customers can access content of their choice and listen when,
where and how they want--whether commuting, exercising, relaxing or sitting at
their personal computers.
Selection. At our Web site, audible.com, customers can browse and purchase
from a large and diverse collection of readily available premium spoken audio
content, most of which is currently available only through us in digital format
for Internet distribution either pursuant to exclusive arrangements or because,
to our knowledge, no one else currently has these rights. Our collection
includes over 3,000 digital audiobooks in a wide variety of categories from
more than 1,500 authors. We are the only source of timely digital audio
editions of leading newspapers and selected periodicals. We also offer popular
and special interest radio programming, including interviews, commentaries and
talk radio. Our collection also contains selections that are difficult to find
or may not otherwise be readily or conveniently available to customers, such as
lectures and speeches. We have over 4,400 of these other audio selections in
addition to our audiobooks.
Convenience. audible.com provides customers with one-stop shopping for their
premium digital spoken audio needs. Our customers can browse and sample spoken
audio selections through our easy to navigate Web site. Our customers can
purchase bundled packages of selected audio content and choose automated
delivery of
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timely audio content on a subscription basis. Unlike traditional and online
bookstores, which are subject to physical inventory constraints and shipping
delays, we provide a selection that is readily available in digital format that
can be quickly delivered over the Internet directly to our customers.
Listening Experience. Unlike radio, which offers limited programming and no
ability for the listener to control broadcast times, our service enables
customers to take greater control of the listening experience. Customers decide
to listen to what they want, when and where they want. Our service allows
customers to skip between selections or individual articles or chapters within
selections. Customers can pause and resume listening where they left off and
can "bookmark" multiple sections of content, rather than be constrained by the
rewind and fast forward functions of cassette tape players.
Lower Prices. We provide customers with lower priced spoken audio content
because we do not incur the costs of traditional audio content manufacture and
distribution. For example, on June 15, 1999, the unabridged digital audio
version of Stephen King's new novel, The Girl Who Loved Tom Gordon, sold for
$10.95 on audible.com compared to the cassette version price of $23.96 plus
shipping through Amazon.com. By comparison, the manufacturer's suggested retail
price for the same title was $29.95 for cassette tape and $32.00 for compact
disc.
Benefits to Business Affiliates:
We help content creators, device manufacturers and other companies which
distribute or promote our service to their customers to create incremental
sources of revenue by aggregating premium audio content and providing a widely-
accepted system for digital spoken audio distribution.
Content creators. We provide a new source of revenue for publishers of
newspapers, magazines, journals, newsletters, professional publications and
business information and producers of radio broadcasts by creating a new market
for content that is too timely for distribution on cassette tape and too
specialized for widely-broadcast radio programs. Additionally, our electronic
delivery service offers publishers of audiobooks a new distribution channel for
their existing audiobook content. Older publications, including archived or
out-of-print content, when converted to digital audio form, can also provide
additional revenue while incurring relatively low costs for storing and
delivering electronic inventory. Our solution has the benefit of reducing the
risk of audio files being copied without authorization by employing a system
designed to limit playback of audio files to specifically identified personal
computers and hand-held electronic devices.
Device manufacturers. Major manufacturers of hand-held audio-enabled
devices, such as Casio, Compaq, Everex and Philips, have agreed to support and
promote the playback of our content on their devices. Diamond Multimedia has
agreed to promote our service after we jointly make its next version of its Rio
Internet Music Player compatible with our service. Our service provides these
manufacturers with an attractive application that takes advantage of the audio
capability of their devices, which may, in turn, increase their sales. In most
cases, these manufacturers also receive a percentage of the revenue generated
over a specified period of time by each new Audible customer referred by them
through the purchase of a new device. For example, a purchaser of a Philips
"Nino 510" palm-size device using our software can purchase and download
content from audible.com. Philips will receive a percentage of the revenue
related to content downloaded by this purchaser.
Companies which distribute or promote our service. We have entered into
marketing agreements with Microsoft, MP3.com, RioPort, RealNetworks, SOFTBANK
Content Services, Broadcast.com, The New York Times and The Wall Street Journal
to promote our content to their customers, either directly or indirectly. In
return, we have access to additional distribution outlets. We have agreed with
some of these companies to share a portion of revenue from sales of our content
to their customers.
Our Strategy
Our objective is to enhance our position as a leading provider of Internet-
delivered premium spoken audio content. Key elements of our strategy to achieve
this goal include:
Increase brand awareness. We seek to make "Audible" a recognizable brand. We
intend to use the AudibleReady brand to signify that a device is enabled to
play back Audible content. We plan to enhance brand
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awareness of the Audible service and increase visitors to our Web site by
expanding our marketing efforts through online initiatives, such as affiliate
programs, sponsorships, direct e-mail solicitations and banner advertisements.
We will augment this effort with offline initiatives, such as print
advertisements, direct mail, radio advertisements and billboards. Our co-
marketing agreements with AudibleReady device manufacturers, which include
bundling our software and marketing materials with these electronic devices,
are key elements of our plans to make potential customers aware of, and to
encourage them to try, our service. As an incentive for potential customers, we
plan to work with our content providers to offer a selection of free and
discounted content samples. In addition, we seek to enter into agreements with
content providers as well as owners of Internet portals, destinations and
commerce sites to promote co-branded services to Internet users.
Expand content collection. We plan to acquire more Internet distribution
rights to digital audio versions of books, newspapers, radio broadcasts,
magazines, journals, newsletters, conferences, seminars, performances,
lectures, speeches and television audio tracks. With selected content
providers, we plan to create additional timely digital audio editions of
newspapers, periodicals and other written content not otherwise available to
consumers in audio format. We also intend to differentiate our service by
expanding our collection of original and topic-specific content, building a
collection unconstrained by traditional physical inventory concerns.
Enable additional electronic devices and systems to be AudibleReady. We
intend to continue to work with the manufacturers of hand-held electronic
devices to support and promote the playback of Audible content on their
devices. In addition to our agreements with Casio, Compaq, Everex and Philips,
we also seek to make AudibleReady future generations of audio players that use
the MP3 audio format, a digital compression format which is currently used
primarily for music playback. For instance, we have an agreement with Diamond
Multimedia to integrate the Audible format and security into future versions of
the Rio, Diamond Multimedia's music player that plays music which can be
downloaded from the Internet. We are a member of the Secure Digital Music
Initiative consortium, or SDMI, and intend to support it in the future. The
stated goal of the SDMI consortium is to bring together the worldwide recording
industry and technology companies to develop an open technology for digital
music security. We are also seeking to expand the AudibleReady program to
include other mobile devices, such as smart phones, other hand-held computing
devices as they become audio-enabled and automobile-based personal computers.
Continue to improve the customer experience. We intend to make the Audible
service increasingly easy for customers to use and personalize. We intend to
take advantage of the flexibility of our online distribution system to offer a
variety of pricing and subscription models designed to maximize customer
satisfaction and to generate recurring revenue. We intend to enhance
audible.com to make it easier for customers to find specific selections and to
actively suggest selections that might be of interest to them based on their
prior purchasing patterns. We also intend to enhance our AudibleManager
software to make it simpler for customers to manage their personal audio
content selections and automate downloads and transfers of content to mobile
devices. In addition, we plan to improve the Audible system to improve the
clarity and fidelity of the sound and to play music and sound effects.
The Audible Service
Audible's integrated spoken audio delivery service includes four components:
(1) our Web site, audible.com; (2) our collection of digital audio content; (3)
our software for downloading, managing, scheduling and playing audio
selections; and (4) a variety of AudibleReady devices.
audible.com
Our Web site, audible.com, delivers through the Internet a large and diverse
selection of premium digital spoken audio content in a secure format. At
audible.com, visitors can browse, sample, purchase, subscribe, schedule and
download digital audio content. One hour of spoken audio, requiring about two
megabytes of storage, takes approximately 15 minutes to download to a personal
computer using a 28 kbps modem, approximately eight minutes using a 56 kbps
modem or approximately ten seconds using a high speed Internet connection, and
approximately six minutes to transfer the content from the personal computer to
an AudibleReady device.
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Digital audio content
We currently offer more than 3,000 digital audiobooks and more than 4,400
other audio selections comprising 15,000 hours of digital spoken audio content,
segmented in four categories:
. Audiobooks. We offer a wide selection of audiobooks from more than 1,500
authors. We offer both abridged (usually three to ten hours long) and
unabridged (usually five to 20 hours long) versions of original works,
read either by the authors or by professional narrators.
. Timely audio editions of print publications. Our service enables the
timely distribution of audio editions of newspapers and periodicals
previously available only in print. We offer a 40-minute daily audio
edition of The New York Times and a twice-daily audio version of The
Wall Street Journal. We also offer audio editions of The Harvard
Business Review, The Economist and numerous technology and investment
newsletters.
. Radio broadcasts. We offer popular and special-interest radio programs
shortly after they are originally broadcast so our customers have the
flexibility to listen to these programs when and where they want.
. Lectures, speeches, performances and other audio. We offer a broad
selection of lectures, speeches, dramatic and comedic performances,
educational and self-improvement materials, religious and spiritual
content, television audio tracks and other forms of spoken audio, many
of which are difficult to find from any other source. We also offer
specialty content created exclusively for audible.com. For example, we
recently entered into an agreement with the comedian and actor Robin
Williams to create original comedy and other programming for Internet
distribution exclusively through audible.com on a weekly basis.
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Following are examples drawn from the Audible collection, including prices
as of April 15, 1999:
Audiobooks
John Grisham: The Testament-- $9.95 (6 hours); $18.95 (unabridged 13 hours)
Stephen King: Bag of Bones--$10.95
John Berendt: Midnight in the Garden of Good and Evil--$6.95
Frank McCourt: Angela's Ashes--$8.95 (4 hours); $9.95 (unabridged 15 hours)
John Gray: Men Are From Mars, Women Are From Venus--$5.95
Margaret Atwood: Alias Grace--$9.95
Stephen W. Hawking: A Brief History of Time--$9.95
James McBride: The Color of Water--$6.95
Neale Donald Walsch: Conversations With God--$6.95
Scott Adams: The Dilbert Principle--$3.95
Geoffrey Moore: Inside the Tornado--$6.95
David Gardner and Tom Gardner: The Motley Fool's Rule Breakers, Rule Makers:
The Foolish Guide to Picking Stocks--$6.95
Michael Dell: Direct from Dell--$6.95
Jewel: A Night Without Armor--$3.95
James Patterson: When the Wind Blows-- $9.95
Amy Tan: The Joy Luck Club--$6.95
Robert Ludlum: The Bourne Identity--$5.95
Phillip Roth: American Pastoral--$9.95
Edward L. Fritsch and Nathan P. Rosenblatt: The Art and Skill of Conversation--
$5.95
Terry Pratchett: The Colour of Magic--$9.95
Dave Barry: Dave Barry Is from Mars and Venus--$8.95
Rebecca Wells: Divine Secrets of the Ya-Ya Sisterhood--$6.95
Douglas Adams: The Hitchhiker's Guide to the Galaxy--$8.95
Wally Lamb: I Know This Much Is True--$9.95
Dante Alighieri (translated by Robert Pinsky): The Inferno of Dante--$6.95
Eric Tyson: Investing for Dummies--$5.95
C.S. Lewis: The Screwtape Letters--$6.95
Timely Audio Summaries of Print Publications
The New York Times Audio Digest (The New York Times News Services, a Division
of the New York Times Company)--$.95 per daily issue; $49.95 for a 1-year
subscription
The Wall Street Journal on audible.com (Dow Jones & Company Inc.)--$.95 per
twice daily issue; $49.95 for a 1-year subscription
The Economist Audio Digest (The Economist Newspaper NA Inc.)--$4.95 per monthly
edition; $14.95 for a 1-year subscription
Mitch Ratcliffe's Adventures in Technology (Internet/Media Strategies Inc)--
$2.95 per monthly edition; $14.95 for a 1-year subscription
Harvard Management Update (Harvard Business School Publishing)--$2.95 per
monthly edition; $14.95 for a 1-year subscription
The Harvard Business Review (Harvard Business School Publishing)--$2.95 per
article
James K. Glassman on Wall Street (James K. Glassman)--$2.95 per monthly column;
$14.95 for a 1-year subscription
Chris Shipley's DemoLetter (IDG Conference Management Company)--$1.95 per
monthly issue
Internet Business Report (Jupiter Communications)--$2.95 per monthly report
Radio and TV Broadcasts
Fresh Air (WHYY-FM)--$1.95 per daily broadcast; $49.95 for a 1-year
subscription
Marketplace (Marketplace Productions Inc.)--$.95 per daily broadcast; $49.95
for a 1-year subscription
Car Talk (Tapet Brothers Associates d/b/a Dewey, Cheetham & Howe)--$1.95 per
weekly broadcast; $15.95 for a 1-year subscription
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Science Friday (Samanna Productions, Inc)--$2.95 per weekly broadcast; $15.95
for a 1-year subscription
To the Best of Our Knowledge (Wisconsin Public Radio)--$1.95 per weekly
broadcast; $15.95 for a 1-year subscription
Sound Money (Minnesota Public Radio)--$1.95 per weekly broadcast; $15.95 for a
1-year subscription
News from Lake Wobegon (Minnesota Public Radio)--$.95 per weekly broadcast;
$15.95 for a 1-year subscription
Lectures, Speeches, Performances and Other Audio
Gartner Group: The Euro--$1.95
Winston Churchill: Churchill in His Own Voice--$5.95
William J. Clinton: Historic Presidential Speeches, Volume 6--$2.95
Scott McNealy: Technology, Java and Pizza--$2.95
Bill Gates: Where Does Microsoft Go Next?--$1.95
William Shakespeare: Hamlet--$8.95
Bob & Ray: A Night of Two Stars--$5.95
Time Warner AudioBooks: Egypt: Journey to the Land of the Pharaohs--$5.95
We have licensed Internet distribution rights to audio content from more
than 100 publishers, producers of radio content and other content creators. Our
license agreements are typically for terms of one to three years, and many
provide us with exclusive Internet distribution rights. Under most licensing
arrangements, we pay the content creator a portion of the revenue we receive,
typically a 12% royalty. In some cases, we also pay a guaranteed advance
against the content creator's revenue share.
In most cases, we license audio recordings from publishers and content
creators. In other cases, such as with The New York Times, the morning read of
The Wall Street Journal, The Economist and The Harvard Business Review, we
create audio versions from the print publication. In all cases, we convert the
audio into our compressed, digital format.
Some of our content providers include:
Audio Literature CNBC/Dow Jones Business Video
Bantam Doubleday Dell Audio
Publishing, a division of Random House, Inc.
The Economist
Gartner Group
Blackstone Audiobooks Harvard Business School
Books on Tape Industry Standard
Dove Audio Marketplace Productions
Harper Audio/Caedmon Harper Audio The New York Times
New World Library The Wall Street Journal
Random House AudioBooks, a division of Random
House, Inc.
The Teaching Company
Sounds True
Simon & Schuster Audio Stanford Audio
Time Warner AudioBooks Penguin Audiobooks
Audible software
Our software consists of AudibleManager and AudiblePlayer for downloading,
managing, scheduling and playing audio selections.
The second generation of our AudibleManager software was recently made
available on our Web site to be downloaded for use on personal computers.
AudibleManager enables our customers to download and listen to digital spoken
audio content and transfer it to an AudibleReady device for mobile playback.
AudibleManager can also be used to organize individual selections, to specify
listening preferences and to manage delivery options for subscriptions.
Selections that exceed playback time limitations on a customer's hand-held
electronic device can be listened to over successive sessions by reconnecting
the device to the customer's personal computer and initiating a synchronization
command that automatically replaces the sections that have been
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played with new content.
Our AudiblePlayer software enables users of Windows CE-based hand-held
devices to control and customize their listening experience. Unlike cassette
tape or compact disk players, AudibleReady devices allow fast navigation of the
content through section markers and bookmarks that can be set by the user.
Users can skip between selections, individual articles or chapters, effectively
allowing them to control the listening experience.
AudibleReady devices
AudibleReady devices are personal computers and other hand-held electronic
devices that have a speaker or an audio output jack and can be enabled to play
back our audio content. The AudibleManager and AudiblePlayer software enable
these devices to receive and play back Audible content and are available for
download from audible.com. Recently, several device manufacturers have bundled
the AudibleManager and AudiblePlayer software in the packaging for their
devices. In addition, some device manufacturers plan to adapt their devices to
support the Audible service. The audio output jack of all of these devices can
work with headphones or a cassette adaptor to enable the content to be played
through a car stereo system.
We have formed co-marketing relationships with a number of consumer
electronics and computer companies to promote AudibleReady hand-held electronic
devices and our content to consumers. The device manufacturers are generally
required to promote the Audible service through a variety of means, which may
include (1) displaying the AudibleReady logo on their devices, (2) displaying
the AudibleReady logo on the outside of the device package, (3) including our
brochures inside the device package and (4) referring to Audible and
AudibleReady in their brochures and manuals. In most cases, the device
manufacturers receive a percentage of the revenue related to the content
downloaded by the purchasers of their AudibleReady devices. These revenue
sharing arrangements typically last one to two years from the date the device
user becomes an Audible customer.
We have agreements with Casio, Compaq, Everex and Philips to bundle
AudibleManager and AudiblePlayer with their palm-size, electronic devices
running the Microsoft Windows CE operating system. Devices manufactured by
these companies include:
<TABLE>
<CAPTION>
Selected AudibleReady
Device Price(1) Software Status
- ------ -------- -------------------------
<S> <C> <C>
Casio E-11................................... $299.95 Download from audible.com
Casio E-15................................... 389.95 Bundled
Casio E-100.................................. 499.95 Bundled
Compaq Aero 2110............................. 449.95 Bundled
Compaq Aero 2130............................. 499.95 Bundled
Compaq Aero 2150............................. 549.95 Bundled
Everex Freestyle A-15........................ 249.95 Download from audible.com
Everex Freestyle A-15 16MB................... 349.95 Download from audible.com
Everex Freestyle A-20........................ 449.95 Download from audible.com
Everex Freestyle A-20 16 MB.................. 399.95 Download from audible.com
Philips Nino 510............................. 449.95 Bundled
</TABLE>
- --------
(1) Prices available through Web-based retailers as of June 15, 1999. Actual
prices paid by a consumer may vary.
Both Compaq and Everex have announced that they have experienced delays in the
delivery schedule of their electronic devices due to parts shortages.
We also have an agreement with Diamond Multimedia, and are in discussions
with Creative Labs, to make future versions of their portable devices
AudibleReady. We seek to enter into agreements with other palm-size device
manufacturers.
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In order to measure consumer behavior, to demonstrate to content providers
the viability of secure digital distribution of audio content and to test the
potential of our business model, we designed, created and sold the first
AudibleReady device, the Audible MobilePlayer. We have sold approximately 2,650
MobilePlayers, which currently list for $149 each and store up to two hours of
spoken audio content, and approximately 480 MobilePlayer PLUS's, which
currently list for $299 each and store up to seven hours of spoken audio
content. We have discontinued designing and manufacturing the MobilePlayer and
MobilePlayer PLUS, although we will continue to sell our remaining inventory.
Other services
We also provide audio production and hosting services to corporations that
enable them to deliver in digital audio format training, analysis, marketing
and other information to their employees, suppliers and customers.
Technology
Our solution provides for the distribution of compressed digital spoken
audio files for playback on a personal computer or AudibleReady device. Our
solution is designed to facilitate the secure distribution and playback of
digital audio files to personal computers and hand-held electronic devices in
order to reduce the risk of audio files being copied without authorization.
Audio files are compressed in order to reduce download time and storage space,
are scrambled and targeted to a customer's personal computer or mobile device
where they are decompressed as they are played back.
Most of the Audible content is encoded using a compression-decompression
technology that we have licensed and to which we have made proprietary
extensions to enable the security features of the system. We intend to support
other compression-decompression technologies in the future, which will offer
customers the flexibility to choose higher fidelity sound in exchange for
increased download time and increased storage requirements. We have designed an
audio production process to record, edit, encode, segment, categorize, secure
and upload content to our Web site. Our Web site, hosted by QWEST, runs on a
Sun server.
As of June 15, 1999, our research and development team consisted of
approximately ten developers and engineers, as well as several outside
contractors, who develop and upgrade the AudibleManager software, interfaces to
AudibleReady devices, audible.com and the system architecture. Our production
team comprises business developers, professional readers, audio editors, copy
editors, merchandisers and Web authors and editors. As of June 15, 1999, we had
18 employees and several contractors involved in audio production who regularly
produce new audio for the site.
Development and Marketing Relationships
In addition to our agreements with Casio, Compaq, Everex and Philips to
bundle our software with their hand-held electronic devices and our agreements
with Broadcast.com, The New York Times, The Wall Street Journal, RioPort,
MP3.com and SOFTBANK Content Services to promote our content, we have entered
into development and marketing arrangements with Microsoft, RealNetworks and
Diamond Multimedia for joint software development projects to integrate our
software and content with the products of these vendors.
Microsoft. Our agreement with Microsoft involves several development
projects including Windows CE, Digital Rights Management, Microsoft's
electronic books initiative, Microsoft's AutoPC platform and Windows Media
Player, Microsoft's streaming media playback software. Microsoft has made a
minority investment in our company and has committed to pay fees over the next
five years for technology development, technology licensing and content
licensing. As part of this agreement, we have created and licensed a Windows CE
software program that enables Windows CE devices to be AudibleReady and play
back Audible content. We are also creating a software program that will allow
use of the Windows Media Player to stream audio through the Internet for
listening at a personal computer with speakers. We have also given Microsoft
the right to distribute AudibleReady software with Microsoft's electronic books
so that readers of these books can also listen to them. We have also agreed to
share a portion of the revenue generated over a specified period of time by
each new Audible customer referred by Microsoft through the purchase of a
Microsoft device or through the Microsoft Web site.
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RealNetworks. Our agreement with RealNetworks has a variety of components.
RealNetworks' personal computer playback software, RealPlayer, enables audio to
stream through the Internet for listening at a personal computer with speakers.
We plan to work with RealNetworks to develop software that will allow users of
RealNetworks' RealPlayer to access, purchase and listen to Audible content. We
also plan to cooperatively distribute portions of Audible content through
RealNetworks' e-commerce initiatives, and we plan to advertise on various
RealNetworks' Web sites.
Diamond Multimedia. Under the terms of our development and marketing
agreement with Diamond Multimedia, we will collaborate to make the next version
of its Rio Internet Music Player AudibleReady. Our collaboration will
facilitate access to the entire collection of Audible content using our
security, management and playback system. We plan to actively promote the
Audible/Rio service in joint marketing activities, including promotion of
Audible content at RioPort.com, Diamond Multimedia's music Web portal. We and
Diamond Multimedia will share revenue for referring customers to each other. In
addition, we will collaborate to integrate a future release of the
AudibleManager software with a future release of the Rio Manager software.
Sales and Marketing
Since our inception, we have focused on building our content collection,
developing the Audible service and working with manufacturers to make their
devices AudibleReady. Until recently, we have limited our marketing activities
primarily to public relations and test marketing initiatives. With the
commercial release of Version 2.0 of the AudibleManager software and the
release of new AudibleReady devices, we plan to increase the level and breadth
of our sales and marketing activities. We intend to initially focus our
marketing efforts primarily on commuters and mobile professionals. We intend to
use a combination of online and traditional media methods for sales, marketing
and promotional purposes, including the following:
Advertising. We plan to use a combination of advertising techniques to
enhance the Audible brand and attract customers to our service. Online
techniques may include free content offers, affiliate programs, sponsorships,
direct e-mail solicitations and banner advertisements. Offline techniques may
include print advertisements, direct mail, radio advertisements, billboards and
retail store promotions.
Co-marketing. We intend to work with our device manufacturers to promote the
AudibleReady program. We plan to cooperate with content providers to promote
specific Audible content to their customers on a co-branded basis. We plan to
cooperate with RealNetworks to promote Audible content bundles to users of the
RealPlayer and with Microsoft to provide Audible content bundles to users of
Windows Media Player. In addition, we plan to work with portable personal
computer manufacturers to pre-load our AudibleManager software with sample
content and sign-up offers.
Membership programs. We plan to offer membership programs including volume
discounts at various monthly commitment levels. We may use free and discounted
content offers to encourage our customers to sign up for our new membership
programs. We believe that these new membership programs will improve customer
adoption and retention.
Personalized marketing. We plan to analyze customers' stated preferences and
observed buying patterns. We will use this information to suggest selections
and to enhance the customers' purchasing and listening experience.
Competition
The market for the sale and delivery of spoken audio is highly competitive
and rapidly changing. Principal competitive factors in the spoken audio market
include:
. selection;
. price;
. speed of delivery;
. protection of intellectual property;
. timeliness;
. convenience; and
. sound quality.
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Although we believe that we currently compete favorably with respect to these
factors, we cannot be sure that we can maintain our competitive position
against current or new competitors, especially those with longer operating
histories, greater name recognition and substantially greater financial,
technical, marketing, management, service, support and other resources.
We compete with (1) traditional and online retail stores, catalogs, clubs
and libraries that sell, rent or loan audiobooks on cassette tape or compact
disc, (2) Web sites that offer streaming access to spoken audio content using
tools such as the RealPlayer or Windows Media Player and (3) other companies
offering services similar to ours.
Audiobooks on cassette tape or compact disc have been available from a
variety of sources for a number of years. Traditional book stores, such as
Borders and Barnes & Noble, and online book stores, such as barnesandnoble.com
and Amazon.com, offer a variety of audiobooks. The AudioBook Club offers
discounted audiobooks by mail order. Rental services, such as Books on Tape,
offer low pricing for time-limited usage of audiobooks, and libraries loan a
limited selection of audiobooks. One or more of these competitors might develop
a competing electronic service for delivering audio content.
Competition from Web sites that provide streaming audio content is intense
and is expected to increase significantly in the future. Broadcast.com, which
recently announced plans to be acquired by Yahoo!, and RealNetworks offer a
wide selection of streaming audio content. These companies and other portal
companies including America Online, Excite, Lycos and Infoseek may compete
directly with us by selling premium audio content for download.
Audiohighway.com also offers downloaded digital audio content for playback
on personal computers. Command Audio has announced plans to deliver audio
content through FM radio frequency for mobile playback.
Our content providers and other media companies may choose to provide
digital audio content directly to consumers. In addition, a small number of
companies control primary or secondary access to a significant percentage of
Internet users and therefore have a competitive advantage in marketing to those
users. These providers could use or adapt their current technology, or could
purchase technology, to provide a service directly competitive with the Audible
service.
Many of these companies have significantly greater brand recognition and
financial, technical, marketing and other resources than we do. We also expect
competition to intensify and the number of competitors to increase
significantly in the future as technology advances provide alternative methods
of delivering digital audio content through the Internet, satellite, wireless
data, FM radio frequency or other means.
Intellectual Property and Proprietary Rights
We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to our success. To
protect our proprietary rights, we rely on a combination of patent, trademark
and copyright law, trade secret protection and confidentiality and license
agreements with our employees, customers, business affiliates and others.
Notwithstanding these precautions, others may be able to use our intellectual
property or trade secrets without our authorization. If we are unable to
adequately protect our intellectual property, it could materially affect our
financial performance. In addition, potential competitors may be able to
develop technologies or services similar to ours without infringing our
patents.
We hold one patent and have filed eight patent applications for some aspects
of the Audible system, two of which have been allowed. We do not know if the
other pending patents will ever be issued and, if issued, if they will survive
legal challenges. Legal challenges to our patents, whether successful or not,
may be very expensive to defend.
We have applied for registration in the United States of several of our
trademarks and service marks, including "Audible", "audible.com" and
"AudibleReady". "audible.com" has been allowed and "Audible" and "AudibleReady"
have received adverse actions by the Patent and Trademark Office. We do not
know if
39
<PAGE>
these marks will be registered or that we will effectively protect the use of
these names. In addition, we have not taken affirmative steps to protect our
trademarks outside of the United States and effective trademark, service mark,
and copyright protection is not necessarily available in every country in which
our services are available online.
We also license some of our intellectual property to others, including our
AudibleReady technology and various trademarks and copyrighted material. While
we attempt to ensure that the quality of our brand is maintained, others might
take actions that materially harm the value of either these proprietary rights
or our reputation.
We license technology from others, including our compression-decompression
technology, that we incorporate into the Audible system. If these technologies
become unavailable to us, we would need to license other technology which would
require us to redesign our system and recode our content. Although we are
generally indemnified against claims that technology licensed by us infringes
the intellectual property rights of others, such indemnification is not always
available for all types of intellectual property and proprietary rights and in
some cases the scope of such indemnification is limited. Even if we receive
broad indemnification, third party indemnitors may not have the financial
resources to fully indemnify us in the event of infringement, resulting in
substantial exposure to us. We cannot assure you that infringement or
invalidity claims arising from the incorporation of this technology, resulting
from these claims, will not be asserted or prosecuted against us. These claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential redevelopment costs
and delays, all of which could materially adversely effect our business,
operating results and financial condition.
We attempt to avoid infringing the proprietary rights of others, although we
have not done an exhaustive patent search. Our competitors may claim that we
are infringing their intellectual property and, if they are successful, we may
be unable to obtain a license or similar agreement to use the technology we
need to conduct our business.
Employees
As of June 15, 1999, Audible had a total of 41 full-time employees -- ten in
research and development, 12 in sales and marketing, 14 in production and five
in general and administrative.
Facilities
Our headquarters is in Wayne, New Jersey, where we lease approximately
14,000 square feet housing all our full-time employees. We house our server in
a secure facility in Weehawken, New Jersey.
Legal Proceedings
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the
ordinary course of its business. Any such proceeding against us, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
40
<PAGE>
MANAGEMENT
Our Directors and Executive Officers
The following table shows information about our directors and executive
officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Andrew J. Huffman....... 39 President, Chief Executive Officer and Director
Donald R. Katz.......... 47 Chairman of the Board of Directors
Brian M. Fielding....... 44 Vice President, Business and Legal Affairs
Matthew Fine............ 38 Vice President, Content Production
J. Travis Millman....... 31 Vice President, Business Development
Foy C. Sperring, Jr..... 39 Vice President, Marketing
Guy Story, Jr........... 47 Vice President, Technology
Andrew P. Kaplan........ 45 Vice President, Finance and Administration
and Chief Financial Officer
Richard Brass........... 47 Director
R. Bradford
Burnham (1)(2)......... 44 Director
W. Bingham Gordon (2)... 49 Director
Thomas P.
Hirschfeld (1)......... 36 Director
Winthrop
Knowlton (1)(2)........ 68 Director
Timothy Mott............ 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Andrew J. Huffman has been our Chief Executive Officer, President and a
director since joining us in February 1998. From July 1997 to February 1998,
Mr. Huffman consulted with a number of technology companies. From April 1995 to
July 1997, Mr. Huffman was President and Chief Executive Officer of Aimtech
Corporation, an Internet and multimedia software tools company. From July 1993
to March 1995, Mr. Huffman was Vice President of Novell, Inc.'s Enterprise
Solutions Division, where he was responsible for Novell's worldwide consulting,
developer relations, and systems integrator relations. From November 1991 to
July 1993, Mr. Huffman was Vice President and General Manager of the
Distributed Computing Business Group at Unix System Laboratories, a software
company.
Donald R. Katz has been Chairman of the Board of Directors since April 1999
and a director since co-founding Audible in November 1995. From November 1995
to March 1998, Mr. Katz served as our President and Chief Executive Officer.
Prior to co-founding Audible, Mr. Katz was an author, business journalist and
media consultant for over fifteen years.
Brian Fielding has been our Vice President, Business and Legal Affairs since
January 1999. From April 1997 to January 1999, Mr. Fielding was our Managing
Director, Business and Legal Affairs. From March 1988 to April 1997, Mr.
Fielding held various positions at CBS Sports, a division of CBS, Inc., and was
most recently the Vice President, Business Affairs.
Matthew Fine has been our Vice President, Programming Production since
January 1999. From May 1998 to January 1999, Mr. Fine was our Director of Sales
and, from April 1997 to May 1998, our Director of Business Programming. He has
also managed our telesales group and enterprise sales efforts. From January
1997 to April 1997, Mr. Fine was Special Projects Manager at Dow Jones
Newswires, and, from December 1993 to January 1997, National Sales Manager at
Dow Jones Investor Network.
J. Travis Millman has been our Vice President, Business Development since
October 1997, after serving briefly as an executive consultant to Audible from
August to October 1997. From September 1996 to August 1997, Mr. Millman was
Director of Business Development at OnLive! Technologies, Inc., an Internet
41
<PAGE>
communications software company, and, from June 1994 to September 1996, Manager
of Business Development at Interplay Entertainment Corporation, an
entertainment software developer. Mr. Millman started his career in the
Engineering & Manufacturing Division of Sony Corporation of America.
Foy C. Sperring, Jr. has been our Vice President, Marketing since June 1998.
From September 1997 to June 1998, Mr. Sperring was Vice President of Product
Development at Interleaf Inc., a publishing software service company. From
November 1996 to September 1997, he was Vice President of Sales and Marketing
for Aimtech. From October 1995 to November 1996, Mr. Sperring was Vice
President of Marketing for Forman Interactive, an Internet software tools and
hosting service company. From March 1994 to October 1995, he was Vice President
of Electronic Publishing for PaperDirect, Inc., a personalized communication
materials company.
Guy Story, Jr. has been our Vice President, Technology since June 1996. From
September 1994 to June 1996, Mr. Story was Director of Multimedia Software
Application Architectures at the Lucent Network Systems division of Lucent
Technologies. From October 1985 to September 1994, he was a member of the
technical staff at Lucent Bell Laboratories.
Andrew P. Kaplan has been our Vice President, Finance and Administration and
Chief Financial Officer since June 1, 1999. From June 1997 to May 1999, Mr.
Kaplan was Chief Financial Officer of Thomson Corporation Publishing
International, a division of The Thomson Corporation. From September 1995 to
May 1997, Mr. Kaplan was Senior Vice President and Chief Financial Officer for
T.C. Advertising, an advertising services company. From March 1989 to August
1995, Mr. Kaplan was Vice President and Chief Financial Officer of Time Life, a
division of Time Warner Inc.
Richard Brass has been a director since April 1999. Since November 1997, Mr.
Brass has been Vice President, Technology Development at Microsoft Corporation.
From 1989 to July 1997, Mr. Brass was Senior Vice President of Oracle
Corporation.
R. Bradford Burnham has been a director since March 1997. Since May 1996,
Mr. Burnham has been a general partner of AT&T Ventures, a group of venture
capital funds. From May 1994 to May 1996, Mr. Burnham was a principal of AT&T
Ventures.
W. Bingham Gordon has been a director since November 1996. Since March 1998,
Mr. Gordon has been Executive Vice President and Chief Creative Officer of
Electronic Arts Inc., an interactive entertainment company. From October 1995
to March 1998, he was Executive Vice President, Marketing. From August 1993 to
October 1995, he served as Executive Vice President of EA Studios.
Thomas Hirschfeld has been a director since July 1996. Since March 1998, Mr.
Hirschfeld has been a managing director of Patricof & Co. Ventures, Inc., where
he was a principal from January 1995 to March 1998. From February 1994 to
December 1995, Mr. Hirschfeld was Assistant to the Mayor of New York City.
Winthrop Knowlton has been a director since November 1996. Since 1989 Mr.
Knowlton has been the Chairman and Chief Executive Officer of Knowlton
Brothers, Inc., a management company for limited partnerships and offshore
funds investing in the United States.
Timothy Mott has been a director since co-founding Audible in December 1995
and was the Chairman of the Board of Directors from December 1995 through April
1999. Mr. Mott has been a partner of Ironwood Capital L.L.C., an investment
company, since he co-founded it in January 1993. From October 1990 to July
1995, he was Chairman of Macromedia Inc., a multimedia software company. Mr.
Mott is a director of Electronic Arts, a company he co-founded in 1982.
Our executive officers are elected by our board of directors and serve at
its discretion. There are no family relationship among our officers and
directors.
42
<PAGE>
Classified Board
Our certificate of incorporation and bylaws will provide for a classified
board of directors consisting of three classes of directors, each serving
staggered three-year terms. As a result, a portion of our board of directors
will be elected each year. To implement the classified structure, prior to
consummation of the offering, three of the nominees to the board will be
elected to one-year terms, three will be elected to two-year terms and two will
be elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Messrs. Burnham, Hirschfeld and Mott will be Class I
directors with terms expiring at the 2000 annual meeting of stockholders,
Messrs. Brass, Gordon and Knowlton will be Class II directors, with terms
expiring at the 2001 annual meeting of stockholders, and Messrs. Huffman and
Katz will be Class III directors, with terms expiring at the 2002 annual
meeting of stockholders.
Board Committees
Our board has an Audit Committee and a Compensation Committee. The Audit
Committee, among other things, is responsible for:
. recommending to our board of directors the independent auditors to
conduct the annual audit of our books and records;
. reviewing the proposed scope and results of the audit;
. approving the audit fees to be paid;
. reviewing accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
. reviewing and approving transactions between us and our directors,
officers and affiliates.
The members of our Audit Committee are Messrs. Burnham, Hirschfeld and
Knowlton.
The Compensation Committee reviews and recommends the compensation
arrangements for management, including the compensation for our President and
Chief Executive Officer. It establishes and reviews general compensation
policies with the objective to attract and retain superior talent, to reward
individual performance and to achieve our financial goals. It also administers
our Stock Incentive Plan and our restricted stock program. The members of our
Compensation Committee are Messrs. Burnham, Gordon and Knowlton.
Compensation Committee Interlocks and Insider Participation
During 1998, members of our Compensation Committee were Messrs. Huffman,
Burnham and Hirschfeld. None of our executive officers has served as a member
of the compensation committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as a director of
or member of our Compensation Committee.
Director Compensation
Our directors have received no compensation for serving as directors. We
reimburse our directors for reasonable expenses they incur to attend board and
committee meetings. Our non-employee directors are eligible to receive grants
of options to acquire our common stock under our Stock Incentive Plan. See
"1999 Stock Incentive Plan."
Mr. Mott has been covered under our medical benefits plan since 1998 on the
same terms as our employees.
43
<PAGE>
Executive Compensation
The following table summarizes the compensation paid to our chief executive
officer and the other four most highly paid executive officers whose total
salary and bonus exceeded $100,000 during 1998, whom we refer to as our Named
Executive Officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Restricted
------------------------- Stock
Name and Principal Position Salary Bonus(1) Other Sales(2)
- --------------------------- -------- -------- ------- ------------
<S> <C> <C> <C> <C>
Andrew J. Huffman.................... $152,077 $36,250 $ 7,664(3) $ -- (4)
President and Chief Executive
Officer
Donald R. Katz....................... 140,000 30,750 -- --
Chairman of the Board of Directors
Travis Millman....................... 114,125 31,733 11,767(3) -- (5)
Vice President, Business Development
Brian Fielding....................... 110,000 17,750 -- -- (6)
Vice President, Business and Legal
Affairs
Guy Story, Jr........................ 103,542 16,750 -- --
Vice President, Technology
</TABLE>
- --------
(1) Includes amounts earned in 1998 and paid in 1999.
(2) Each Named Executive Officer who purchased shares of our restricted stock
during 1998 paid for the stock by means of a promissory note. The price of
the stock on the date of purchase was equal to the fair market value on the
date of purchase as determined by our board of directors. See the
description of our restricted stock sales in this section regarding vesting
of restricted stock.
(3) Consists of relocation payments.
(4) In February 1998, Mr. Huffman purchased 1,500,000 shares of our restricted
common stock for $400,000. As of December 31, 1998, 300,000 shares had
vested. The remaining shares vest at a rate of 30,000 shares per month and
will be fully vested in April 2002.
(5) In May 1998, Mr. Millman purchased 75,000 shares of our restricted common
stock for $20,000. As of December 31, 1998, 12,000 shares had vested. The
remaining shares vest at a rate of 1,500 per month and will be fully vested
in June 2002.
(6) In May 1998, Mr. Fielding purchased 37,500 shares of our restricted common
stock for $10,000. As of December 31, 1998, 6,000 shares had vested. The
remaining shares vest at a rate of 750 per month and will be fully vested
in June 2002.
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<PAGE>
Fiscal 1998 Year-End Restricted Stock Values
All of our Named Executive Officers own restricted stock. The following
table sets forth, as of December 31, 1998, the total purchases of restricted
stock by each Named Executive Officer and the number and aggregate dollar value
of the vested and unvested shares held by them. There was no public trading
market for our common stock as of December 31, 1998. Accordingly, we have
calculated the aggregate value of the shares based on the difference between an
assumed initial public offering price of $9.00 per share and the purchase price
of each share, multiplied by the number of shares. All these shares were
purchased by the Named Executive Officers at their fair market value, as
determined by our board of directors, and were paid for by promissory note on
the terms described under "Restricted Stock Program."
<TABLE>
<CAPTION>
Aggregate Value Aggregate Value
Of Vested Of Unvested
Name Vested Shares Unvested Shares Shares Shares
---- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Andrew J. Huffman....... 300,000 1,200,000 $ 2,619,000 $10,476,000
Donald R. Katz.......... 1,359,356 140,644 12,166,236 1,258,764
Travis Millman.......... 88,500 211,500 772,605 1,846,395
Brian Fielding.......... 53,250 96,750 464,873 844,628
Guy Story, Jr........... 213,000 162,000 1,898,550 1,438,200
</TABLE>
If we are acquired by another company, 50% of each employee's unvested
shares on that date will automatically become vested.
Option Grants
We did not have a stock option plan prior to April 1999. Named Executive
Officers have purchased shares of our common stock through our restricted stock
program as described below. In June 1999, we granted to Mr. Millman an option
to purchase 75,000 shares of our common stock at an exercise price of $8.00 per
share.
Employment Arrangements
We have not entered into formal employment agreements with any of our Named
Executive Officers. Our employment arrangements with our Named Executive
Officers, which are embodied in enforceable offer letters, provide for a base
salary, which may be increased by our board of directors, and an annual bonus.
The following table shows their current annual base salary and annual bonus
potential for 1999.
<TABLE>
<CAPTION>
Maximum
Annual Annual Bonus
Name Base Salary for 1999
---- ----------- ------------
<S> <C> <C>
Andrew J. Huffman................................... $180,000 $90,000
Donald R. Katz...................................... 140,000 42,000
Travis Millman...................................... 120,000 40,000
Brian Fielding...................................... 115,000 23,000
Guy Story, Jr....................................... 110,000 27,500
</TABLE>
Mr. Huffman's employment arrangement provides that we pay him six month
severance if we terminate his employment. Mr. Fielding's employment arrangement
provides that we pay him one month severance if we terminate his employment.
Andrew Kaplan's employment arrangement provides him with a $150,000 annual
base salary, a signing bonus of $15,000, payable within three months of his
employment date, and an annual target bonus of $30,000, payable quarterly. Mr.
Kaplan is entitled to six month severance if we terminate his employment. We
also provide him access to a corporate apartment.
We require all our employees to sign agreements which prohibit the
disclosure of our confidential or proprietary information. Each of these
employees also has agreed to non-competition and non-solicitation provisions
that will be in effect during his employment and for one year thereafter.
45
<PAGE>
We have agreed to pay Messrs. Katz, Millman, Fielding and Story bonuses in
the following amounts if they are still employed by us on the following dates:
<TABLE>
<CAPTION>
Name Bonus Date
---- ------- ------------------
<S> <C> <C>
Donald R. Katz.................................... $65,669 June 30, 1999
Travis Millman.................................... 78,753 September 30, 2001
Brian Fielding.................................... 39,488 May 31, 2001
Guy Story, Jr..................................... 22,604 July 31, 2000
</TABLE>
Restricted Stock Program
Since our inception, some of our employees have purchased restricted shares
of our common stock at a price per share equal to the fair market value on the
date of purchase as determined by our board of directors. The number of shares
that each employee purchased varied depending on his or her position. In
general, employees paid for these shares by promissory notes, which are due on
the earlier of 50 months from the date of issuance of the shares or the date
the employee leaves Audible.
In general, we may repurchase a portion of an employee's shares if he or she
ceases to be employed by us. If the employee leaves within six months of
purchasing the restricted stock, we may repurchase all of the employee's
shares. Twelve percent of the employee's shares vest six months after the date
of purchase and thereafter, the remaining shares vest equally over the next 44
months. We may repurchase all unvested shares at the original purchase price.
If we are acquired by another company, 50% of each employee's unvested shares
on that date will automatically become vested.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan authorizes the grant of:
. stock options;
. stock appreciation rights;
. stock awards;
. phantom stock; and
. performance awards.
The Compensation Committee administers our Stock Incentive Plan. The
Committee has sole power and authority, consistent with the provisions of our
Stock Incentive Plan, to determine which eligible participants will receive
awards, the form of the awards and the number of shares of our common stock
covered by each award. The Committee may impose terms, limits, restrictions and
conditions upon awards, and may modify, amend, extend or renew awards,
accelerate or change the exercise time of awards or waive any restrictions or
conditions to an award.
As of June 15, 1999, we have issued options to purchase 903,450 shares of
our common stock out of the 9,000,000 shares available under the Stock
Incentive Plan.
Stock Options. We can grant options to purchase shares of our common stock
that either are intended to qualify as incentive stock options under the
Internal Revenue Code or that do not qualify as incentive options. The
Committee can determine the option exercise price, the term of each option, the
time when each option may be exercised and, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised.
Stock Appreciation Rights. We can grant rights to receive a number of shares
or cash amounts, or a combination of the two that is based on the increase in
the fair market value of the shares underlying the right during a stated period
specified by the Committee.
46
<PAGE>
Stock Awards. We can award shares of our common stock at no cost or for a
purchase price. These stock awards may be subject to restrictions at the
Committee's discretion.
Phantom Stock. We can grant stock equivalent rights, or phantom stock, which
entitle the recipient to receive credits which are ultimately payable in the
form of cash, shares of our common stock or a combination of both. Phantom
stock does not entitle the holder to any rights as a stockholder.
Performance Awards. We can grant performance awards to participants
entitling the participants to receive cash, shares of our common stock, or a
combination of both, upon the achievement of performance goals and other
conditions determined by the committee. The performance goals may be based on
our operating income, or on one or more other business criteria selected by the
Committee.
Other Stock-Based Awards. We can grant other stock-based awards. These
stock-based awards may be denominated in cash, in common stock, or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into common stock, or in any combination
of the foregoing and may be paid in common stock or other securities, in cash,
or in a combination of common stock or other securities and cash, all as
determined in the sole discretion of the Committee.
401(k) Plan
We maintain a 401(k) plan that covers all our employees who satisfy
eligibility requirements relating to minimum age, length of service and hours
worked. We may make an annual contribution for the benefit of eligible
employees in an amount determined by our board of directors. We have not made
any such contribution to date and have no current plans to do so. Eligible
employees may make pretax elective contributions of up to 15% of their
compensation, subject to maximum limits on contributions prescribed by law.
47
<PAGE>
RELATED TRANSACTIONS AND RELATIONSHIPS
Organization
In connection with our formation, we issued 1,500,000 shares of common stock
to our founder, Donald R. Katz, in exchange for a $52,500 promissory note and
contribution of patent rights. The rights were valued at $17,500 by Mr. Katz
and us, based upon Mr. Katz's estimated costs of such patent right, and agreed
to by Mr. Mott, a director, prior to the investment in December 1995 by
Ironwood Capital L.L.C., of which Mr. Mott is a managing member.
In December 1995, we issued 534,000 shares of Series A preferred stock at a
price of $0.75 per share and 375,000 shares of common stock at a price of
$0.047 per share to Ironwood.
Sale of Stock
In July 1996, we issued 2,000,000 shares of Series B preferred stock at a
price of $1.50 per share, including 333,334 shares to Ironwood, 833,333 shares
to funds managed by Patricof & Co. Ventures, Inc., of which Mr. Hirschfeld, one
of our directors, is a managing director, and 833,333 shares to Kleiner Perkins
Caufield & Byers and its affiliates.
In November 1996, we issued 25,000 additional shares of Series B preferred
stock at a price of $1.50 per share, to each of Winthrop Knowlton and W.
Bingham Gordon, both of whom are members of our board of directors.
In March 1997, we issued 2,250,000 shares of Series C preferred stock at a
price of $4.00 per share, including 122,917 shares to Ironwood, 6,250 shares to
Mr. Knowlton, 6,250 shares to Mr. Gordon, 307,292 shares to the Patricof group,
307,291 shares to the Kleiner Perkins group and 750,000 shares to AT&T Venture
Fund II, L.P. and its affiliates, of which Mr. Burnham, a member of our board
of directors, is a general partner.
In February 1998, we issued 1,350,000 shares of Series D preferred stock at
a price of $4.00 per share, including 65,228 shares to Ironwood, 117,980 shares
to the Patricof group, 75,000 shares to the Kleiner Perkins group, 77,575
shares to the AT&T group and 750,000 shares to CPQ Holdings, Inc., an affiliate
of Compaq Computer Corporation.
In December 1998, we issued 2,500,000 additional shares of Series D
preferred stock at a price of $4.00 per share, including 81,731 shares to the
Patricof group, 78,926 shares to the Kleiner Perkins group, 53,686 shares to
the AT&T group and 1,250,000 shares to Microsoft Corporation, of which Mr.
Brass, a member of our board of directors, is Vice President of Business
Development.
In connection with the preferred stock financings, we granted registration
rights to the preferred stockholders, among others. Upon exercise of these
registration rights, these stockholders can require us to file registration
statements covering the sale of shares of common stock held by them and may
include the sale of their shares in registration statements covering our sale
of shares to the public. See "Description of Our Capital Stock--Registration
Rights."
Since inception, we have sold to our executive officers and directors the
following shares of restricted common stock at the date and prices listed in
the table. In general, each officer or director paid for his shares by way of
unsecured promissory notes that typically bear interest at 7% or 8% per year
and are payable upon the earlier of the termination of employment or such time
as all shares have vested.
48
<PAGE>
<TABLE>
<CAPTION>
Date Number of Price Aggregate
Name of Issuance Shares Per Share(1) Price(2)
- ---- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C>
W. Bingham Gordon.................. 07/17/96 7,500 $.11 $ 850
W. Bingham Gordon.................. 02/20/97 37,500 .10 3,750
Timothy Mott (3)................... 12/11/95 375,000 .05 17,500
Timothy Mott (3)................... 07/23/96 375,000 .10 37,500
Winthrop Knowlton.................. 01/20/97 37,500 .10 3,750
Brian Fielding..................... 06/17/97 112,500 .27 30,000
Brian Fielding..................... 05/06/98 37,500 .27 10,000
Brian Fielding..................... 03/02/99 112,500 .27 30,000
Matthew Fine....................... 06/17/97 112,500 .27 30,000
Matthew Fine....................... 05/06/98 37,500 .27 10,000
Matthew Fine....................... 03/02/99 75,000 .27 20,000
Andrew Huffman..................... 02/28/98 1,500,000 .27 400,000
Donald Katz (4).................... 12/11/95 1,500,000 .05 70,000
J. Travis Millman.................. 11/03/97 225,000 .27 60,000
J. Travis Millman.................. 05/06/98 75,000 .27 20,000
Anthony Nash....................... 05/08/97 22,500 .10 2,250
Anthony Nash....................... 11/03/97 22,500 .27 6,000
Anthony Nash....................... 09/15/98 30,000 .27 8,000
Foy Sperring....................... 06/15/98 375,000 .27 100,000
Guy Story, Jr. .................... 07/17/96 300,000 .06 17,000
Guy Story, Jr. .................... 07/29/97 75,000 .27 20,000
</TABLE>
- --------
(1) Rounded to the nearest whole cent.
(2) As of December 31, 1998, other than as noted for Mr. Katz, each of these
directors and executive officers was indebted to us in an amount equal to
the aggregate purchase price of his shares of restricted stock plus accrued
interest from the origination date on the promissory notes with which he
purchased the shares.
(3) Ironwood Capital transferred these shares to Mr. Mott in April 1999.
(4) Mr. Katz purchased his stock through a combination of a $52,500 promissory
note and contribution of patent rights valued at $17,500. As of December
31, 1998, Mr. Katz was indebted to us for $52,500 plus accrued interest
from December 11, 1995.
Issuance of Options
On June 1, 1999, we issued Andrew Kaplan an option to purchase 325,000
shares of common stock at an exercise price of $8.00 per share, subject to
vesting over a four year period. On June 1, 1999, we issued Mr. Millman an
option to purchase 75,000 shares of common stock at an exercise price of $8.00
per share, subject to vesting over a four year period.
Issuance of Warrants
In March 1997, in connection with the sale of the Series C preferred stock,
we issued warrants to purchase an aggregate of 675,001 shares of common stock
at an exercise price of $4.00 per share to holders of Series C preferred stock,
including Ironwood, the Kleiner Perkins group, the Patricof group, the AT&T
group and Messrs. Knowlton and Gordon. These warrants may be exercised until
March 31, 2002.
In April 1999, in connection with an amendment to our license agreement with
Microsoft, which owns over 5% of our capital stock, we issued to Microsoft a
warrant to purchase 100,000 shares of common stock at a price per share equal
to the price to the public of our common stock in this offering, or, if this
offering does not occur within 12 months of the date of issuance, such warrant
is exercisable for 100,000 shares of common stock at $6.00 per share. This
warrant may be exercised until November 18, 2003.
49
<PAGE>
Additional Transactions
In March 1997, we loaned Mr. Katz, our Chairman of the Board, $100,000 under
the terms of a promissory note and secured by Mr. Katz's pledge of 37,500
shares of common stock. The promissory note bears interest at the rate of 6%
per annum and is due on the earlier of March 28, 2002 or one year following
this offering. On March 31, 1999, the outstanding balance on the loan was
$100,000 plus $12,000 in accrued interest.
In September 1998, we entered into a software development and licensing
agreement with Compaq Computer Corporation, an affiliate of CPQ Holdings, Inc.,
which owns over 5% of our issued stock.
In November 1998, we entered into a license agreement with Microsoft. Our
agreement involves several development projects including Windows CE, Windows
Media Player, Digital Rights Management, Microsoft's electronic books
initiative, and Microsoft's Auto PC platform. Microsoft has committed to pay
certain fees over the next five years for technology development, technology
licensing and content licensing. As part of the agreement, we have created and
licensed a Windows CE software program that enables Windows CE devices to play
back Audible content. We are also creating a software program that will allow
use of the Windows Media Player to access our content. We have also given
Microsoft the right to distribute our software with Microsoft's electronic
books so that readers can listen to the books. We have also agreed to share a
portion of the revenue generated over a specific period of time by each new
Audible customer referred by Microsoft through the purchase of a Microsoft
device or through the Microsoft Web site.
The Microsoft agreement also contains a right of first negotiation if we
receive a proposal from another company that could result in our acquisition.
If we receive an unsolicited proposal, or if our board determines to solicit
proposals or otherwise enter into discussions that would result in a sale of a
controlling interest in our company or other merger, asset sale or other
disposition that effectively results in a change of control of the company, we
are required to give written notice to Microsoft. We are under no obligation to
disclose confidential information related to the unsolicited proposal.
Microsoft then has 7 days to provide notice to us that it desires to negotiate
a potential acquisition of Audible by Microsoft. If Microsoft delivers this
notice to us within 7 days, we will negotiate exclusively and in good faith for
21 days from the date of delivery of our initial notice to Microsoft. We are
under no obligation to accept any offer from Microsoft. If we are unable to
negotiate a transaction with Microsoft within the 21-day negotiation period, we
may negotiate with others for a sale of our company. If we do not enter into a
definitive agreement with another party within 6 months from the date we
initially delivered notice to Microsoft, we must restart the notice and
negotiation process. This right terminates no later than November 4, 2003.
In January 1998, we entered into an agreement with Flextronics International
Ltd. to manufacture the Audible MobilePlayer. The chief executive officer of
Flextronics is a principal of Ironwood, of which Mr. Mott, a director, is also
a principal. As of December 31, 1997, $173,000 was due to Flextronics under the
terms of that agreement, and as of December 31, 1998, $51,000 was due. As part
of our plans to discontinue the design and manufacture of the Audible
MobilePlayer, we plan to terminate this agreement in the second half of 1999.
We believe that all the transactions described above were made on terms no
less favorable to us than if such transactions were with non-affiliates. We
have adopted a policy whereby all future transactions between us and our
officers, directors and affiliates will be on terms no less favorable than
could be obtained from non-affiliates and will be approved by a majority of our
board.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets certain information regarding beneficial ownership
of our common stock as of April 30, 1999, and as adjusted to reflect the sale
of the shares offered hereby, by:
. each person who we know beneficially owns more that 5% of our common
stock;
. each member of our board of directors;
. each of our Named Executive Officers; and
. all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed is c/o
Audible, Inc., 65 Willowbrook Boulevard, Wayne, New Jersey 07470. Except as
otherwise indicated, each of the persons named in this table has sole voting
and investment power with respect to all the shares indicated.
For purposes of calculating the percentage beneficially owned, 21,003,265
shares of common stock are deemed outstanding before the offering, including
7,602,269 shares of common stock outstanding as of April 30, 1999 and
13,400,996 shares of common stock issuable upon conversion of the preferred
stock. For purposes of calculating the percentage beneficially owned, the
number of shares deemed outstanding after the offering includes: (a) all shares
deemed to be outstanding before the offering and (b) 4,000,000 shares being
sold in this offering, assuming no exercise of the underwriters' over-allotment
option.
In computing the number of shares beneficially owned by a person and the
percentage ownership by that person, shares of common stock which that person
could purchase by exercising outstanding common stock purchase warrants prior
to June 30, 1999, are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Percent of Common
Number of Stock Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Patricof group (1)............................... 2,102,691 10.0% 8.4%
c/o Patricof & Co. Ventures, Inc.
445 Park Avenue, 11th Floor
New York, NY 10022
Kleiner Perkins group (2)........................ 2,034,011 9.6 8.1
2750 Sand Hill Road
Menlo Park, CA 94025
Microsoft Corporation (3)........................ 1,975,000 9.4 7.9
One Microsoft Way
Redmond, WA 98052-6399
Ironwood Capital L.L.C. (4)...................... 1,620,094 7.7 6.5
2241 Lundy Avenue
San Jose, CA 95131
AT&T group (5)................................... 1,546,891 7.3 6.1
c/o AT&T Ventures
295 North Maple Avenue
Basking Ridge, NJ 07920
CPQ Holdings, Inc. (6)........................... 1,125,000 5.4 4.5
20555 SH 249
Houston, TX 77070
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Percent of Common
Number of Stock Outstanding
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Richard Brass................................... -- -- --
R. Bradford Burnham (7)......................... 1,546,892 7.3 6.1
W. Bingham Gordon (8)........................... 93,750 * *
Thomas Hirschfeld (9)........................... 2,102,691 10.0 8.4
Winthrop Knowlton (10).......................... 86,250 * *
Timothy Mott (11)............................... 2,370,094 11.3 9.5
Andrew J. Huffman (12).......................... 1,500,000 7.1 6.0
Donald R. Katz (13)............................. 1,500,000 7.1 6.0
Brian Fielding (14)............................. 262,500 1.2 1.0
J. Travis Millman (15).......................... 300,000 1.4 1.2
Guy Story, Jr. (16)............................. 375,000 1.8 1.5
All officers and directors as a group (14
people) (17)................................... 10,812,176 50.6 42.6
</TABLE>
- --------
* Less than 1%.
(1) Represents (i) 1,758,693 shares beneficially owned by APA Excelsior IV,
L.P., including 77,106 shares issuable upon exercise of warrants, (ii)
310,356 shares beneficially owned by APA Excelsior IV/Offshore L.P.,
including 13,607 shares issuable upon exercise of warrants, and (iii)
33,642 shares beneficially owned by Patricof Private Investment Club, L.P.,
including 1,475 shares issuable upon exercise of warrants.
(2) Represents (i) 1,879,576 shares beneficially owned by Kleiner Perkins
Caufield & Byers VIII, including 89,883 shares issuable upon exercise of
warrants, (ii) 50,848 shares beneficially owned by KPCB Information
Sciences Zaibatsu, including 2,304 shares issuable upon exercise of
warrants, and (iii) 103,587 shares beneficially owned by KPCB VIII Founders
Fund.
(3) Includes 100,000 shares issuable upon exercise of a warrant issued in April
1999.
(4) Includes 36,876 shares issuable upon exercise of warrants.
(5) Represents (i) 154,689 shares beneficially owned by Venture Fund I, L.P.,
including 22,500 shares issuable upon exercise of warrants, and (ii)
1,392,202 shares beneficially owned by AT&T Venture Fund II, L.P.,
including 202,500 shares issuable upon exercise of warrants.
(6) An affiliate of Compaq Computer Corporation.
(7) Represents (i) 154,689 shares beneficially owned by Venture Fund I, L.P.,
including 22,500 shares issuable upon exercise of warrants, and (ii)
1,392,202 shares owned by AT&T Venture Fund II, L.P., including 202,500
shares issuable upon exercise of warrants. Mr. Burnham, a director, is a
general partner of the AT&T group partnerships. Mr. Burnham disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest. Mr. Burnham's address is c/o AT&T Ventures.
(8) Includes 1,875 shares issuable upon exercise of warrants and 12,750 shares
that are subject to our repurchase option.
(9) Represents 2,102,691 shares beneficially owned by the Patricof group, funds
managed by Patricof & Co. Ventures, Inc., of which Mr. Hirschfeld is a
managing director. Mr. Hirschfeld disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest. Mr. Hirschfeld's
address is c/o Patricof & Co. Ventures, Inc.
(10) Includes 1,875 shares issuable upon exercise of warrants and 13,500 shares
that are subject to our repurchase option.
(11) Includes 109,375 shares that are subject to our repurchase option.
Includes 1,620,094 shares (including 36,876 shares issuable upon exercise
of warrants) beneficially owned by Ironwood Capital L.L.C., of which Mr.
Mott, a director, is a managing member. Mr. Mott disclaims beneficial
ownership of these 1,620,094 shares, except to the extent of his pecuniary
interest.
52
<PAGE>
(12) Includes 1,080,000 shares that are subject to our repurchase option.
(13) Includes 46,896 shares that are subject to our repurchase option, 157,500
shares that are pledged to secure private loans and 37,500 shares that are
pledged to secure a $100,000 loan from the Company. See "Related
Transactions and Relationships."
(14) Includes 197,250 shares that are subject to our repurchase option.
(15) Includes 187,500 shares that are subject to our repurchase option.
(16) Includes 132,000 shares that are subject to our repurchase option.
(17) Includes an aggregate of 2,279,221 shares that are subject to our
repurchase option and 357,814 shares issuable upon exercise of warrants.
53
<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock currently consists of 50,000,000 shares of
common stock, with a par value of $0.01 per share, and 19,843,000 shares of
preferred stock, with a par value of $0.01 per share. As of April 30, 1999,
there were 7,602,269 shares of our common stock outstanding, held of record by
81 stockholders. As of April 30, 1999, we had outstanding an aggregate of
8,934,000 shares of convertible preferred stock consisting of 534,000 shares of
Series A preferred stock, 2,050,000 shares of Series B preferred stock,
2,250,000 shares of Series C preferred stock and 4,100,000 shares of Series D
preferred stock. The Series A, B, C and D preferred stock are held of record by
one, eight, 12 and 26 stockholders, respectively. All outstanding shares of
preferred stock will be automatically converted into an aggregate of 13,400,996
shares of common stock upon the closing of this offering and will no longer be
issued and outstanding. In addition, we currently have outstanding warrants to
purchase up to an aggregate of 775,001 shares of our common stock and 63,270
shares of preferred stock, which warrants will be exercisable for 94,904 shares
of common stock following this offering as described below. After this
offering, we will have outstanding, 25,003,265 shares of common stock if the
underwriters do not exercise their overallotment option, or 25,603,265 shares
of common stock if the underwriters exercise their overallotment option in
full.
The following is a description of our capital stock.
Common Stock
We are authorized to issue 50,000,000 shares of common stock. Holders of
common stock are entitled to one vote for each share of record on all matters
submitted to a vote of stockholders. The holders of common stock are entitled
to receive ratably such lawful dividends as may be declared by the board of
directors. However, such dividends are subject to preferences that may be
applicable to the holders of any outstanding shares of preferred stock. In the
event of a liquidation, dissolution, or winding up of the affairs of our
company, whether voluntary or involuntary, the holders of common stock will be
entitled to receive pro rata all of our remaining assets available for
distribution to stockholders. Any such pro rata distribution would be subject
to the rights of the holders of any outstanding shares of preferred stock. Our
common stock has no preemptive, redemption, conversion or subscription rights.
Piper & Marbury L.L.P., our counsel, will opine that the shares of common stock
to be issued by us in this offering, when issued and sold in the manner
described in the prospectus and in accordance with the resolutions adopted by
the board of directors, will be fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of our common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate and issue in the future.
Preferred Stock
At the closing of the offering, our outstanding shares of preferred stock
will be automatically converted into common stock. For a description of this
preferred stock, please see note (4) to the notes to financial statements
included elsewhere in this prospectus. Immediately following the offering, our
board will have the authority to designate and issue up to 10,000,000 shares of
preferred stock, in one or more series. Our board can establish the
preferences, rights and privileges of each series, which may be superior to the
rights of the common stock.
We have no current plans to issue any preferred stock following this
offering. However, if we do so, it could discourage a third party from
attempting to acquire a majority of the our outstanding voting stock.
Warrants
We have outstanding the following warrants to purchase shares of our common
stock, including warrants previously exercisable to purchase shares of
preferred stock but which, upon completion of this offering, will entitle the
holder to purchase shares of common stock: (1) warrants, to purchase 50,372
shares at an exercise price of $1.79 per share, expiring November 19, 2006, (2)
warrant, to purchase 18,750 shares at an exercise price of $2.67 per share,
expiring November 20, 2001, (3) warrant, to purchase 18,282 shares at an
exercise price of $2.67 per share, expiring July 24, 2007, (4) warrant, to
purchase 7,500 shares at an exercise price of
54
<PAGE>
$2.67 per share, expiring April 5, 2003, (5) warrants, to purchase 675,001
shares at an exercise price of $4.00 per share, expiring March 31, 2002, (6)
warrants, to purchase 100,000 shares at an exercise price per share equal to
the price to the public of this offering, expiring November 18, 2003, (7)
warrants to purchase 150,000 shares at an exercise price of $0.01 per share,
expiring June 16, 2009, and (8) warrants to purchase 750,000 shares at an
exercise price of $8.00 per share, subject to vesting, expiring June 16, 2009.
Registration Rights
After this offering, holders of (i) an aggregate of 801,000 shares of common
stock issued upon the conversion of the Series A preferred stock (the "Series A
Registrable Shares"); (ii) 3,139,608 shares of common stock issued upon the
conversion of the Series B preferred stock including 64,609 shares issuable
upon exercise of warrants to purchase Series B preferred stock (the "Series B
Registrable Shares"); (iii) 3,393,280 shares of common stock issued upon the
conversion of the Series C preferred stock including 18,282 shares issuable
upon exercise of warrants to purchase Series C preferred stock and 675,001
shares of common stock issuable upon exercise of outstanding warrants held by
holders of the Series C preferred stock (the "Series C Registrable Shares");
and (iv) 6,149,999 shares of the common stock issued upon conversion of the
Series D preferred stock (the "Series D Registrable Shares") will be entitled
to rights with respect to the registration of such shares under the Securities
Act.
We have an agreement with these stockholders that gives them registration
rights. Subject to limitations provided in the agreement, including those in
lock-up agreements that these stockholders have signed relating to this
offering, these stockholders have the right, after March 31, 2000, upon request
of the holders of at least two-thirds in interest of the Series A Registrable
Shares, Series B Registrable Shares, or upon request of the holders of at least
a majority in interest in the Series C Registrable Shares, or at any time after
this offering, upon request of the holders of no less than 40% of the Series D
Registrable Shares, to require us to register under the Securities Act the sale
of shares having an aggregate offering price of at least $5,000,000 (a "demand
registration"). The number of demand registrations is limited to two for each
group of Registrable Shares. In addition to these demand registration rights
and, subject to conditions and limitations provided in the agreement, these
stockholders may require us to file an unlimited number of registration
statements on Form S-3 under the Securities Act when such form is available for
our use, generally one year after this offering.
If we propose to register our securities under the Securities Act after this
offering, these stockholders will be entitled to notice of the registration and
to include their shares in the registration provided that the underwriters of
the proposed offering will have the right to limit the number of shares
included in the registration. One warrantholder also has the right to include
his shares of common stock issued upon exercise of his warrants in the
registration. We must pay for all expenses in connection with these
registrations, other than underwriters' discounts and commissions.
Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and
Delaware General Corporation Law; Right of First Negotiation
Our Certificate of Incorporation and Bylaws and Delaware General Corporation
Law. Certain provisions of Delaware law and our certificate of incorporation
and bylaws could make the following more difficult:
. the acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to
first negotiate with our board. We believe that the benefits of increased
protection of the potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
55
<PAGE>
Election and Removal of Directors
Our board of directors will be divided into three classes. The directors in
each class will serve for a three-year term, one class being elected each year
by our stockholders. This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of because it generally makes it more difficult for stockholders
to replace a majority of the directors.
In addition, our by-laws will provide that, except as otherwise provided by
law or our certificate of incorporation, newly created directorships resulting
from an increase in the authorized number of directors or vacancies on the
board may be filled only by
. a majority of the directors then in office, though less than a quorum is
then in office; or
. by the sole remaining director.
Stockholder Meetings
Under our certificate of incorporation and bylaws, only the board of
directors, the chairman of the board, the president or the holders of at least
a majority of our outstanding stock may call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and Proposals
Our bylaws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
an interested stockholder, unless the "business combination" or the transaction
in which the person became an interested stockholder is approved in a
prescribed manner. Generally, a "business combination" includes a merger, asset
or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
Elimination of Stockholder Action By Written Consent
Our certificate of incorporation will eliminate the right of stockholders to
act by written consent without a meeting, unless the consent is unanimous.
No Cumulative Voting
Our certificate of incorporation and bylaws will not provide for cumulative
voting in the election of directors.
Undesignated Preferred Stock
The authorization of undesignated preferred stock will make it possible for
our board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Audible. These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control or our company or management.
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<PAGE>
Limitation Of Liability
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption
of stock; or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws will provide for the
indemnification of our directors and officers to the fullest extent authorized
by the Delaware General Corporation Law. The indemnification provided under our
certificate of incorporation and bylaws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us
of an undertaking by or on behalf of the director or officer to repay all
amounts so paid in advance if it is ultimately determined that the director or
officer is not entitled to be indemnified. If we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
claimant may at any time thereafter bring an action to recover the unpaid
amount of the claim and, if successful the director or officer will be entitled
to be paid the expense of prosecuting the action to recover these unpaid
amounts.
Under our bylaws, we will have the power to purchase and maintain insurance
on behalf of any person who is or was one of our directors, officers, employees
or agents, or is or was serving at our request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling
one of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware General Corporation Law. We intend to purchase director and officer
liability insurance on behalf of our directors and officers.
Right of First Negotiation. Pursuant to an agreement with Microsoft,
Microsoft has a right of first negotiation if we receive an unsolicited
proposal, or if our board determines to solicit proposals or otherwise enter
into discussions that would result in a sale of a controlling interest in our
company or other merger, asset sale or other disposition that effectively
results in a change of control of the company. For a description of this
agreement, please see "Related Transactions and Relationships--Additional
Transactions." Microsoft's right of first negotiation could have the effect of
delaying or deterring a change of control.
Stock Transfer Agent
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have 25,003,265 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have 25,603,265 shares of common stock outstanding. 4,000,000 of the
shares we sell in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by our affiliates, as that term is defined in Rule 144, may generally only be
sold in compliance with the limitations of Rule 144, which is summarized below.
The remaining 84%, or 21,003,265 shares of common stock outstanding after
this offering, will be restricted shares under the terms of the Securities Act,
all of which shares are subject to lock-up agreements as described below.
Restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, and subject to the lock-up requirements
which rules are summarized below. Subject to the lock-up agreements described
below, these restricted shares will be available for resale in the public
market as follows:
<TABLE>
<CAPTION>
Number of Shares/
% of Outstanding Date of First Availability for Resale
- ----------------- -------------------------------------------------------------------
<S> <C>
1,633,650/6.5% Immediately after the date of this prospectus, all of which shares
are subject to lock-up agreements
19,048,098/76.2% 90 days after the date of this prospectus, all of which shares are
subject to lock-up agreements
321,517/1.3% At various times between 90 days and 180 days after the date of the
prospectus, all of which shares are subject to lock-up agreements
</TABLE>
Before this offering, there has been no public market for our common stock,
and we cannot predict what effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices and could impair our future ability
to raise capital through the sale of our equity securities.
Rule 144
In general, under Rule 144, beginning 90 days after the effective date of
the offering, a stockholder who owns restricted shares that have been
outstanding for at least one year is entitled to sell, within any three-month
period, a number of these restricted shares that does not exceed the greater
of:
. one percent of the then outstanding shares of our common stock, or
approximately 250,033 shares immediately after this offering; or
. the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
to sell shares of common stock that are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.
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<PAGE>
Rule 701
Our employees, officers, directors and consultants who purchased our shares
of common stock pursuant to our restricted stock program are entitled to rely
on the resale provisions of Rule 701 under the Securities Act, which permits
affiliates and non-affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the date of this prospectus. In addition, non-affiliates may sell
Rule 701 shares without complying with the public information, volume and
notice provisions of Rule 144.
Registration Rights
We have entered into a registration rights agreement with the stockholders
that purchased our preferred stock and warrantholders with which we have
commercial relationships, which holders will own an aggregate of 13,400,996
shares of our common stock, warrants to purchase an aggregate of 1,575,001
shares of our common stock and warrants to purchase 55,261 shares of our
preferred stock, which preferred stock warrants will be exercisable for 82,891
shares of common stock following this offering. These stockholders have
registration rights which, upon exercise, require us to file registration
statements covering the sale of their shares of common stock and to include the
sale of their shares in registration statements covering our sale of shares to
the public. See "Description of our Capital Stock--Registration Rights."
Common Stock and Options Issuable under our Stock Incentive Plan
We intend to file one or more registration statements under the Securities
Act within 180 days after this offering to register up to 9,000,000 shares of
our common stock underlying outstanding stock options or reserved for issuance
under our Stock Incentive Plan. We expect these registration statements will
become effective upon filing, and shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of these registration statements, subject to the lock-up
agreements described below.
Lock-up Agreements
All of our officers and directors and the holders of all of our capital
stock have agreed that they will not, without the prior written consent of
Credit Suisse First Boston Corporation, offer, sell, pledge or otherwise
dispose of any shares of our capital stock or any securities convertible into
or exercisable or exchangeable for, or any rights to acquire or purchase, any
of our capital stock or publicly announce an intention to effect any of these
transactions, for a period of 180 days from the date of this prospectus.
Credit Suisse First Boston Corporation currently has no plans to release any
portion of the securities subject to lock-up agreements. When determining
whether or not to release any portion of the securities subject to lock-up
agreements, Credit Suisse First Boston Corporation will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time.
59
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Volpe
Brown Whelan & Company, LLC and Wit Capital Corporation are acting as
representatives, have severally but not jointly agreed to purchase from us the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
J.P. Morgan Securities Inc.........................................
Volpe Brown Whelan & Company, LLC..................................
Wit Capital Corporation............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all of the shares of common stock offered in this
offering (other than those shares covered by the over-allotment option
described below) if any are purchased. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the common stock initially at the public
offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
the selling group members may allow a discount of $ per share on sales to
other dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses that
we will pay.
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
us.............................................. $ $ $
Expenses payable by us........................... $ $ $
</TABLE>
At our request, the underwriters will reserve at the initial public offering
price 150,000 shares of our common stock for sale to one of our content
providers, Robin Williams. If Mr. Williams purchases the shares reserved for
him, the underwriting discount will be reduced and the amount paid by us will
decrease by an amount equal to $ per share with respect to the shares
purchased by him, or an aggregate of approximately $ .
The underwriters have informed us that they do not expect discretionary
sales by them to exceed 5% of the common stock being offered.
We, our officers and directors and substantially all of our existing
stockholders have agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or, in our case file with the
Securities
60
<PAGE>
and Exchange Commission a registration statement under the Securities Act
relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose an intention to make any such offer, sale, pledge
or disposal, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case for grants of employee stock options pursuant to the terms of our
plan in effect on the date hereof, issuances of securities pursuant to the
exercise of employee stock options outstanding on the date hereof or the
exercise of any other stock options outstanding on the date hereof. Mr.
Williams has agreed that if he purchases any shares of common stock in this
offering, he will not sell or otherwise dispose of these shares until 180 days
after this offering.
In addition to the 150,000 shares reserved for sale to Mr. Williams, the
underwriters have reserved for sale, at the initial offering price, up to
200,000 shares of common stock for employees and other persons associated with
Audible who have expressed an interest in purchasing common stock in this
offering.
The number of shares of common stock available for sale to the general
public in this offering will be reduced to the extent these persons and Mr.
Williams purchase the reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities, including
civil liabilities under the Securities Act, or to contribute to payments that
the underwriters may be required to make in respect thereof.
We have applied to list the shares of common stock on The Nasdaq National
Market under the symbol "ADBL".
Prior to the offering, there has been no public market for our common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives.The principal factors to be
considered in determining the initial public offering price include:
. the information set forth in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we compete;
. our past and present operations;
. our past and present earnings;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial
condition;
. the recent market prices of, and the demand for, publicly traded common
stock of companies in businesses similar to ours;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurances that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to the offering or that an active trading market for our
common stock will develop and continue after the offering.
61
<PAGE>
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase shares of the common stock so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally sold by
such syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions, in stabilization transactions or otherwise. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in this offering as one of the representatives of the
underwriters. The National Association of Securities Dealers, Inc. approved the
membership of Wit Capital on September 4, 1997. Since that time, Wit Capital
has acted as an underwriter, e-manager or selected dealer in over 90 public
offerings.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, all dealers purchasing shares from
Wit Capital in this offering have agreed to make a prospectus in electronic
format available on Web sites maintained by each of these dealers.
62
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Audible prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the
common stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Audible and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be readily available,
including common law rights of action for damages or recision or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein may be
located outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon the issuer or such
persons. All or a substantial portion of the assets of the issuer and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against the issuer or such persons in Canada or
to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Audible. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
63
<PAGE>
VALIDITY OF THE SHARES
Piper & Marbury L.L.P., Washington, D.C., will pass upon the validity of the
shares of common stock on our behalf. Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts, will pass upon legal matters for the underwriters.
EXPERTS
The financial statements of Audible, Inc. as of December 31, 1997 and 1998
and for each of the years in the three year period ended December 31, 1998 and
the period November 3, 1995 (date of inception) to December 31, 1998, have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information that we believe is material to an
investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about us,
our common stock and this offering, including the full texts of the exhibits,
some of which have been summarized in this prospectus. The registration
statement is available for inspection and copying at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information about the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that
contains the registration statement. The address of the SEC's Internet site is
"http://www.sec.gov."
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
64
<PAGE>
AUDIBLE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Deficit......................................... F-5
Statements of Cash Flows ................................................... F-6
Notes to Financial Statements............................................... F-8
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Audible, Inc.:
We have audited the accompanying balance sheets of Audible, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' deficit, and cash flows for each of the
years in the three-year period ended December 31, 1998 and the period November
3, 1995 (date of inception) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Audible, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the results of
its operations and its cash flows for each of the years in the three-year
period ended December 31, 1998 and the period November 3, 1995 (date of
inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Short Hills, New Jersey
April 14, 1999, except
as to note 15, which is
as of May 26, 1999
F-2
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31, 1999
------------------------ ------------------------
1997 1998 Actual Pro Forma
Assets ----------- ----------- ----------- -----------
(unaudited) Note 2
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents. $ 646,186 $10,526,299 $ 9,652,493 $ 9,652,493
Accounts receivable, net
of allowance for doubtful
accounts of $4,556,
$21,043 and $7,653 at
December 31, 1997 and
1998 and March 31, 1999,
respectively............. 1,774 8,516 234,863 234,863
Advance royalty payments.. 259,209 228,402 213,464 213,464
Advance to manufacturer... 350,000 -- -- --
Prepaid expenses.......... 119,481 102,916 94,279 94,279
Inventory................. 240,453 129,535 189,667 189,667
----------- ----------- ----------- -----------
Total current assets..... 1,617,103 10,995,668 10,384,766 10,384,766
Property and equipment,
net....................... 1,167,612 397,837 404,536 404,536
Intangible assets, net of
accumulated amortization
of $30,730 at December 31,
1997...................... 15,365 -- -- --
Note receivable due from
stockholder............... 100,000 100,000 100,000 100,000
Other assets............... 113,298 106,153 101,468 101,468
----------- ----------- ----------- -----------
Total assets............. $ 3,013,378 $11,599,658 $10,990,770 $10,990,770
=========== =========== =========== ===========
Liabilities and
Stockholders' Deficit
Current liabilities:
Accounts payable.......... $ 372,786 $ 482,971 $ 429,327 $ 429,327
Accrued expenses.......... 204,439 208,518 176,263 176,263
Accrued compensation...... 211,607 263,235 248,031 248,031
Current maturities of
obligations under capital
leases................... 432,497 471,224 471,224 471,224
Advances.................. -- 1,500,000 1,520,000 1,520,000
----------- ----------- ----------- -----------
Total current
liabilities............. 1,221,329 2,925,948 2,844,845 2,844,845
Deferred compensation...... 129,508 167,318 189,032 189,032
Obligations under capital
leases, net of current
maturities................ 712,348 310,507 187,708 187,708
Redeemable convertible
preferred stock (non-
cumulative):
Series A, par value $.01.
Authorized 1,068,000
shares; 534,000 shares
issued and outstanding at
December 31, 1997, 1998
and March 31, 1999
actual; none issued and
outstanding pro forma
(liquidation value
$504,514; redemption
value $400,500).......... 389,189 389,189 389,189 --
Series B, par value $.01.
Authorized 2,100,000
shares; 2,050,000 shares
issued and outstanding at
December 31, 1997, 1998
and March 31, 1999
actual; none issued and
outstanding pro forma
(liquidation value and
redemption value
$3,075,000).............. 3,040,581 3,040,581 3,040,581 --
Series C, par value $.01.
Authorized 2,300,000
shares; 2,250,000 shares
issued and outstanding at
December 31, 1997, 1998
and March 31, 1999
actual; none issued and
outstanding pro forma
(liquidation value and
redemption value
$9,000,000).............. 8,947,875 8,947,875 8,947,875 --
Series D, par value $.01.
Authorized 4,375,000
shares; 3,850,000 shares
issued and outstanding at
December 31, 1998 and
4,100,000 shares at March
31, 1999 actual; none
issued and outstanding
pro forma (liquidation
value and redemption
value $15,400,000 at
December 31, 1998 and
$16,400,000 at March 31,
1999).................... -- 15,347,009 16,341,481 --
Stockholders' deficit:
Common stock, par value
$.01. Authorized
12,000,000, 16,000,000,
16,000,000 and 50,000,000
shares; 6,099,204,
7,394,355, 7,602,269 and
21,003,265 shares issued
and outstanding at
December 31, 1997, 1998,
March 31, 1999 actual and
March 31, 1999 pro forma,
respectively............. 60,992 73,944 76,023 210,033
Additional paid-in
capital.................. 694,832 1,162,420 1,236,568 29,821,684
Notes due from
stockholders for common
stock.................... (596,375) (1,040,158) (1,063,125) (1,063,125)
Deficit accumulated during
the development stage.... (11,586,901) (19,724,975) (21,199,407) (21,199,407)
----------- ----------- ----------- -----------
Total stockholders'
deficit................. (11,427,452) (19,528,769) (20,949,941) 7,769,185
----------- ----------- ----------- -----------
Commitments (note 10)
Total liabilities and
stockholders' deficit... $ 3,013,378 $11,599,658 $10,990,770 $10,990,770
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period
November 3, 1995 Three months ended Period
Year ended December 31, (date of inception) March 31, November 3, 1995
------------------------------------- to December 31, ------------------------- (date of inception)
1996 1997 1998 1998 1998 1999 to March 31, 1999
----------- ----------- ----------- ------------------- ------------ ----------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Content and
services........ $ -- $ 2,834 $ 132,357 $ 135,191 $ 30,178 $ 57,882 $ 193,073
Hardware......... -- 57,440 243,733 301,173 90,288 57,173 358,346
Other............ -- -- -- -- -- 200,000 200,000
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total revenue... -- 60,274 376,090 436,364 120,466 315,055 751,419
----------- ----------- ----------- ------------ ------------ ----------- ------------
Operating
expenses:
Cost of content
and
services revenue
................ -- 78,352 372,114 450,466 75,443 152,182 602,648
Cost of hardware
revenue......... -- 252,010 555,575 807,585 255,426 63,039 870,624
Production
expenses........ 683,652 1,982,098 1,639,420 4,305,170 485,602 494,612 4,799,782
Research and
development..... 1,809,772 2,672,179 1,641,458 6,172,213 389,267 320,434 6,492,647
Write-down
related to
hardware
business........ -- -- 952,389 952,389 -- -- 952,389
Sales and
marketing....... 256,300 1,227,482 1,453,196 2,936,978 272,041 396,098 3,333,076
General and
administrative.. 786,506 1,921,126 1,838,365 4,546,077 480,553 430,567 4,976,644
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total operating
expenses....... 3,536,230 8,133,247 8,452,517 20,170,878 1,958,332 1,856,932 22,027,810
----------- ----------- ----------- ------------ ------------ ----------- ------------
Loss from
operations..... (3,536,230) (8,072,973) (8,076,427) (19,734,514) (1,837,866) (1,541,877) (21,276,391)
Other (income)
expense:
Interest income.. (28,208) (150,998) (53,081) (232,287) (11,020) (82,798) (315,085)
Interest expense. 748 107,272 114,728 222,748 16,924 15,353 238,101
----------- ----------- ----------- ------------ ------------ ----------- ------------
Total other
(income)
expense........ (27,460) (43,726) 61,647 (9,539) 5,904 (67,445) (76,984)
----------- ----------- ----------- ------------ ------------ ----------- ------------
Net loss........ $(3,508,770) $(8,029,247) $(8,138,074) $(19,724,975) $ (1,843,770) $(1,474,432) $(21,199,407)
=========== =========== =========== ============ ============ =========== ============
Basic and diluted
net loss per
common share..... $ (1.10) $ (1.49) $ (1.15) $ (3.84) $ (0.28) $ (0.20) $ (3.99)
=========== =========== =========== ============ ============ =========== ============
Weighted average
shares
outstanding...... 3,176,825 5,379,003 7,096,945 5,137,386 6,558,288 7,452,065 5,310,987
=========== =========== =========== ============ ============ =========== ============
Pro forma basic
and diluted net
loss per common
share............ $ (0.50) $ (0.07)
=========== ===========
Pro forma weighted
average shares
outstanding...... 16,291,695 20,728,065
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Stockholders' Deficit
Period November 3, 1995 (Date of Inception)
to March 31, 1999
<TABLE>
<CAPTION>
Common stock Additional Notes due from Deficit accumulated Total
--------------------- paid-in stockholders for during the stockholders'
Shares Par value capital common stock development stage deficit
---------- --------- ---------- ---------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 3,
1995 (date of
inception)............. -- -- -- -- -- --
Common stock issued, net
of issuance costs...... 1,500,000 $15,000 $ 49,646 $ (70,000) $ -- $ (5,354)
Issuance of common stock
in exchange for patent. 750,000 7,500 27,500 -- -- 35,000
Net loss................ -- -- -- -- (48,884) (48,884)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1995................... 2,250,000 22,500 77,146 (70,000) (48,884) (19,238)
Common stock issued..... 2,577,600 25,776 170,013 (195,789) -- --
Issuance of common stock
for services rendered.. 141,150 1,412 33,814 -- -- 35,226
Payments received on
notes due from
stockholders........... -- -- -- 5,100 -- 5,100
Common stock
repurchased............ (215,100) (2,151) (10,038) 12,189 -- --
Net loss................ -- -- -- -- (3,508,770) (3,508,770)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1996................... 4,753,650 47,537 270,935 (248,500) (3,557,654) (3,487,682)
Common stock issued..... 1,505,625 15,056 349,818 (364,874) -- --
Issuance of common stock
for services rendered.. 72,984 730 87,154 -- -- 87,884
Payments received on
notes due from
stockholders........... -- -- -- 1,593 -- 1,593
Common stock
repurchased............ (233,055) (2,331) (13,075) 15,406 -- --
Net loss................ -- -- -- -- (8,029,247) (8,029,247)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1997................... 6,099,204 60,992 694,832 (596,375) (11,586,901) (11,427,452)
Common stock issued..... 2,456,625 24,566 630,238 (654,804) -- --
Issuance of common stock
for services rendered.. 11,250 113 16,137 -- -- 16,250
Payments received on
notes due from
stockholders........... -- -- -- 20,507 -- 20,507
Common stock
repurchased............ (1,172,724) (11,727) (178,787) 190,514 -- --
Net loss................ -- -- -- -- (8,138,074) (8,138,074)
---------- ------- ---------- ----------- ------------ ------------
Balance at December 31,
1998................... 7,394,355 73,944 1,162,420 (1,040,158) (19,724,975) (19,528,769)
Common stock issued
(unaudited)............ 229,500 2,295 58,905 (61,200) -- --
Non-cash compensation
charge (unaudited)..... -- -- 18,144 -- -- 18,144
Cancellation of common
stock issued for
services rendered
(unaudited)............ -- -- (1,250) -- -- (1,250)
Payments received on
notes due from
stockholders
(unaudited)............ -- -- -- 36,366 -- 36,366
Common stock repurchased
(unaudited)............ (21,586) (216) (1,651) 1,867 -- --
Net loss (unaudited).... -- -- -- -- (1,474,432) (1,474,432)
---------- ------- ---------- ----------- ------------ ------------
Balance at March 31,
1999 (unaudited)....... 7,602,269 $76,023 $1,236,568 $(1,063,125) $(21,199,407) $(20,949,941)
========== ======= ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period
Period November 3,
November 3, 1995 Three Months 1995 (date of
Year ended December 31, (date of inception) ended March 31, inception) to
------------------------------------- to December 31, ------------------------ March 31,
1996 1997 1998 1998 1998 1999 1999
----------- ----------- ----------- ------------------- ----------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(3,508,770) $(8,029,247) $(8,138,074) $(19,724,975) $(1,843,770) $(1,474,432) $(21,199,407)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization........ 44,048 394,688 681,076 1,119,812 169,598 89,911 1,209,723
Services rendered for
common stock........ 35,226 87,884 16,250 139,360 16,250 -- 139,360
Non-cash compensation
charge.............. -- -- -- -- -- 18,144 18,144
Cancellation of
common stock issued
for services
rendered............ -- -- -- -- -- (1,250) (1,250)
Deferred
compensation........ 23,788 105,720 37,810 167,318 (9,376) 21,714 189,032
Write-down of
inventory........... -- 195,317 656,740 852,057 -- -- 852,057
Impairment loss on
equipment........... -- -- 181,151 181,151 -- -- 181,151
Changes in assets and
liabilities:
Increase in accounts
receivable......... -- (1,774) (6,742) (8,516) (8,534) (226,347) (234,863)
Decrease (increase)
in advance royalty
payments........... (53,500) (205,709) 30,807 (228,402) 59,130 14,938 (213,464)
Decrease (increase)
in advance to
manufacturer....... -- (350,000) 350,000 -- -- -- --
Decrease (increase)
in prepaid
expenses........... (24,571) (94,010) 16,565 (102,916) (75,162) 8,637 (94,279)
Increase in
inventory.......... -- (435,770) (545,822) (981,592) (235,052) (60,132) (1,041,724)
Decrease (increase)
in other assets.... -- (113,298) 7,145 (106,153) 113,298 4,685 (101,468)
Increase (decrease)
in accounts
payable............ 12,753 294,545 110,185 482,971 (46,092) (53,644) 429,327
Increase (decrease)
in accrued
expenses........... 759,419 (554,980) 4,079 208,518 (93,624) (32,255) 176,263
Increase (decrease)
in accrued
compensation....... 91,639 119,968 51,628 263,235 (59,348) (15,204) 248,031
Increase in
advances........... -- -- 1,500,000 1,500,000 -- 20,000 1,520,000
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used in
operating
activities........ (2,619,968) (8,586,666) (5,047,202) (16,238,132) (2,012,682) (1,685,235) (17,923,367)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of property
and equipment........ (56,171) (176,171) (3,907) (236,249) (17,996) (96,610) (332,859)
Purchase of patent.... -- -- -- (11,095) -- -- (11,095)
Note receivable issued
to stockholder....... -- (100,000) -- (100,000) -- -- (100,000)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities........ (56,171) (276,171) (3,907) (347,344) (17,996) (96,610) (443,954)
----------- ----------- ----------- ------------ ----------- ----------- ------------
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
financing activities:
Proceeds from issuance
of Series A redeemable
convertible preferred
stock, net of issuance
costs................. -- -- -- 389,189 -- -- 389,189
Proceeds from issuance
of Series B redeemable
convertible preferred
stock, net of issuance
costs................. 3,040,581 -- -- 3,040,581 -- -- 3,040,581
Proceeds from issuance
of Series C redeemable
convertible preferred
stock, net of issuance
costs................. -- 8,947,875 -- 8,947,875 -- -- 8,947,875
Proceeds from issuance
of Series D redeemable
convertible preferred
stock, net of issuance
costs................. -- -- 15,347,009 15,347,009 3,574,509 994,472 16,341,481
Payment of costs
associated with the
issuance of common
stock................. -- -- -- (5,354) -- -- (5,354)
Payments received on
notes due from
stockholders for
common stock.......... 5,100 1,593 20,507 27,200 2,550 36,366 63,566
Payment of principal on
obligations under
capital leases........ -- (198,431) (436,294) (634,725) (91,630) (122,799) (757,524)
--------- ---------- ----------- ----------- ---------- ---------- ----------
Net cash provided by
financing
activities......... 3,045,681 8,751,037 14,931,222 27,111,775 3,485,429 908,039 28,019,814
--------- ---------- ----------- ----------- ---------- ---------- ----------
Increase (decrease)
in cash and cash
equivalents........ 369,542 (111,800) 9,880,113 10,526,299 1,454,751 (873,806) 9,652,493
Cash and cash
equivalents at
beginning of period.... 388,444 757,986 646,186 -- 646,186 10,526,299 --
--------- ---------- ----------- ----------- ---------- ---------- ----------
Cash and cash
equivalents at end of
period................. $ 757,986 $ 646,186 $10,526,299 $10,526,299 $2,100,937 $9,652,493 $9,652,493
========= ========== =========== =========== ========== ========== ==========
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for interest.... $ 748 $ 107,272 $ 114,728 $ 222,748
========= ========== =========== ===========
Supplemental noncash
investing and financing
activities:
Common stock issued for
notes receivable, net. $ 183,600 $ 349,468 $ 464,290 $ 1,067,358
Common stock issued for
patent................ -- -- -- 35,000
Acquisition of property
and equipment under
capital leases........ $ 140,840 $1,202,436 $ 73,180 $ 1,416,456
========= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
(1)Description of Business
Audible, Inc. (Audible or the Company) was incorporated on November 3,
1995 and is currently in the development stage. The Company was formed to
create the Audible service, a solution delivering premium digital spoken
audio content over the Internet for playback on personal computers and
mobile devices. The Company commenced commercial operations in October
1997. Currently, Audible has spoken audio programming available for
download from its Web site, audible.com. Customers can purchase programs
and listen from their personal computers or on the Audible MobilePlayer,
the Company's proprietary playback device.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The Company is currently in the development stage, as revenue generated
from the Company's principal operations is not yet significant.
The accompanying financial statements retroactively reflect the effect
of a 3 for 2 stock split in the form of a stock dividend declared and
payable by the Company effective May 26, 1999 to stockholders of record at
the close of business on May 26, 1999. Accordingly, all share and per share
data has been adjusted to reflect such split (see note 15).
Interim Financial Information
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1999 and 1998 and the period November 3, 1995 (date of
inception) to March 31, 1999 are unaudited but, in the opinion of
management, reflect all adjustments which are of a normal, recurring
nature, necessary for the fair presentation of financial position and
results of operations. Operating results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be expected
for a full year.
Cash Equivalents
The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1997 and 1998 were $546,577 and $10,294,043,
respectively.
Royalties
Advance royalty payments in the accompanying balance sheets represent
payments made to various content providers pursuant to minimum guarantees
under their royalty agreements. These agreements give the Company the right
to sell digital audio content over the Internet. These payments are being
amortized on a straight-line basis over the term of the royalty agreements
or are expensed as royalties are earned by the content providers under the
agreements, whichever is sooner. Royalty expense is included in cost of
content and services revenue in the accompanying statements of operations
and includes the following
components:
F-8
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
<TABLE>
<CAPTION>
Period
Period Three months November 3, 1995
Year ended November 3, 1995 ended (date of
December 31, (date of inception) March 31, inception)
---------------------- to December 31, ---------------- to March 31,
1996 1997 1998 1998 1998 1999 1999
----- ------- -------- ------------------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited) (unaudited)
Amortization of minimum
guarantees ............ $ -- $76,041 $348,561 $424,602 $71,630 $141,362 $565,964
Earned royalties........ -- 2,311 23,553 25,864 3,813 10,820 36,684
----- ------- -------- -------- ------- -------- -----------
$ -- $78,352 $372,114 $450,466 $75,443 $152,182 $602,648
===== ======= ======== ======== ======= ======== ===========
</TABLE>
Inventory
Inventory is stated at the lower of cost, principally using the first-
in, first-out method, or market (net realizable value). Inventory consists
of Audible MobilePlayers and accessories to the Audible MobilePlayers. The
Company recorded a charge of $195,317 and $286,603 in 1997 and 1998,
respectively, to write down inventory to market value. These charges are
included in cost of hardware revenue in the accompanying statements of
operations. The 1998 write-down is in addition to the write-down discussed
in note 5.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock-
based compensation, as permitted by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." SFAS
No. 123 establishes a fair value-based method of accounting for stock-based
compensation and requires pro-forma disclosure of net loss and net loss per
common share as if the fair value-based method of accounting for stock-
based compensation, as defined in SFAS No. 123, had been applied. No awards
have been granted under the Company's Stock Incentive Plan to date.
F-9
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives, which are
three years for computer server and Web site equipment and two years for
office furniture and equipment, studio equipment, and molds and
manufacturing equipment.
Leasehold improvements are amortized on a straight-line basis over the
lease term or the estimated useful life of the improvement, whichever is
shorter.
Maintenance and repairs are expensed as incurred.
Stock Issued for Goods and Services
The Company accounts for stock issued to nonemployees in which goods or
services are the consideration received for the stock issued based on the
fair value of the goods or services received or the fair value of the stock
issued, whichever is more reliably measurable.
Intangible Assets
Intangible assets consist of a patent which is carried at cost and
amortized on a straight-line basis over the estimated useful life of three
years.
Risks and Uncertainties
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, unproven business model and the
limited history of electronic commerce on the Internet. The Company's
success will depend in part upon the emergence of the Internet as a
communications medium, the availability of spoken audio content, sales of
third party mobile devices and market acceptance of the Audible service.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and reported amounts of revenues and expenses during
the period. Actual results could differ from those estimates.
Revenue Recognition
Hardware revenue is recognized upon shipment. Content revenue is
recognized in the period when the content is downloaded and the customer's
credit card is processed. Service revenue is recognized as services are
performed and consists of audio production and hosting services.
Other revenue for the three months ended March 31, 1999 and the period
November 3, 1995 (date of inception) to March 31, 1999 relates to fees
billed for services under the agreement with Microsoft Corporation
(Microsoft).
F-10
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Research and Development
Research and development expenses are expensed as incurred. Included in
research and development are costs incurred under an agreement with IDEO
Development Corporation (IDEO), under which IDEO developed the Audible
MobilePlayer, as well as costs incurred in developing the Company's Web
site and the software that enables customers to download content from the
Company's Web site. The Company paid IDEO related costs of $913,244,
$1,044,420, $70,937 and $2,028,601 in 1996, 1997, 1998 and the period
November 3, 1995 (date of inception) to December 31, 1998, respectively.
Production Expenses
Production expenses are expensed as incurred and consist primarily of
personnel and outsourced costs to support the Company's infrastructure and
systems including its Web site, internal data communications, audio
production activities and acquisition of content.
Advertising Expenses
The Company expenses the costs of advertising and promoting its products
and services as incurred. These costs are included in sales and marketing
in the accompanying statements of operations and totaled $0, $91,295,
$310,033 and $401,328 for the years ended December 31, 1996, 1997 and 1998
and for the period November 3, 1995 (date of inception) to December 31,
1998, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability
method of SFAS No. 109, "Accounting for Income Taxes." Under the asset and
liability method, deferred tax assets and deferred tax liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in results of operations in the period in which the tax
change occurs.
Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
F-11
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Basic and Diluted Net Loss Per Common Share
Basic and diluted net loss per common share is presented in accordance
with the provisions of SFAS No. 128, "Earnings Per Share." Basic net loss
per common share excludes dilution for common stock equivalents and is
computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding for the period.
Diluted net loss per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock and resulted in the issuance of
common stock. Diluted net loss per common share is equal to basic net loss
per common share, since all common stock equivalents are antidilutive for
each of the periods presented.
Diluted net loss per common share for the years ended December 31, 1996,
1997, 1998 and the period November 3, 1995 (date of inception) to December
31, 1998 does not include the effects of warrants to purchase 0, 674,999,
674,999 and 674,999 shares of common stock, respectively; warrants to
purchase 46,082, 58,270, 63,270 and 63,270 shares of preferred stock
warrants, respectively; 2,584,000, 4,834,000, 8,684,000 and 8,684,000
shares of convertible preferred stock on an "as-if" converted basis,
respectively; as the effect of their inclusion is antidilutive during each
period.
Pro Forma Information
Pro forma basic and diluted net loss per common share has been presented
as if the convertible preferred stock were converted into common stock for
all periods presented due to the automatic conversion upon the closing of
the Company's initial public offering.
The March 31, 1999 pro forma unaudited balance sheet has been presented
as if the convertible preferred stock were converted into common stock due
to the automatic conversion upon the closing of the Company's initial
public offering. Since no dividends will be paid on the preferred stock,
there is no pro forma liability reflected for the payment of dividends.
Financial Instruments and Concentration of Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses. At
December 31, 1997 and 1998, the fair values of these financial instruments
approximated their carrying value due to the short-term nature of these
instruments.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. The adoption of this standard
has had no impact on the Company's financial statements. Accordingly, the
Company's comprehensive net loss is equal to its net loss for all periods
presented.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for the way that a
F-12
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
is effective for fiscal years beginning after December 1, 1997. In the
initial year of application, comparative information for earlier years must
be restated. The Company has determined that it does not have any
separately reportable business segments.
In April 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which
provides guidance (i) for determining whether computer software is
internal-use software and (ii) on accounting for the proceeds of computer
software originally developed or obtained for internal use and then
subsequently sold to the public. It also provides guidance on
capitalization of the costs incurred for computer software developed or
obtained for internal use. SOP 98-1 is effective for fiscal years beginning
after December 31, 1998. The Company does not expect the adoption of SOP
98-1 in 1999 to have a material effect on its financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5, which is
effective for fiscal years beginning after December 15, 1998, provides
guidance on the financial reporting of start-up costs and organization
costs. It requires costs of start-up activities and organization costs to
be expensed as incurred. The Company does not expect the adoption of SOP
98-5 in 1999 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement is not expected to affect the Company,
as it currently does not engage or plan to engage in derivative instruments
or hedging activities.
(3)Stockholders' Equity
Common Stock
In 1997, the Company increased the number of shares of common stock
authorized from 7,000,000 to 12,000,000. In 1998, the Company increased the
number of shares of common stock authorized from 12,000,000 to 16,000,000.
At December 31, 1997 and 1998, the Company had 6,099,204 and 7,394,355,
respectively, common stock shares issued and outstanding and 7,338,405 and
13,120,905 common stock shares, respectively, reserved for conversion of
Series A convertible preferred stock, Series B convertible preferred stock,
Series C convertible preferred stock, Series D convertible preferred stock
and related convertible preferred stock warrants. Additionally, the Company
had 674,999 shares reserved for common stock warrants issued in conjunction
with the Series C convertible preferred stock.
Shares of common stock outstanding were purchased under the Company's
Stock Restriction Agreements, which contain certain restrictions related to
the sale and transfer of the shares and certain vesting and buyback
provisions. Under the Stock Restriction Agreements, shares may be purchased
by employees and consultants of
F-13
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
the Company through the issuance of promissory notes (see note 11). In
general, shares sold to employees vest over a 50-month period, with the
Company maintaining an option to repurchase unvested shares. Shares of
common stock are also, on occasion, issued in exchange for services.
A summary of common stock issued under Stock Restriction Agreements
follows:
<TABLE>
<CAPTION>
Number of
shares Weighted average issue price
---------- -------------------------------
<S> <C> <C>
Balance at November 3, 1995
(date of inception)............ -- --
Issued for notes................ 1,500,000 $.05
Issued in exchange for patent... 750,000 Fair value of patent--$35,000
----------
Balance at December 31, 1995.... 2,250,000
Issued for notes................ 2,577,600 $.07
Issued in exchange for services. 141,150 Fair value of services--$35,226
Repurchased..................... (215,100) $.06
----------
Balance at December 31, 1996.... 4,753,650
Issued for notes................ 1,505,625 $.24
Issued in exchange for services. 72,984 Fair value of services--$87,884
Repurchased..................... (233,055) $.07
----------
Balance at December 31, 1997.... 6,099,204
Issued for notes................ 2,456,625 $.27
Issued in exchange for services. 11,250 Fair value of services--$16,250
Repurchased..................... (1,172,734) $.16
----------
Balance at December 31, 1998 (of
which 4,343,913 shares are
vested at December 31, 1998)... 7,394,355
==========
</TABLE>
Warrants
In 1996, the Company issued warrants to purchase 12,500 shares of Series
B convertible preferred stock. The warrants have an exercise price of $4.00
per share and expire on November 20, 2001. Also in 1996, the Company issued
warrants to purchase 33,582 shares of Series B convertible preferred stock.
These warrants have an exercise price of $2.68 and expire on the later of
November 19, 2006 or five years from an initial public offering by the
Company.
In 1997, the Company issued warrants to purchase 12,188 shares of Series
C convertible preferred stock with an exercise price of $4.00 per share.
The warrants expire on the later of July 24, 2007 or five years from an
initial public offering by the Company.
In conjunction with the issuance of the Series C convertible preferred
stock in 1997, the Company issued warrants to purchase 675,001 shares of
common stock at an exercise price of $4.00 per share. Such exercise price
was above the fair value of common stock at the date of grant. The warrants
expire on March 31, 2002.
F-14
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
In conjunction with a $1 million line of credit entered into in 1998
(see note 12), the Company issued warrants to purchase 5,000 shares of
Series D convertible preferred stock with an exercise price of $4.00 per
share. The warrants expire on April 5, 2003.
Using a Black-Scholes option model, the fair value of the warrants
issued by the Company was deemed insignificant on the date of grant.
(4) Redeemable Convertible Preferred Stock
Series A
In December 1995, the Company authorized 1,350,000 shares of Series A
convertible preferred stock. In March 1997, the Company decreased the
number of shares of Series A convertible preferred stock authorized from
1,350,000 to 1,068,000. In 1995, the Company issued 534,000 shares of
Series A convertible preferred stock at $.75 per share for net proceeds of
$389,189. Each holder of outstanding shares of Series A convertible
preferred stock has voting rights equal to the number of shares of common
stock into which the shares of Series A convertible preferred stock are
convertible, which is a 3 for 2 share basis, subject to certain adjustments
for antidilution, at the option of the stockholder, as defined in the
Company's Certificate of Incorporation, as amended.
Stockholders of the Series A convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of $.075 per share. Such dividends are not cumulative.
Whenever a dividend or other distribution is declared on any shares of
Series B, Series C or Series D convertible preferred stock, the Board of
Directors must simultaneously declare a dividend or distribution on Series
A convertible preferred stock based on the relative aggregated liquidation
value of the outstanding shares of Series A, Series B, Series C and Series
D convertible preferred stock so that the outstanding shares of Series A,
Series B, Series C and Series D convertible preferred stock will
participate equally with each other.
Series B
In July 1996, the Company authorized 2,000,000 shares of Series B
convertible preferred stock. The number of shares of Series B convertible
preferred stock authorized was increased to 2,200,000 in November 1996. In
March 1997, the Company decreased the number of shares of Series B
convertible preferred stock authorized to 2,100,000 shares. In July and
November 1996, the Company issued an aggregate of 2,050,000 shares of
Series B convertible preferred stock at $1.50 per share for aggregate net
proceeds of $3,040,581. Each holder of outstanding shares of Series B
convertible preferred stock has voting rights equal to the number of shares
of common stock into which the shares of Series B convertible preferred
stock are convertible, which is a 3 for 2 share basis, subject to certain
adjustments for antidilution, at the option of the stockholder, as defined
in the Company's Certificate of Incorporation, as amended.
Stockholders of Series B convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of $.15 per share. Such dividends are not cumulative.
F-15
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Series C
In March 1997, the Company authorized 2,300,000 shares of Series C
convertible preferred stock. In March 1997, the Company issued 2,250,000
shares of Series C convertible preferred stock at $4.00 per share for net
proceeds of $8,947,875. Each holder of outstanding shares of Series C
convertible preferred stock has voting rights equal to the number of shares
of common stock into which the Series C convertible preferred stock are
convertible, which is a 3 for 2 share basis, subject to certain adjustments
for antidilution, at the option of the stockholder, as defined in the
Company's Certificate of Incorporation, as amended.
Stockholders of Series C convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of 10% of the initial Series C convertible preferred stock
value ($4.00 per share). Such dividends are not cumulative.
Series D
In February 1998, the Company authorized 1,375,000 shares of Series D
convertible preferred stock. The number of shares of Series D convertible
preferred stock authorized was increased to 4,375,000 in December 1998. In
February, June and December 1998, the Company issued an aggregate of
3,850,000 shares of Series D convertible preferred stock at $4.00 per share
for aggregate net proceeds of $15,347,009. Each holder of outstanding
shares of Series D convertible preferred stock has voting rights equal to
the number of shares of common stock into which the Series D convertible
preferred stock are convertible, which is a 3 for 2 share basis, subject to
certain adjustments for antidilution, at the option of the stockholder, as
defined in the Company's Certificate of Incorporation, as amended.
Stockholders of Series D convertible preferred stock are entitled to
receive dividends, when and if declared by the Board of Directors, at an
annual rate of 10% of the initial Series D convertible preferred stock
value ($4.00 per share). Such dividends are not cumulative.
On February 9, 1999, the Company issued 250,000 shares of Series D
convertible preferred stock at $4.00 per share, for net proceeds of
$994,472. These shares have the same rights as the Series D convertible
preferred stock shares outstanding as of December 31, 1998.
Automatic Conversion
Upon the closing of a Qualified Offering (as defined below), all of the
then outstanding shares of preferred stock are automatically converted into
shares of common stock at the conversion price at the time in effect for
such preferred stock, and any dividends declared but unpaid are immediately
payable in cash. A "Qualified Offering" is defined as an underwritten
offering by the Company of authorized but unissued shares of common stock
at a price per share which (after deducting underwriting commissions and
offering expenses) is not less than $4.00 per share (adjusted for the 3 for
2 split), subject to adjustment, and resulting in net proceeds to the
Company (after deducting underwriting commissions and offering expenses) of
not less than $15,000,000. An "Underwritten Offering" is defined as a
distribution of common stock in a firm commitment underwritten public
offering to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission
pursuant to the Securities Act of 1933.
F-16
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Liquidation and Dividend Preferences
Upon liquidation, holders of Series A convertible preferred stock are
entitled to $.75 per share of Series A convertible preferred stock
outstanding, plus 8% of the original purchase price of Series A convertible
preferred stock ($.75), compounded annually from the date of issuance, and
any declared but unpaid dividends.
Holders of Series B convertible preferred stock are entitled to the
greater of (a) the sum of $1.50 per share of Series B convertible preferred
stock outstanding (subject to adjustment, as defined in the Company's
Certificate of Incorporation, as amended) plus all declared but unpaid
dividends or (b) the amount that would have been received if all shares of
Series B convertible preferred stock had been converted to common stock
prior to such liquidation.
Holders of Series C convertible preferred stock are entitled to the
greater of (a) the sum of $4.00 per share of Series C convertible preferred
stock outstanding (subject to adjustment as defined in the Company's
Certificate of Incorporation, as amended) plus all declared but unpaid
dividends or (b) the amount that would be received if all shares of Series
C convertible preferred stock had been converted to common stock prior to
such liquidation.
Holders of Series D convertible preferred stock are entitled to the
greater of (a) the sum of $4.00 per share of Series D convertible preferred
stock outstanding (subject to adjustment as defined in the Company's
Certificate of Incorporation, as amended) plus all declared but unpaid
dividends or (b) the amount that would be received if all shares of Series
D convertible preferred stock had been converted to common stock prior to
such liquidation.
Series A, Series B, Series C and Series D convertible preferred stock
rank as to dividends and upon liquidation at parity and senior to common
stock and to all other classes or series issued by the Company. If upon
liquidation the assets remaining in the Company are not sufficient to pay
the holders of Series A, Series B, Series C and Series D convertible
preferred stock the full amount to which the stockholders are entitled, the
holders of the Series A, Series B, Series C and Series D convertible
preferred stock share ratably in the distribution of the remaining assets.
The Company has not declared any dividends.
Redemption Features
The Company is required to redeem, at the option of a majority of the
holders of Series A convertible preferred stock, a maximum number of shares
of Series A convertible preferred stock held by such holders at $.75 per
share on the following dates:
<TABLE>
<CAPTION>
Maximum number
of outstanding
Redemption date shares to be redeemed
--------------- ---------------------
<S> <C>
January 1, 2000........................................ 33.33%
January 1, 2001........................................ 50.00%
January 1, 2002........................................ All remaining shares
</TABLE>
F-17
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
The Company is required to redeem, at the option of a majority of the
holders of each series of convertible preferred stock, such shares of such
series of convertible preferred shares outstanding sought to be redeemed by
such holders on the following date, if the Company has not completed an
initial public offering resulting in net proceeds of at least $15,000,000,
or a qualified merger or liquidation. The price at which these shares are
redeemable is the greater of the fair market value of the common stock at
the redemption date or the redemption price, as shown below.
<TABLE>
<CAPTION>
Maximum number Redemption
Redemption date shares to be redeemed price per share
--------------- ---------------------- ---------------
<S> <C> <C> <C>
February 25, 2003..................... Series B 2,050,000 $1.50
Series C 2,250,000 4.00
Series D 3,850,000 4.00
</TABLE>
If funds are not legally available to redeem the Series A, Series B,
Series C and Series D convertible preferred shares outstanding on the
redemption dates specified, the Company will use those funds which are
legally available to redeem the maximum possible number of such shares pro
rata among the preferred stockholders.
(5) Write-down Related to Hardware Business
In 1998, the Company decided to discontinue manufacturing the Audible
MobilePlayer and instead to focus its efforts on developing the technology
to enable third-party hand-held devices to download Audible's content. As a
result, the Company recorded a charge of approximately $370,000 to reduce
the remaining inventory to its net realizable value. The Company also
recorded an impairment loss of approximately $181,000 on certain molds and
manufacturing equipment that were used by Flextronics, Inc. (Flextronics)
in manufacturing the Audible MobilePlayer. The impairment loss was measured
as the difference between the fair value, determined to be zero, and the
carrying value of the molds and manufacturing equipment. In addition, the
Company recorded a charge of $51,000 and agreed to use its $350,000 deposit
with Flextronics to satisfy $401,000 in remaining purchase commitments.
These charges comprise the write-down of approximately $952,000 recorded in
the accompanying 1998 statement of operations.
(6) Property and Equipment
Property and equipment at December 31, 1997 and 1998 consists of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Construction in progress................................. $ -- $ 16,428
Studio equipment......................................... 155,935 155,935
Computer server and Web site equipment................... 498,856 510,118
Molds and manufacturing equipment........................ 443,257 302,463
Office furniture and equipment........................... 383,741 392,781
Leasehold improvements................................... 93,829 93,829
---------- ----------
1,575,618 1,471,554
Less accumulated depreciation and amortization........... 408,006 1,073,717
---------- ----------
$1,167,612 $ 397,837
========== ==========
</TABLE>
F-18
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Property and equipment includes equipment under capital leases.
Depreciation and amortization expense on property and equipment, including
equipment under capital leases, totaled $28,683, $379,323, $665,711 and
$1,073,717 in 1996, 1997, 1998 and the period November 3, 1995 (date of
inception) to December 31, 1998, respectively.
An impairment loss of approximately $181,000 was recorded on molds and
manufacturing equipment in 1998 to reduce the net book value to zero since
the Company determined that the carrying amount of the molds and
manufacturing equipment was not recoverable.
(7)Microsoft Agreement
In November 1998, the Company entered into a five-year agreement with
Microsoft to develop certain integration of products, grant various rights
and licenses, and provide for Microsoft to be paid future royalties for
content distributed as a result of the software developed in the agreement.
Under the terms of the agreement, Microsoft committed a minimum of $2.0
million in payments to the Company to integrate certain products and
acquire various rights and licenses.
Microsoft advanced Audible $1,500,000 in November 1998 in consideration
of Audible granting Microsoft the right to distribute software enabling
users of Microsoft platforms to access and use Audible content. This
advance will be recognized as revenue on a straight line basis over the
initial term of the agreement which runs through the second quarter of
2001, beginning in the quarter ended June 30, 1999.
Audible will pay Microsoft a royalty on content licensed and distributed
by Audible to each end user that accesses its content using the developed
software. Royalties will be recognized during the period that the related
content revenue is earned. During 1998, Audible had not made any royalty
payments to Microsoft.
Also under the agreement, Audible (i) has performed technology
integration services for which the Company has recognized revenue of
$200,000, (ii) will deliver a license for certain technology rights in
exchange for $250,000 and (iii) will deliver 300 Audible MobilePlayers in
exchange for $50,000. The technology integration services have been
performed and therefore the related revenue has been recognized during the
three months ended March 31, 1999. Revenue for the technology rights will
be recognized when delivered and acceptance has occurred. Revenue from the
sale of Audible MobilePlayers will be recognized when shipped. Microsoft
has options under the agreement to acquire additional rights and licenses
and extend the term of the agreement for additional financial
consideration.
(8) Income Taxes
There is no provision for income tax expense in 1996, 1997 or 1998 or in
the period November 3, 1995 (date of inception) to December 31, 1998 due to
the Company's net losses in each of the years and the cumulative period
since inception. No income tax payments have been made in 1996, 1997, 1998
or the period November 3, 1995 (date of inception) to December 31, 1998.
F-19
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
The difference between the actual income tax provision and that computed
by applying the U.S. federal income tax rate of 34% to pretax loss is
summarized below:
<TABLE>
<CAPTION>
Period
November 3, 1995
Year ended December 31, (date of inception)
------------------------------------- to December 31,
1996 1997 1998 1998
----------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Computed "expected" tax
benefit................ $(1,192,982) $(2,729,944) $(2,766,945) $(6,706,490)
(Increase) decrease in
tax benefit resulting
from:
Increase in the
valuation allowance... 1,391,121 3,208,000 3,251,000 7,869,000
State and local income
tax benefit, net of
federal benefit....... (208,421) (476,937) (483,401) (1,171,018)
Other, net............. 10,282 (1,119) (654) 8,508
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 766,000 $4,288,000
Capitalized start-up costs.............................. 891,000 1,115,000
Capitalized research and developmental costs............ 2,751,000 1,876,000
Book depreciation in excess of tax depreciation......... 117,000 229,000
Deferred compensation and accrued vacation.............. 52,000 105,000
Inventory write-down.................................... -- 148,000
Molds and equipment impairment.......................... -- 72,000
Other, net.............................................. 47,000 36,000
---------- ----------
Total deferred tax assets.............................. 4,624,000 7,869,000
Less valuation allowance................................ 4,618,000 7,869,000
---------- ----------
Net deferred taxes..................................... 6,000 --
Deferred tax liability--deductible patent costs.......... 6,000 --
---------- ----------
Net deferred taxes..................................... $ -- $ --
========== ==========
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income. Based on the Company's historical net losses, management believes
it is more likely than not that the Company will not realize the benefits
of these deferred tax assets, and accordingly, a full valuation allowance
has been recorded on the deferred tax assets as of December 31, 1997 and
1998.
F-20
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
As of December 31, 1998, the Company has net operating loss
carryforwards for federal income tax purposes of approximately $10.7
million which expire between 2010 and 2013 if not used to offset future
taxable income. The Company has experienced certain ownership changes
which, under the provisions of Section 382 of the Internal Revenue Code of
1986, as amended, may result in an annual limitation on the Company's
ability to utilize its net operating losses in the future.
(9) Related-party Transactions
The Company has an agreement with Flextronics to manufacture the Audible
MobilePlayer. The chief executive officer of Flextronics is also a
principal of one of the Company's stockholders. Included in accounts
payable is approximately $173,000 and $51,000 which is due to Flextronics
at December 31, 1997 and 1998, respectively. The Company intends to
terminate this agreement in 1999 in connection with the decision to
discontinue manufacturing the Audible MobilePlayer (see note 5).
The note receivable due from stockholder of $100,000 at December 31,
1997 and 1998 bears interest at 6% annually. The principal amount plus
accrued interest is due the earlier of March 28, 2002 or the effective date
of an initial public offering by the Company. The stockholder has pledged
25,000 shares of common stock as security under the promissory note.
In April 1999, the note was amended to extend its maturity date to one
year following the closing of an initial public offering of the Company's
common stock.
(10) Commitments
Lease Obligations
The Company entered into a capital lease line of credit with Comdisco,
Inc. whereby the Company may lease up to $1,750,000 of equipment. The
Company has leased $1,240,585 of equipment under this capital lease line as
of December 31, 1998. The Company has operating leases on its office space
and certain equipment. Future minimum lease obligations under these lease
arrangements are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
<S> <C> <C>
Year ending December 31:
1999.................................................... $517,051 $206,478
2000.................................................... 276,898 215,571
2001.................................................... 48,271 218,732
2002.................................................... -- 218,732
2003.................................................... -- 19,225
-------- --------
Total future minimum lease payments.................... 842,220 $878,738
========
Less amount representing interest (8% to 11.5%)......... 60,489
--------
Present value of obligation under capital lease........ 781,731
Less current maturities 471,224
--------
Obligation under capital lease, net of current
maturities............................................ $310,507
========
</TABLE>
F-21
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Rent expense of $58,173, $144,914, $209,128 and $412,215 was recorded
for operating leases for the years ended December 31, 1996, 1997 and 1998
and the period November 3, 1995 (date of inception) to December 31, 1998,
respectively.
Equipment under capital leases as of December 31, 1997 and 1998 is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Studio equipment..................................... $ 135,855 $ 135,855
Computer server and Web site equipment............... 492,793 504,055
Molds and manufacturing equipment.................... 419,332 301,406
Office furniture and equipment....................... 295,296 299,269
---------- ----------
1,343,276 1,240,585
Less accumulated amortization........................ (351,567) (953,303)
---------- ----------
$ 991,709 $ 287,282
========== ==========
</TABLE>
Content Royalty Agreements
The Company enters into content royalty agreements with various content
providers. Royalties for licensed content are based on a percentage of
content revenue. Minimum royalties of approximately $702,000 are required
to be paid over the next two to three years. Payment dates are based upon
specific terms within each agreement.
Purchase Commitment
Under the Company's manufacturing agreement with Flextronics, the
Company is required to reimburse Flextronics for all purchases of
components in connection with its decision to discontinue manufacturing
Audible MobilePlayers, which amount is approximately $401,000 as of
December 31, 1998. As of December 31, 1998, the parties agreed to use the
Company's $350,000 deposit to satisfy a portion of this commitment and the
Company recorded a charge of $51,000 for the remaining amount (see note 5).
The Company has committed to purchase a limited quantity of enhanced
Audible MobilePlayers for approximately $141,000 in early 1999 which are
expected to be sold at or above cost.
License Agreements
In November 1998, the Company entered into a two-year agreement for
certain joint software development, licensing and marketing. Audible is
required to pay $250,000 in the aggregate at various dates during 1999
under the terms of this agreement, for both royalties, based on future
sales, and advertising costs.
The Company has entered into several other agreements whereby certain
device manufacturers will license software from Audible. Under the terms of
these agreements, the Company would be required to pay the device
manufacturer revenue sharing on content sales by customers referred to the
Company through the efforts of the device manufacturers.
F-22
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
Web Hosting Agreement
During 1998, the Company entered into an agreement for Web hosting and
Internet access services effective until May 1999. Future payments by the
Company under this agreement total approximately $33,800, to be paid
monthly.
(11) Notes Due from Stockholders for Common Stock
Notes due from stockholders of $596,375 and $1,040,158 at December 31,
1997 and 1998, respectively, were received by the Company for payment for
shares of common stock purchased by employees and consultants under the
Company's Stock Restriction Agreements (see note 3). These notes have been
reflected as a reduction to stockholders' deficit. The notes are full
recourse promissory notes bearing interest at fixed rates ranging from 7.0%
to 8.5%. The notes mature beginning in the year 2000.
The Company has exercised its right to purchase shares of unvested stock
from employees who were terminated (under the terms of the Company's Stock
Restriction Agreement). During 1996, 1997, 1998 and the period November 3,
1995 (date of inception) to December 31, 1998, the Company repurchased
215,100, 233,055, 1,172,724 and 1,620,879 shares, respectively. The Company
paid for these shares by reducing the indebtedness under the promissory
notes issued to the Company.
Certain Stock Restriction Agreements with employees contain a provision
whereby the employee is awarded a one-time bonus if still employed by the
Company on the due date of the promissory note equal to the amount of the
promissory note. Compensation expense is recognized on a straight-line
basis over the term of the promissory note. Deferred compensation in the
accompanying balance sheets represents the earned, unpaid portion of such
bonuses.
(12)Credit Facilities
The Company had a bank line of credit which provided for borrowings of
up to $500,000. No amounts were outstanding under this line of credit as of
December 31, 1997. This credit facility was secured by interests in various
Company assets. The credit facility expired on December 31, 1997.
In April 1998, the Company entered into a $1,000,000 bank line of credit
agreement. The agreement matures on April 5, 1999 and contains a minimum
tangible net worth covenant, as defined in the agreement, of $1,500,000.
Any loan amount bears interest at a per annum rate equal to one percentage
point above the prime rate (8.75% as of December 31, 1998) and is limited
to a borrowing base formula based on eligible accounts. As of December 31,
1998, the amount available for borrowing under the line of credit was
nominal. The Company did not draw on this line of credit and was in
compliance with the covenant as of December 31, 1998.
In connection with securing the $1,000,000 line of credit, the Company
issued warrants to the bank to purchase 5,000 shares of Series D
convertible preferred stock. These warrants have an exercise price of $4.00
per share and expire on April 5, 2003.
The Company pledged all goods and equipment, including inventory,
accounts receivable, contract rights and intangibles currently owned or
hereafter acquired, as collateral under this loan agreement.
F-23
<PAGE>
AUDIBLE, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996, 1997 and 1998 and the period November 3, 1995 (Date of
Inception) to December 31, 1998 three months ended March 31, 1998 and 1999 and
the period November 3, 1995 (Date of Inception) to March 31, 1999
(All information for the three months ended March 31, 1998 and subsequent to
December 31, 1998 is unaudited)
The bank line of credit expired as of April 5, 1999 and was not renewed.
(13) Corporate Restructuring
On February 2, 1998, the Company reduced its workforce by 32%,
eliminating 15 full-time positions in a variety of functions. The Company
offered a severance package to all the terminated employees. The total
charge resulting from severance of $44,462 was paid in 1998.
(14) Employee Benefit Plan
On July 1, 1998, the Company adopted and made available to all of its
employees a 401(k) savings plan (the Plan). The Plan is based on
contributions from employees and discretionary Company contributions. The
Company has not contributed to the Plan to date.
(15) Subsequent Events
In April 1999, the Company established the 1999 Stock Incentive Plan
(the "Stock Incentive Plan") and has reserved 9,000,000 shares to be issued
under the Stock Incentive Plan. The Stock Incentive Plan permits the
granting of stock options, stock appreciation rights, restricted or
unrestricted stock awards, phantom stock, performance awards and other
stock-based awards. No awards have been granted under the Stock Incentive
Plan.
In April 1999, the Company increased the number of shares of common
stock authorized from 16,000,000 to 50,000,000 and the number of shares of
preferred stock authorized from 9,843,000 to 19,843,000.
In April 1999, in connection with an amendment to the agreements with
Microsoft, the Company issued to Microsoft a warrant to purchase 100,000
shares of common stock at the initial public offering price, or, if the
initial public offering does not occur within 12 months of the date of
issuance, such warrant is exercisable for 100,000 shares of common stock at
$6.00 per share. Microsoft has a right of first negotiation in the event of
a potential sale of the Company. The fair value of this warrant will be
recognized as an expense on a straight line basis over the same period as
the advance for the distribution right discussed in note 7.
Effective May 26, 1999, the Company declared a 3 for 2 stock split in
the form of a stock dividend payable on May 26, 1999 for stockholders of
record at the close of business on May 26, 1999.
In June 1999, in connection with a services agreement, the Company
issued a warrant to purchase 150,000 shares of common stock at $0.01 per
share, which is fully vested, and a warrant to purchase 750,000 shares of
common stock at $8.00 per share, which is subject to vesting over a five
year period. The fair value of these warrants will be recorded as an
expense over the initial term of the service agreement, which is three
years.
F-24
<PAGE>
[AUDIBLE, INC. LOGO]
<PAGE>
[LOGO OF AUDIBLE.COM APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered hereby,
other than underwriting discounts and commissions. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
National Association Securities Dealers, Inc. filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 12,788
National Association of Securities Dealers, Inc. filing fee...... 5,100
Nasdaq National Market listing fee............................... 95,000
Transfer agent's and registrar's fees............................ 10,000
*Printing expenses................................................ 250,000
*Legal fees and expenses.......................................... 275,000
*Accounting fees and expenses..................................... 250,000
Blue Sky filing fees and expenses................................ 10,000
*Miscellaneous expenses........................................... 92,112
----------
Total........................................................... $1,000,000
==========
</TABLE>
- --------
* estimated.
14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. Our
bylaws include provisions to require us to indemnify our directors and officers
to the fullest extent permitted by Section 145, including circumstances in
which indemnification is otherwise discretionary. Section 145 also empowers us
to purchase and maintain insurance that protects our officers, directors,
employees and agents against any liabilities incurred in connection with their
service in such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are
we aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification of our directors and officers by the
Underwriters, for certain liabilities arising under the Securities Act.
15. Recent Sales of Unregistered Securities
During the last three years, we have issued unregistered securities in the
transactions described below. These securities were offered and sold by us in
reliance upon the exemptions provided for in Section 4(2) of the Securities
Act, relating to sales not involving any public offering, Rule 506 of the
Securities Act relating to sales to accredited investors and Rule 701 of the
Securities Act relating to a compensatory benefit plan. The sales were made
without the use of an underwriter and the certificates representing the
securities sold contain a restrictive legend that prohibits transfer without
registration or an applicable exemption.
(1) In July 1996, we issued 2,000,000 shares of Series B preferred stock to a
group of accredited investors at a purchase price of $1.50 per share for an
aggregate of $3,000,000.
(2) In November 1996, we issued an additional 50,000 shares of Series B
preferred stock to two accredited investors at a purchase price of $1.50
per share for an aggregate of $75,000.
II-1
<PAGE>
(3) In November 1996, we issued warrants to purchase an aggregate of 46,082
shares of Series B preferred stock in connection with loans made to us.
(4) In March 1997, we issued 2,250,000 shares of Series C preferred stock to a
group of accredited investors at a purchase price of $4.00 per share for an
aggregate of $9,000,000.
(5) In March 1997, we issued warrants to purchase 674,999 shares of common
stock to holders of Series C preferred stock in connection with the Series
C preferred stock financing.
(6) In July 1997, we issued a warrant to purchase 12,188 shares of Series C
preferred stock in connection with a loan made to us.
(7) In February 1998, we issued 1,350,000 shares of Series D preferred stock to
a group of accredited investors at a purchase price of $4.00 per share for
an aggregate of $5,400,000.
(8) In April 1998, we issued a warrant to purchase 5,000 shares of Series D
preferred stock in connection with a loan made to us.
(9) In December 1998, we issued an additional 2,500,000 shares of Series D
preferred stock to a group of accredited investors at a purchase price of
$4.00 per share for an aggregate of $10,000,000.
(10) In February 1999, we issued an additional 250,000 shares of Series D
preferred stock to an accredited investor at a purchase price of $4.00 per
share for an aggregate of $1,000,000.
(11) In April 1999, we issued a warrant to purchase 100,000 shares of common
stock to an accredited investor.
(12) From December 1995 through March 1999, we sold an aggregate of 9,244,734
shares of common stock to employees and consultants at purchase prices
ranging from $.047 to $2.667 per share, for an aggregate of $1,541,384 as
follows:
<TABLE>
<CAPTION>
Number of Price Aggregate
Dates of Sale Shares Per Share Purchase Price
------------- --------- --------- --------------
<S> <C> <C> <C>
December 1995................................ 2,250,000 $0.047 $105,000
June 1996.................................... 112,500 0.100 11,250
June 1996.................................... 7,500 0.057 425
July 1996.................................... 1,425,000 0.057 80,750
July 1996.................................... 67,500 0.113 7,650
July 1996.................................... 48,750 0.667 32,500
August 1996.................................. 22,500 0.667 15,000
September 1996............................... 112,500 0.100 11,250
December 1996................................ 922,500 0.100 92,250
January 1997................................. 37,500 0.100 3,750
February 1997................................ 99,000 0.100 9,900
March 1997................................... 15,000 2.000 30,000
April 1997................................... 18,000 0.667 12,000
May 1997..................................... 83,250 0.100 8,325
June 1997.................................... 323,250 0.267 86,200
July 1997.................................... 553,500 0.267 147,600
September 1997............................... 3,750 0.100 375
October 1997................................. 4,500 2.667 12,000
November 1997................................ 409,125 0.267 109,100
November 1997................................ 17,310 0.333 5,770
December 1997................................ 1,125 0.333 375
December 1997................................ 4,050 0.667 2,700
December 1997................................ 9,249 2.667 24,664
January 1998................................. 7,500 2.000 15,000
January 1998................................. 18,750 0.267 5,000
February 1998................................ 3,750 0.333 1,250
February 1998................................ 1,500,000 0.267 400,000
May 1998..................................... 279,000 0.267 74,400
June 1998.................................... 457,500 0.267 122,000
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number of Price Aggregate
Dates of Sale Shares Per Share Purchase Price
------------- --------- --------- --------------
<S> <C> <C> <C>
July 1998.................................... 82,500 0.267 22,000
September 1998............................... 80,250 0.267 21,400
October 1998................................. 38,625 0.267 10,300
March 1999................................... 229,500 0.267 61,200
--------- ----------
Total........................................ 9,244,734 $1,541,384
</TABLE>
(13) In April 1999, we issued options to purchase 3,000 shares of our common
stock for $2.00 per share to one of our employees.
(14) Effective May 26, 1999, we declared a stock dividend of .5 shares for each
outstanding share of common stock.
(15) In June 1999, we issued to an accredited investor in connection with a
business arrangement a warrant to purchase 150,000 shares of common stock
at an exercise price of $0.01 per share and a warrant to purchase 750,000
shares of common stock at an exercise price of $8.00 per share.
(16) In June 1999, we issued options to purchase an aggregate of 900,500 shares
of our common stock for $8.00 per share to employees and consultants.
16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No. Description
Form of Underwriting Agreement
1.1*
3.1 Restated Certificate of Incorporation of Audible, dated March 31,
1997
3.1.1 Certificate of Amendment of Certificate of Incorporation, dated
July 22, 1997
3.1.2 Certificate of Amendment of Certificate of Incorporation, dated
February 25, 1998
3.1.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1998
3.1.4* Certificate of Amendment of Certificate of Incorporation, dated
June 16, 1999
3.2 Form of Amended and Restated Certificate of Incorporation of
Audible
3.3 Bylaws of Audible
3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998
3.4 Form of Amended and Restated Bylaws of Audible
4.1 Specimen stock certificate for shares of common stock of Audible
Opinion of Piper & Marbury L.L.P.
5.1
10.1+ License Agreement dated November 4, 1998, by and between Microsoft
Corporation and Audible
10.2+ Digital Rights Management Agreement dated November 4, 1998,
between Microsoft Corporation and Audible
10.3+ Development Agreement dated November 12, 1998, by and between
RealNetworks, Inc. and Audible
10.4 RealMedia Architecture Partner Program Internet Agreement dated
November 12, 1998, between RealNetworks, Inc. and Audible
10.5 Master Lease Agreement dated November 19, 1996, by and between
Comdisco, Inc. as lessor, and Audible as lessee
10.5.1
Addendum to Master Lease Agreement dated November 20, 1996, by and
between Comdisco, Inc., as lessor, and Audible, as lessee
(relating to Exhibit 10.5)
II-3
<PAGE>
10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred
stock at a price of $2.68 per share, dated November 19, 1996, and
re-issued as of August 17, 1998, by Audible to Comdisco, Inc.
10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred
stock at a price of $4.00 per share, dated July 24, 1997, issued
by Audible to Comdisco, Inc.
10.8 Loan and Security Agreement dated April 6, 1998, by and between
Silicon Valley Bank, as lender, and Audible, as borrower, for a
revolving line of credit of up to $1,000,000
10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to
Silicon Valley Bank,
10.10 Security and Loan Agreement dated November 20, 1996, between
Audible, as borrower, and Imperial Bank, as lender, for up to
$500,000
10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred
stock at a price of $3.00 per share, dated November 20, 1996,
issued by Audible to Imperial Bank
10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of
Audible, in the principal amount of $100,000
10.12.1 Allonge to Note dated April 21, 1999 between Donald Katz and
Audible (relating to Exhibit 10.12.1)
10.13 Security Agreement dated March 28, 1997, by and between Donald
Katz and Audible
10.14 Amended and Restated Registration Rights Agreement dated February
26, 1998, by and among Audible and certain stockholders named
therein
10.14.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated December 18, 1998 (relating to Exhibit 10.14)
10.14.2*
Amendment No. 2 to Amended and Restated Registration Rights
Agreement dated June 17, 1999 (relating to Exhibit 10.14)
10.15 1999 Stock Incentive Plan
10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to
various investors in connection with the Series C preferred stock
financing
10.17 Form of Stock Restriction Agreement by and between Audible and the
Named Executive Officers made in connection with various purchases
and sales of shares of restricted common stock
10.18 Form of Promissory Note made by the Named Executive Officers in
favor of Audible in connection with various purchases and sales of
shares of restricted common stock
10.19 Office Lease dated June 20, 1997, by and between Audible, as
tenant, and Passaic Investment LLC, Sixty-Five Willowbrook
Investment LLC and Wayne Investment LLC, as tenants-in-common, as
landlord
10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as
sublessee, and Painewebber Incorporated, as sublessor
10.21+ Agreement dated April 3, 1999 by and between Audible and Diamond
Multimedia Systems, Inc.
10.22 Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft
Corporation
10.23 Employment Offer Letter from Audible to Guy Story dated June 10,
1996
10.24 Employment Offer Letter from Audible to Matthew Fine dated March
31, 1997
10.25 Employment Offer Letter from Audible to Brian Fielding dated April
25, 1997
10.26 Employment Offer Letter from Audible to Travis Millman dated
September 29, 1997
10.27 Employment Offer Letter from Audible to Foy Sperring dated April
23, 1998
10.28 Employment Offer Letter from Audible to Andrew Huffman dated
February 12, 1998
Employment Offer Letter from Audible to Andrew Kaplan dated May
10.29* 25, 1999
10.30* Common Stock Purchase Warrant, W-1, issued June 17, 1999, to Robin
Williams
II-4
<PAGE>
10.31* Common Stock Purchase Warrant, W-2, issued June 17, 1999, to Robin
Williams
10.32*
11.1 Letter Agreement dated June 17 1999, between Robin Williams and
Audible
Statement of computation of loss per share
23.1* Consent of KPMG LLP
23.2* Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
24.1 hereto)
Power of Attorney (included in signature pages)
Financial Data Schedule
27*
- --------
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act.
* Filed herewith.
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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 provisions of its Charter or Bylaws or the Delaware
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Amendment to Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Wayne, New Jersey,
on the 17th day of June, 1999.
AUDIBLE, INC.
/s/ Andrew J. Huffman
By: _________________________________
Andrew J. Huffman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Andrew J. Huffman President, Chief Executive June 17, 1999
_________________________________ Officer and Director
Andrew J. Huffman (Principal Executive
Officer)
/s/ Andrew P. Kaplan Vice President, Finance and June 17, 1999
_________________________________ Administration and Chief
Andrew P. Kaplan Financial Officer
(Principal Financial
Officer)
* Chairman of the Board of June 17, 1999
_________________________________ Directors
Donald R. Katz
* Director June 17, 1999
_________________________________
Timothy Mott
* Director June 17, 1999
_________________________________
R. Bradford Burnham
* Director June 17, 1999
_________________________________
Thomas Hirschfeld
* Director June 17, 1999
_________________________________
W. Bingham Gordon
* Director June 17, 1999
_________________________________
Winthrop Knowlton
* Director June 17, 1999
_________________________________
Richard Brass
</TABLE>
*By: /s/ Nancy A. Spangler
-------------------------
Nancy A. Spangler
Attorney-In-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Audible, dated March 31,
1997
3.1.1 Certificate of Amendment of Certificate of Incorporation, dated
July 22, 1997
3.1.2 Certificate of Amendment of Certificate of Incorporation, dated
February 25, 1998
3.1.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1998
3.1.4* Certificate of Amendment of Certificate of Incorporation, dated
June 16, 1999
3.2 Form of Amended and Restated Certificate of Incorporation of
Audible
3.3 Bylaws of Audible
3.3.1 Amendment No. 1 to Audible, Inc. Bylaws, dated March 17, 1998
3.4 Form of Amended and Restated Bylaws of Audible
4.1 Specimen stock certificate for shares of common stock of Audible
5.1 Opinion of Piper & Marbury L.L.P.
10.1+ License Agreement dated November 4, 1998, by and between Microsoft
Corporation and Audible
10.2+ Digital Rights Management Agreement dated November 4, 1998,
between Microsoft Corporation and Audible
10.3+ Development Agreement dated November 12, 1998, by and between
RealNetworks, Inc. and Audible
10.4 RealMedia Architecture Partner Program Internet Agreement dated
November 12, 1998, between RealNetworks, Inc. and Audible
10.5 Master Lease Agreement dated November 19, 1996, by and between
Comdisco, Inc. as lessor, and Audible as lessee
10.5.1 Addendum to Master Lease Agreement dated November 20, 1996, by and
between Comdisco, Inc., as lessor, and Audible, as lessee
(relating to Exhibit 10.5)
10.6 Warrant Agreement to purchase 30,573 shares of Series B preferred
stock at a price of $2.68 per share, dated November 19, 1996, and
re-issued as of August 17, 1998, by Audible to Comdisco, Inc.
10.7 Warrant Agreement to purchase 12,188 shares of Series C preferred
stock at a price of $4.00 per share, dated July 24, 1997, issued
by Audible to Comdisco, Inc.
10.8 Loan and Security Agreement dated April 6, 1998, by and between
Silicon Valley Bank, as lender, and Audible, as borrower, for a
revolving line of credit of up to $1,000,000
10.9 Warrant to Purchase Stock issued April 6, 1998, by Audible to
Silicon Valley Bank, entitling Silicon Valley Bank to purchase
5,000 shares of common stock at a price of $4.00 per share
10.10 Security and Loan Agreement dated November 20, 1996, between
Audible, as borrower, and Imperial Bank, as lender, for up to
$500,000
10.11 Warrant Agreement to purchase 12,500 shares of Series B preferred
stock at a price of $3.00 per share, dated November 20, 1996,
issued by Audible to Imperial Bank
10.12 Promissory Note dated March 28, 1997, from Donald Katz in favor of
Audible, in the principal amount of $100,000
10.12.1
Allonge to Note dated April 21, 1999 between Donald Katz and
Audible (relating to Exhibit 10.12.1)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.13 Security Agreement dated March 28, 1997, by and between Donald
Katz and Audible
10.14 Amended and Restated Registration Rights Agreement dated February
26, 1998, by and among Audible and certain stockholders named
therein
10.14.1 Amendment No. 1 to Amended and Restated Registration Rights
Agreement dated December 18, 1998 (relating to Exhibit 10.14)
10.14.2* Amendment No. 2 to Amended and Restated Registration Rights
Agreement dated June 17, 1999 (relating to Exhibit 10.14)
10.15 1999 Stock Incentive Plan
10.16 Form of Common Stock Warrants issued March 31, 1997 by Audible to
various investors in connection with the Series C preferred stock
financing
10.17 Form of Stock Restriction Agreement by and between Audible and the
Named Executive Officers made in connection with various purchases
and sales of shares of restricted common stock
10.18 Form of Promissory Note made by the Named Executive Officers in
favor of Audible in connection with various purchases and sales of
shares of restricted common stock
10.19 Office Lease dated June 20, 1997, by and between Audible, as
tenant, and Passaic Investment LLC, Sixty-Five Willowbrook
Investment LLC and Wayne Investment LLC, as tenants-in-common, as
landlord
10.20 Sublease Agreement dated July 19, 1996, by and between Audible, as
sublessee, and Painewebber Incorporated, as sublessor
10.21+ Agreement dated April 13, 1999 by and between Audible and Diamond
Multimedia Systems, Inc.
10.22 Common Stock Purchase Warrant, issued April 22, 1999, to Microsoft
Corporation
10.23 Employment Offer Letter from Audible to Guy Story dated June 10,
1996
10.24 Employment Offer Letter from Audible to Matthew Fine dated March
31, 1997
10.25 Employment Offer Letter from Audible to Brian Fielding dated April
25, 1997
10.26 Employment Offer Letter from Audible to Travis Millman dated
September 29, 1997
10.27 Employment Offer Letter from Audible to Foy Sperring dated April
23, 1998
10.28 Employment Offer Letter from Audible to Andrew Huffman dated
February 12, 1998
10.29* Employment Offer Letter from Audible to Andrew Kaplan dated May
25, 1999
10.30* Common Stock Purchase Warrant, W-1, issued June 17, 1999, to Robin
Williams
10.31* Common Stock Purchase Warrant, W-2, issued June 17, 1999, to Robin
Williams
10.32* Letter Agreement dated June 17, 1999, between Robin Williams and
Audible
11.1 Statement of computation of loss per share
23.1* Consent of KPMG LLP
23.2 Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
hereto)
24.1
Power of Attorney (included in signature pages)
27* Financial Data Schedule
- --------
+ Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Act.
* Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 1.1
________________ Shares
Audible, Inc.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
__________, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
VOLPE BROWN WHELAN & COMPANY, LLC
WIT CAPITAL CORPORATION
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Audible, Inc., a Delaware corporation ("Company"), proposes
to issue and sell ________________ shares ("Firm Securities") of its common
stock, $.01 par value per share ("Securities"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than _____________ additional shares ("Optional Securities") of its
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities". The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
as follows:
2. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-76985) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
<PAGE>
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all respects to the
-2-
<PAGE>
requirements of the Act and the Rules and Regulations and did not include,
or will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement
and, if the Effective Time of the Additional Registration Statement is
prior to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at
the Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus will
conform, in all respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(d) Each subsidiary of the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; and the stockholders of
the Company have no preemptive rights with respect to the Securities.
-3-
<PAGE>
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act, except for agreements, the requirements of which have been waived
prior to the filing of the Registration Statement.
(h) The Offered Securities have been approved for listing on Nasdaq
Stock Market's National Market.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities, will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties, or
any agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
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determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect").
(n) No labor dispute with the employees of the Company or any subsidiary
exists or, to the knowledge of the Company, is imminent that might have a
Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have no knowledge of any infringement of or conflict
with the intellectual property rights of others that would individually or
in the aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic
or foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment
or human exposure to hazardous or toxic substances (collectively,
"environmental laws"), owns or operates any real property contaminated with
any substance that is subject to any environmental laws, is liable for any
off-site disposal or contamination pursuant to any environmental laws, or
is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Company is not aware of
any pending investigation which might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending actions,
suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement and
the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and, except as otherwise
disclosed in the Prospectus, such financial statements have been prepared
in conformity with the generally accepted accounting principles in the
United States applied on a consistent basis and the schedules included in
each Registration Statement present fairly the information required to be
stated therein.
(s) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the
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Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and sale
of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $________ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn
to the order of the Company, at the office of ________________________, at 10:00
A.M., New York time, on _________________, or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "First Closing Date". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at such location as CSFBC shall reasonably request at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the
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accounts of the several Underwriters, against payment of the purchase price
therefor in Federal (same day) funds by official bank check or checks or wire
transfer to an account at a bank acceptable to CSFBC drawn to the order of the
Company, at the above office of ___________________. The certificates for the
Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at such location as CSFBC shall
reasonably request at a reasonable time in advance of such Optional Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify CSFBC
of such event and will
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promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent to,
nor the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of its
obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees
and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities and
for expenses incurred in distributing preliminary
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<PAGE>
prospectuses and the Prospectus (including any amendments and supplements
thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof,
or issuances of Securities pursuant to the exercise of such options.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of KPMG LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the
effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects
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<PAGE>
with the applicable accounting requirements of the Act and
the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year, in consolidated
net sales, or net operating income, or in the total or per
share amounts of consolidated income before extraordinary
items or net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
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<PAGE>
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there shall
not have occurred (i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as one
enterprise which, in the judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the public offering or the sale of
and payment for the Offered Securities; (ii) any material suspension or material
limitation of trading in securities generally on the New York Stock Exchange, or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iii) any banking moratorium declared by U.S. Federal
or New York authorities; or (iv) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated such Closing
Date, of Piper & Marbury L.L.P., counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and all
other outstanding shares of the Securities of the Company have been
duly authorized and validly issued, are fully paid and nonassessable
and conform to the description thereof contained in the Prospectus;
and the stockholders of the Company have no preemptive rights with
respect to the Offered Securities;
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<PAGE>
(iii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Act, except for agreements, the requirements of which have been waived
prior to the filing of the Registration Statement;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws;
(v) The execution, delivery and performance of this Agreement and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any
such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
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misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
be described in a Registration Statement or the Prospectus or to be
filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial
data contained in the Registration Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal financial
or accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this
Section, except that the specified date referred to in such subsection will be a
date not more than three days prior to such Closing Date for the purposes of
this subsection.
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The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: (i) the table under the first paragraph under the caption
"Underwriting", (ii) the concession and reallowance figures
-14-
<PAGE>
appearing in the [fourth] paragraph under the caption "Underwriting" and (iii)
the information contained in the [sixth and eighth] paragraphs under the caption
"Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
-15-
<PAGE>
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition to
any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated
pursuant to Section 8 or if for any reason the purchase of the Offered
Securities by the Underwriters is not consummated, the Company shall remain
responsible for the expenses to be paid or reimbursed by it pursuant to Section
5 and the respective obligations of the Company and the Underwriters pursuant to
Section 7 shall remain in effect, and if any Offered Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 8
or the occurrence of any event specified in clause (ii), (iii) or (iv) of
Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket
expenses (including fees and disbursements of counsel) reasonably incurred by
them in connection with the offering of the Offered Securities.
-16-
<PAGE>
10. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to the
Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 65 Willowbrook Boulevard, Wayne,
New Jersey 07470, Attention: President; provided, however, that any notice to
an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws. The Company hereby submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
-17-
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
AUDIBLE, INC.
By:
-----------------------------------
Name:
Title:
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
J.P. MORGAN SECURITIES INC.
VOLPE BROWN WHELAN & COMPANY, LLC
WIT CAPITAL CORPORATION
Acting on behalf of themselves and as
the Representatives of the several
Underwriters
By: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
----------------------------------------
Name:
Title:
374RDF3716/1.A766815-1
-18-
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
- ----------- ---------------
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
Volpe Brown Whelan & Company, LLC
Wit Capital Corporation
--------------
Total........................
==============
<PAGE>
Exhibit 3.1.4
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF AUDIBLE, INC.
AUDIBLE, INC., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: By way of a Unanimous Written Consent of the Board of Directors,
dated June 16, 1999, the Board of Directors of the Corporation adopted
resolutions pursuant to Section 242 of the General Corporation Law of the State
of Delaware, setting forth amendments to the Certificate of Incorporation of the
Corporation (the "Certificate") and declaring said amendments to be advisable.
The stockholders of the Corporation duly approved the proposed amendments in
accordance with Section 242 of the General Corporation Law of the State of
Delaware by written consent in lieu of a meeting, dated June ___, 1999, pursuant
to and in accordance with Section 228 of the General Corporation Law of the
State of Delaware. The resolutions setting forth the amendments are as follows:
RESOLVED: That Paragraphs B(4)(d)(i)(C) and (K) of Article FOURTH of
--------
the Certificate of Incorporation of the Corporation be and hereby is deleted in
its entirety and replaced as follows:
(C) "Employee Stock Options" shall mean (i) existing stock or options
granted to employees, directors, or consultants of the Corporation pursuant to
any stock award or option plan, agreement or arrangement for officers,
directors, consultants, employees and others who render services to the
Corporation (a "Plan"), to acquire up to a maximum of 28,250 shares of Common
Stock (subject to any Adjustment), and (ii) stock or options to be granted to
employees, directors or consultants of the Corporation pursuant to any Plan,
including the 1999 Stock Incentive Plan.
(K) "Common Stock Warrants" shall mean Warrants issued, or to be issued, to
purchase (a) up to 450,000 shares of Common Stock issued to the original
purchasers of the Corporation's Series C Preferred Stock, (b) up to 100,000
shares of Common Stock issued to Microsoft Corporation, (c) up to 10,000 shares
of Common Stock issued to NPR, Inc. and (d) up to 900,000 shares of Common Stock
issued to a service provider.
SECOND: This amendment to Certificate of Incorporation shall be effective
as of the date set forth below.
<PAGE>
IN WITNESS WHEREOF, Audible, Inc. has caused this Certificate to be signed
by Andrew J. Huffman, its President and Chief Executive Officer this 16th day of
June, 1999.
AUDIBLE, INC.
By: /s/ Andrew J. Huffman
________________________________________
Andrew J. Huffman
President and Chief Executive Officer
-2-
<PAGE>
EXHIBIT 10.14.2
AUDIBLE, INC.
AMENDMENT NO. 2 TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
THIS AMENDMENT NO. 2 (the "Amendment") dated as of June 17, 1999, to
the Amended and Restated Registration Rights Agreement dated February 26, 1998,
as amended (the "Agreement"), by and among Audible, Inc., a Delaware corporation
(the "Company"), and the holders of the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
listed on the signature pages thereto (such holders, the "Series A Holders", the
"Series B Holders", the "Series C Holders" and the "Series D Holders",
respectively), is hereby entered into by the Company, the Series A Holders, the
Series B Holders, the Series C Holders, the Series D Holders and Robin Williams
(the "Artist"). The undersigned Series A Holders, Series B Holders, Series C
Holders and Series D Holders constitute the holders of at least a majority of
the Registrable Securities, as such term is defined in the Agreement.
WHEREAS, the Company is issuing to the Artist warrants to purchase an
aggregate of 900,000 shares of the Company's Common Stock (the "Warrant
Shares"), under the terms and conditions set forth in the Common Stock Purchase
Warrants, issued as of the date hereof (the "Warrants"); and
WHEREAS, the Company, the Series A Holders, the Series B Holders, the
Series C Holders and the Series D Holders desire that the Artist be granted
Piggy-Back Registration rights, as such term is defined in the Agreement, with
respect to the Warrant Shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Section 1.1 of the Agreement shall be amended by adding the
following new term:
"Warrant Shares" shall mean shares of Common Stock issued or issuable
upon exercise of the Warrants, held by the Artist, but only to the extent
currently exercised or exercisable.
2. Section 1.1 of the Agreement shall be amended by amending the term
"Registrable Securities" to read as follows:
"Registrable Securities" shall mean the Series A Registrable Shares,
the Series B Registrable Shares, the Series C and Warrant Registrable Shares,
the Series D Registrable Shares and the Warrant Shares, without distinction,
except as the context otherwise requires.
3. The Artist shall be a "Holder", as such term is defined in the
Agreement.
-1-
<PAGE>
4. Wherever the Agreement is itself referred to in the Agreement, or
wherever there are references in the Agreement to "hereunder', "hereof',
"herein", or words of like import, they shall mean the Agreement, as amended
hereby.
5. The Artist agrees to be bound by all the terms and conditions of,
and is hereby granted all of the rights of a Holder under, the Agreement as
though the Artist had been an original party to the Agreement, and by executing
this Amendment, the Artist becomes a party thereto and is bound thereby.
6. All notices, pursuant to Section 6.9 of the Agreement, addressed
to the Artist at such address as he may provide to the Company.
7. The Company anticipates that the New Shares will be issued at one
or more closings and the parties hereto acknowledge and agree that additional
investors who purchase New Shares on any such subsequent closing will be
required, by executing counterparts of this Amendment, to become Investors for
all purposes of this Amendment and the Agreement.
8. This Amendment shall in all respects be governed by, and construed
and enforced in accordance with, the internal laws of the State of New York,
without regard to the conflict of law principles thereof.
9. Any party's failure to enforce any provision or provisions of this
Amendment shall not in any way be construed as a waiver of any such provision or
provisions, nor shall such failure to enforce prevent that party thereafter from
enforcing each and every other provision of this Amendment. The rights granted
to the parties herein are cumulative and shall not constitute a waiver of any
party's right to assert all other legal remedies available to it under the
circumstances.
10. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
11. Each Investor agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Amendment or the Agreement.
12. The Agreement, as amended by this Amendment, is and shall continue
to be in full force and effect and is hereby in all respects ratified and
confirmed.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
AUDIBLE, INC.
By: /s/ Andrew Huffman
_________________________
Andrew Huffman, President
ARTIST
/s/ Robin Williams
_________________________
Robin Williams
INVESTORS
VENTURE FUND I, L.P.
By: /s/ Bradford Burnham
_______________________
Name:
Title:
295 North Maple Avenue
Basking Ridge, NJ 07920
AT&T VENTURE FUND II, L.P.
By: /s/ Bradford Burnham
_______________________
Name:
Title:
295 North Maple Avenue
Basking Ridge, NJ 07920
MICROSOFT CORPORATION
By: /s/ Gregory B. Mattei
__________________________________
Name: Gregory B. Mattei
__________________________________
Title: Vice President of Finance, Chief
________________________________
Financial Officer
_________________________________
-3-
<PAGE>
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-1(A) INVESTMENT FUND
By:
_________________________________
Name:
_______________________________
Title:
________________________________
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-1(B) INVESTMENT FUND
By:
_________________________________
Name:
_______________________________
Title:
________________________________
CSK VENTURE CAPITAL CO., LTD. AS INVESTMENT
MANAGER FOR CSK-2 INVESTMENT FUND
By:
_________________________________
Name:
_______________________________
Title:
________________________________
-4-
<PAGE>
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
Its General Partner
By: PATRICOF & CO. MANAGERS INC.,
its General Partner
By: /s/ Thomas Hirschfeld
_________________________
Name:
Title:
445 Park Avenue, 11th Fl.
New York, New York 10022
APA EXCELSIOR IV/OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
its Investment Advisor
By: /s/ Thomas Hirschfeld
_________________________
Name:
Title:
445 Park Avenue, 11th Fl.
New York, New York 10022
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.,
its General Partner
By: PATRICOF & CO. MANAGERS, INC.,
its General Partner
By: /s/ Thomas Hirschfeld
_________________________
Name:
Title:
445 Park Avenue, 11th Fl.
New York, New York 10022
-5-
<PAGE>
KLEINER PERKINS CAUFIELD & BYERS VIII
By: PCB VIII ASSOCIATES,
its General Partner
By: /s/ Kevin Compton
_____________________
Name:
Title:
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB INFORMATION SCIENCES ZAIBATSU FUND II
By: KPCB VII ASSOCIATES,
its General Partner
By: /s/ Kevin Compton
______________________
Name:
Title:
2750 Sand Hill Road
Menlo Park, CA 94025
KPCB VIII FOUNDERS FUND
By: KPCB VIII Associates
Its: General Partner
By: /s/ Kevin Compton
______________________
Name:
Title:
2750 Sand Hill Road
Menlo Park, CA 94025
-6-
<PAGE>
IRONWOOD CAPITAL L.L.C.
By: /s/ Tim Mott
_______________________
Name:
Title:
2241 Lundy Avenue
San Jose, CA 95131
/s/ Bingham Gordon
___________________________
Bingham Gordon
Address: __________________
___________________________
/s/ Winthrop Knowlton
___________________________
Winthrop Knowlton
Address:___________________
___________________________
-7-
<PAGE>
EXHIBIT 10.29
May 25, 1999
Mr. Andy Kaplan
Dear Andy,
I am delighted to offer you the position of Vice President and Chief Financial
Officer at Audible, Inc. We are impressed with your credentials, your energy,
your integrity, your work ethic and your passion for our vision and
opportunities.
Here's a summary of our employment offer, with details following after:
. You will be paid $150,000/year with an annual bonus target of $30,000, paid
quarterly.
. You will be paid a $15,000 signing bonus after you have been on the job for 3
months (note this is intended to accomplish your goal of having the '99 bonus
target apply as though you had been an employee for all of '99).
. Subject to the conditions described below, you will be granted options to
purchase 325,000 shares of Audible's common stock at a strike price of $8.00
per share.
. We understand your desire not to relocate and not to have to commute every
day. As such, the company will provide access to a corporate apartment at a
cost not to exceed $20,000 annually.
. You will be enrolled in the company's benefits programs.
. You will agree to commence work full time no later than June 1st, 1999.
. We'd like your acceptance by close of business on May 27th, 1999.
And here are the details:
Stock options: The stock option grant assumes that the company will have first
completed a proposed 3-for-2 stock split anticipating an initial filing range of
$9-11 per share. This option grant is intended to offer you options to purchase
more than 1.5% of the then issued and outstanding stock. The strike price is
set at a 20% discount on the mid-point of the filing range in light of the fact
that there is still uncertainty as to the final offering price and whether the
IPO will be successful. If the company does not proceed with the 3-for-2 split
or if the estimated filing range is adjusted over the next week or so, we
reserve the right to adjust the number of shares and strike price of your option
grant accordingly. In any event, you will be offered options on no less than
250,000 shares.
Vesting Schedule: All options will be Incentive Stock Options (ISO's) assuming
the number of options does not exceed the ISO limitation, in which case a
portion of the options may have to be issued as Non-qualified Options. In any
event, 12% of these options will vest six months after you commence employment,
and 2% will vest each month thereafter. You will have at least five years to
exercise these options.
<PAGE>
Accelerated vesting: our option agreement provides for automatic vesting of 50%
of unvested options in the event of a sale or merger of the company prior to
full vesting. It also provides that, at the time of the transaction,
additional accelerated vesting can be approved by the Board.
Quarterly bonus: we believe in a strong, results-oriented company culture and to
emphasize that, we have a performance-based, cash compensation plan for
executives and senior managers. Every quarter you will propose, for approval
by me, a set of measurable objectives. At the end of the quarter, and based on
accomplishments against those objectives and approval by the Board's
compensation committee, you will be paid a bonus.
Benefits: the company has a standard health plan and will cover 100% of your
premium and 50% of your dependents' premiums. The time-off policy is 15 days of
paid leave a year (sick, mental health or vacation time) and 7 holiday days.
The company will also pay 25% of your annual membership at a health club close
to our offices.
Temporary Living Expenses: in the event that you choose not to relocate, but to
commute and stay at Audible during each week, the company will provide an
allowance of up to $20,000 annually for temporary living expenses.
Non-disclosure agreement: our various preferred stock agreements require that
all employees sign the company's standard non-disclosure agreement.
Severance: the company has no standard severance policy, but in your case will
provide for up to 6 months salary and benefits continuation in the event of
termination without cause.
That's it. We can't wait for you to get started and your signature below
indicates you feel the same way.
/s/ Andrew J. Huffman
- --------------------------
Andrew J. Huffman
President & CEO
Audible, Inc.
So agreed:
/s/ Andy Kaplan
- --------------------------
Andy Kaplan
<PAGE>
EXHIBIT 10.30
THIS WARRANT AND THE OTHER SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER
IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. W-1 150,000 Shares
AUDIBLE, INC.
1. Issuance. This Warrant is issued to Robin Williams ("Williams") by
--------
Audible, Inc., a Delaware corporation (hereinafter with its successors called
the "Company").
2. Exercise Price; Number of Shares. Subject to the terms and conditions
--------------------------------
hereinafter set forth, the registered holder of this Warrant (the "Holder"),
commencing on the date hereof, is entitled upon surrender of this Warrant with
the subscription form annexed hereto duly executed, at the office of the Company
or such other office as the Company shall notify the Holder in writing, to
purchase from the Company 150,000 shares of fully paid and nonassessable shares
of the Company's Common Stock, $0.01 par value (the "Common Stock") for $0.01
per share (the "Exercise Price"). This Warrant is fully exercisable.
3. Payment of Exercise Price; Cashless Exercise.
--------------------------------------------
(a) The Exercise Price may be paid in cash, by check or wire transfer in
immediately available funds, or as provided in 3(b) below.
(b) At any time during the term of this Warrant, the Holder may also elect
to exercise this Warrant (the "Conversion Right") with respect to a particular
number of Warrant Shares (the "Converted Warrant Shares"), and the Company shall
deliver to the Holder (without payment by the Holder of the Exercise Price in
cash or any other consideration (other than the surrender of rights to receive
Warrant Shares hereunder)) that number of shares of Common Stock equal to the
quotient obtained by dividing: (x) the difference between (i) the product of
(A) the Current Market Price of a share of Common Stock multiplied by (B) the
number of Converted Warrant Shares and (ii) the product of (A) the Exercise
Price multiplied by (B) the number of the Converted Warrant Shares, in each case
as of the Conversion Date (as defined in Section 3(c) below)), by (y) the
Current Market Price of a share of Common Stock on the Conversion Date. No
fractional Warrant Shares shall be issuable upon exercise of the Conversion
Right, and if the number of Warrant Shares to be issued determined in accordance
with the following formula is other than a whole number, the Company shall pay
to the holder of this Warrant an amount in
<PAGE>
cash equal to the Current Market Price of the resulting fractional Warrant Share
on the Conversion Date.
(c) The Conversion Right may be exercised by the Holder by the surrender of
this Warrant as provided in Section 3(b), together with a written statement
specifying that the Holder thereby intends to exercise the Conversion Right and
indicating the number of Converted Warrant Shares which are covered by the
exercise of the Warrant. Such conversion shall be effective upon receipt by the
Corporation of this Warrant, together with the aforesaid written statement, or
on such later date as is specified therein (the "Conversion Date"). The
Corporation shall issue to the Holder as of the Conversion Date a certificate
for the Warrant Shares issuable upon exercise of the Conversion Right and, if
applicable, a new warrant of like tenor evidencing the balance of the Warrant
Shares remaining subject to this Warrant.
(d) The term "Current Market Price" for the Common Stock as of a specified
date shall mean: (i) if the Common Stock is publicly traded on such date, the
average closing price per share over the preceding 10 trading days as reported
on the principal stock exchange or quotation system on which the Common Stock is
listed or quoted; or (ii) if the Common Stock is not publicly traded on such
date, the Board of directors of the Company shall determine Current Market Price
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall
be paid by Holder.
4. Partial Exercise. This Warrant may be exercised in part, and the Holder
----------------
shall be entitled to receive a new warrant, which shall be dated as of the date
of this Warrant, covering the number of shares in respect of which this Warrant
shall not have been exercised.
5. Issuance Date. The person or persons in whose name or names any
-------------
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
6. Expiration Date. This Warrant shall expire at the close of business on
---------------
June 17, 2009, and shall be void thereafter.
-2-
<PAGE>
7. Reserved Shares; Valid Issuance; Restricted Stock.
-------------------------------------------------
(a) The Company covenants that it will at all times from and after the date
hereof reserve and keep available such number of its authorized shares of Common
Stock, free from all preemptive or similar rights therein, as will be sufficient
to permit the exercise of this Warrant in full. The Company further covenants
that such shares as may be issued pursuant to the exercise of this Warrant will,
upon issuance, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof.
(b) The Warrant Shares have not been registered under the Securities Act of
1933 (the "Securities Act"), as amended, or any applicable state securities
laws. The Warrant Shares may not be sold or transferred unless such sale or
transfer is in accordance with the registration requirements of the Securities
Act and applicable laws or some other exemption from the registration
requirements of the Securities Act and applicable laws - including a sale under
Rule 144 - is available with respect thereto.
8. Adjustment of Number of Shares; Exercise Price; Nature of Securities
--------------------------------------------------------------------
Issuable Upon Exercise of Warrants.
----------------------------------
(a) Exercise Price; Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price set forth in Section 2 above and the number of shares purchasable
hereunder shall be subject to adjustment from time to time as hereinafter
provided.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Company or any consolidation or merger of the Company with another entity, or
the sale of all or substantially all of the Company's assets to another person
or entity (collectively referred to as a "Transaction") shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or assets with respect to or in exchange for Common Stock,
then, as a condition of such Transaction, reasonable, lawful and adequate
provisions shall be made whereby the holder of this Warrant shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant, upon exercise of this Warrant and in lieu
of the Warrant Shares immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such number, amount and like kind
of shares of stock, securities, cash or assets as may be issued or payable
pursuant to the terms of the Transaction with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby as if such shares
were outstanding immediately prior to the Transaction, and in any such case
appropriate provision shall be made with respect to the rights and interest of
the holders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of Warrant Shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any shares of stock or securities thereafter deliverable upon the exercise
hereof.
(c) Stock Splits, Stock Dividends and Reverse Stock Splits. If at any
------------------------------------------------------
time after the date hereof, the Company shall subdivide its outstanding shares
of Common Stock into a greater
-3-
<PAGE>
number of shares, or shall declare and pay any stock dividend with respect to
its outstanding stock that has the effect of increasing the number of
outstanding shares of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or stock dividend shall be proportionately reduced and
the number of Warrant Shares purchasable pursuant to this Warrant immediately
prior to such subdivision or stock dividend shall be proportionately increased,
and conversely, in case at any time after the date hereof, the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares purchasable upon the
exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
(d) Dissolution, Liquidation or Wind-Up. In case the Company shall, at
-----------------------------------
any time prior to the exercise of this Warrant, dissolve, liquidate or wind up
its affairs, the holder hereof shall be entitled, upon the exercise of this
Warrant, to receive, in lieu of the Warrant Shares which the holder would have
been entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to such holder upon any such dissolution,
liquidation or winding up with respect to such Warrant Shares, had such holder
hereof been the holder of record of the Warrant Shares receivable upon the
exercise of this Warrant on the record date for the determination of those
persons entitled to receive any such liquidating distribution.
9. Fractional Shares. In no event shall any fractional share of Common
-----------------
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 9,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
10. Notices of Record Date, Etc. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company,
or sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such
-4-
<PAGE>
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
11. Amendment. The terms of this Warrant may be amended, modified or waived
---------
only with the written consent of the Company and the holder of this Warrant.
12. Governing Law. The provisions and terms of this Warrant shall be
-------------
governed by and construed in accordance with the internal laws of the State of
New Jersey.
13. Successors and Assigns. This Warrant shall be binding upon the Company's
----------------------
successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
14. Business Days. If the last or appointed day for the taking of any action
-------------
required or the expiration of any right granted herein shall be a Saturday or
Sunday or a legal holiday, then such action may be taken or right may be
exercised on the next succeeding day which is not a Saturday or Sunday or such a
legal holiday.
Original Issue Date: June 17, 1999 AUDIBLE, INC.
By: /s/ Andrew J. Huffman
___________________________
Andrew J. Huffman
Title: President
-5-
<PAGE>
Subscription
To:____________________ Date:_________________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
______________________________
Signature
______________________________
Name for Registration
______________________________
Mailing Address
-6-
<PAGE>
Assignment
For value received ____________________________ hereby sells,
assigns and transfers unto ______________________________________
_________________________________________________________________
Please print or typewrite name and address of Assignee
_________________________________________________________________
a portion of the within Warrant equal to _____ shares, and does hereby
irrevocably constitute and appoint _______________________ its attorney to
transfer said portion of the within Warrant on the books of the within named
Company with full power of substitution on the premises.
Dated:_______________________
______________________________
In the Presence of:
_____________________________
-7-
<PAGE>
Exhibit 10.31
THIS WARRANT AND THE OTHER SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER
IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE
LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. W-2 Number of Shares Set Forth on Schedule A Hereto
AUDIBLE, INC.
1. Issuance. This Warrant is issued to Robin Williams ("Williams") by
--------
Audible, Inc., a Delaware corporation (hereinafter with its successors called
the "Company").
2. Exercise Price; Number of Shares. Subject to the terms and conditions
--------------------------------
hereinafter set forth, the registered holder of this Warrant (the "Holder"),
commencing on the date hereof, is entitled upon surrender of this Warrant with
the subscription form annexed hereto duly executed, at the office of the Company
or such other office as the Company shall notify the Holder in writing, to
purchase from the Company at $8.00 per share (the "Exercise Price"), such number
of fully paid and nonassessable shares of the Company's Common Stock, $0.01 par
value (the "Common Stock") as is set forth on Schedule A (the "Warrant Shares").
----------
The Warrant Shares are subject to vesting as provided on Schedule A.
----------
3. Payment of Exercise Price; Cashless Exercise.
--------------------------------------------
(a) The Exercise Price may be paid in cash, by check or wire transfer
in immediately available funds, or as provided in 3(b) below.
(b) At any time during the term of this Warrant, the Holder may also
elect to exercise this Warrant (the "Conversion Right") with respect to a
particular number of Warrant Shares (the "Converted Warrant Shares"), and the
Company shall deliver to the Holder (without payment by the Holder of the
Exercise Price in cash or any other consideration (other than the surrender of
rights to receive Warrant Shares hereunder)) that number of shares of Common
Stock equal to the quotient obtained by dividing: (x) the difference between
(i) the product of (A) the Current Market Price of a share of Common Stock
multiplied by (B) the number of Converted Warrant Shares and (ii) the product of
(A) the Exercise Price multiplied by (B) the number of the Converted Warrant
Shares, in each case as of the Conversion Date (as defined in Section 3(c)
below)), by (y) the Current Market Price of a share of Common Stock on the
Conversion Date. No fractional Warrant Shares shall be issuable upon exercise of
the Conversion Right, and if the number of Warrant Shares to be issued
determined in accordance with the following formula is
<PAGE>
other than a whole number, the Company shall pay to the holder of this Warrant
an amount in cash equal to the Current Market Price of the resulting fractional
Warrant Share on the Conversion Date.
(c) The Conversion Right may be exercised by the Holder by the
surrender of this Warrant as provided in Section 3(b), together with a written
statement specifying that the Holder thereby intends to exercise the Conversion
Right and indicating the number of Converted Warrant Shares which are covered by
the exercise of the Warrant. Such conversion shall be effective upon receipt by
the Corporation of this Warrant, together with the aforesaid written statement,
or on such later date as is specified therein (the "Conversion Date"). The
Corporation shall issue to the Holder as of the Conversion Date a certificate
for the Warrant Shares issuable upon exercise of the Conversion Right and, if
applicable, a new warrant of like tenor evidencing the balance of the Warrant
Shares remaining subject to this Warrant.
(d) The term "Current Market Price" for the Common Stock as of a
specified date shall mean: (i) if the Common Stock is publicly traded on such
date, the average closing price per share over the preceding 10 trading days as
reported on the principal stock exchange or quotation system on which the Common
Stock is listed or quoted; or (ii) if the Common Stock is not publicly traded on
such date, the Board of directors of the Company shall determine Current Market
Price in its reasonable good faith judgment. The foregoing notwithstanding, if
Holder advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
4. Partial Exercise. This Warrant may be exercised in part, and the Holder
----------------
shall be entitled to receive a new warrant, which shall be dated as of the date
of this Warrant, covering the number of shares in respect of which this Warrant
shall not have been exercised.
5. Issuance Date. The person or persons in whose name or names any
-------------
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
6. Expiration Date. This Warrant shall expire at the close of business on
---------------
June 17, 2009, and shall be void thereafter.
-2-
<PAGE>
7. Reserved Shares; Valid Issuance; Restricted Stock.
-------------------------------------------------
(a) The Company covenants that it will at all times from and after the
date hereof reserve and keep available such number of its authorized shares of
Common Stock, free from all preemptive or similar rights therein, as will be
sufficient to permit the exercise of this Warrant in full. The Company further
covenants that such shares as may be issued pursuant to the exercise of this
Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(b) The Warrant Shares have not been registered under the Securities
Act of 1933 (the "Securities Act"), as amended, or any applicable state
securities laws. The Warrant Shares may not be sold or transferred unless such
sale or transfer is in accordance with the registration requirements of the
Securities Act and applicable laws or some other exemption from the registration
requirements of the Securities Act and applicable laws - including a sale under
Rule 144 - is available with respect thereto.
8. Adjustment of Number of Shares; Exercise Price; Nature of Securities
--------------------------------------------------------------------
Issuable Upon Exercise of Warrants.
----------------------------------
(a) Exercise Price; Adjustment of Number of Shares. The Exercise
----------------------------------------------
Price set forth in Schedule A hereto and the number of shares purchasable
hereunder shall be subject to adjustment from time to time as hereinafter
provided.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
If any capital reorganization or reclassification of the capital stock of the
Company or any consolidation or merger of the Company with another entity, or
the sale of all or substantially all of the Company's assets to another person
or entity (collectively referred to as a "Transaction") shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, cash or assets with respect to or in exchange for Common Stock,
then, as a condition of such Transaction, reasonable, lawful and adequate
provisions shall be made whereby the holder of this Warrant shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant, upon exercise of this Warrant and in lieu
of the Warrant Shares immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such number, amount and like kind
of shares of stock, securities, cash or assets as may be issued or payable
pursuant to the terms of the Transaction with respect to or in exchange for the
number of shares of Common Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby as if such shares
were outstanding immediately prior to the Transaction, and in any such case
appropriate provision shall be made with respect to the rights and interest of
the holders to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of the number
of Warrant Shares purchasable and receivable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any shares of stock or securities thereafter deliverable upon the exercise
hereof.
(c) Stock Splits, Stock Dividends and Reverse Stock Splits. If at
------------------------------------------------------
any time after the date hereof, the Company shall subdivide its outstanding
shares of Common Stock into a greater
-3-
<PAGE>
number of shares, or shall declare and pay any stock dividend with respect to
its outstanding stock that has the effect of increasing the number of
outstanding shares of Common Stock, the Exercise Price in effect immediately
prior to such subdivision or stock dividend shall be proportionately reduced and
the number of Warrant Shares purchasable pursuant to this Warrant immediately
prior to such subdivision or stock dividend shall be proportionately increased,
and conversely, in case at any time after the date hereof, the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares purchasable upon the
exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
(d) Dissolution, Liquidation or Wind-Up. In case the Company shall,
-----------------------------------
at any time prior to the exercise of this Warrant, dissolve, liquidate or wind
up its affairs, the holder hereof shall be entitled, upon the exercise of this
Warrant, to receive, in lieu of the Warrant Shares which the holder would have
been entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to such holder upon any such dissolution,
liquidation or winding up with respect to such Warrant Shares, had such holder
hereof been the holder of record of the Warrant Shares receivable upon the
exercise of this Warrant on the record date for the determination of those
persons entitled to receive any such liquidating distribution.
9. Fractional Shares. In no event shall any fractional share of Common
-----------------
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 9,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
10. Notices of Record Date, Etc. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company,
or sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such
-4-
<PAGE>
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
11. Amendment. The terms of this Warrant may be amended, modified or waived
---------
only with the written consent of the Company and the holder of this Warrant.
12. Governing Law. The provisions and terms of this Warrant shall be
-------------
governed by and construed in accordance with the internal laws of the State of
New Jersey.
13. Successors and Assigns. This Warrant shall be binding upon the
----------------------
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
14. Business Days. If the last or appointed day for the taking of any
-------------
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday, then such action may be taken or right
may be exercised on the next succeeding day which is not a Saturday or Sunday or
such a legal holiday.
Original Issue Date: June 17, 1999 AUDIBLE, INC.
By: /s/ Andrew J. Huffman
___________________________
Andrew J. Huffman
Title: President
-5-
<PAGE>
SCHEDULE A
The Holder shall be entitled to exercise this Warrant for shares of Common
Stock as follows:
(1) Number of Warrant Shares
------------------------
This Warrant shall be exercisable for up to 750,000 shares of Common Stock.
(2) Vesting
-------
The Warrant Shares shall become exercisable in accordance with the
following vesting schedule so long as Williams continues to perform services
pursuant to that certain Agreement by and between the Company and Williams,
dated as of the date hereof (the "Services Agreement"):
(a) 250,000 Warrant Shares shall become exercisable on such date, if ever,
that Williams purchases 150,000 shares of Common Stock from the Company in
conjunction with its initial public offering of shares of its Common Stock
pursuant to an effective registration statement (the "IPO").
(b) 31,250 Warrant Shares shall vest on the last day of each calendar
quarter that begins one year from the date hereof until the third anniversary of
the date hereof as follows: September 30 and December 31, 2000, March 31,
June 30, September 30 and December 31, 2001, and March 31 and June 30, 2002.
(c) 125,000 Warrant Shares shall vest on June 30, 2002 if Williams has
exercised his right to extend the Services Agreement for a Fourth Contract Year
(as defined in the Services Agreement). 31,250 Warrant Shares shall vest at the
end of each calendar quarter for one year thereafter as follows: September 30
and December 31, 2002, and March 31 and June 30, 2003.
Not withstanding the forgoing the Warrant Shares shall become 100%
exercisable upon the closing of an event described in Sections 8(b) or 8(d).
-6-
<PAGE>
Subscription
To:____________________ Date:_________________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
______________________________
Signature
______________________________
Name for Registration
______________________________
Mailing Address
-7-
<PAGE>
Assignment
For value received __________________________________________ hereby sells,
assigns and transfers unto ___________________________________________________
______________________________________________________________________________
Please print or typewrite name and address of Assignee
______________________________________________________________________________
a portion of the within Warrant equal to _____________ shares, and does hereby
irrevocably constitute and appoint ___________________________ its attorney to
transfer said portion of the within Warrant on the books of the within named
Company with full power of substitution on the premises.
Dated:_______________________
______________________________
In the Presence of:
_____________________________
-8-
<PAGE>
Exhibit 10.32
AUDIBLE, INC.
65 Willowbrook Blvd.
Wayne, NJ 07470
June 17, 1999
VIA FACSIMILE
Robin Williams
______________________
San Francisco, California ______
Re: Investment in Audible, Inc.
----------------------------
Dear Mr. William:
This letter sets forth our understanding concerning your potential
investment in Audible, Inc. (the "Company"). You have requested to buy, and the
Company has agreed to sell to you, up to 150,000 shares of the Company's common
stock, $.01 par value (the "Common Stock") at the initial public offering of the
Company's Common Stock (the "IPO"), at the "Public Offering Price" as it appears
on the Company's final prospectus for its IPO (the "Purchase Price"). You have
expressed to the Company your intention to purchase such shares of Common Stock,
although you are under no obligation to do so.
The maximum number of shares of Common Stock that the Company will sell to
you pursuant to this agreement will be 150,000. All shares purchased by you
hereunder will be subject to the same terms and conditions available to the
public, except that (i) there will be no underwriting discount or commission on
the shares sold to you and (ii) you will be subject to a Lock-up Provision and a
Standstill Provision, each as set forth below.
Lock-up Provision
- -----------------
You agree that you will not, for a period of 180 days after the closing of
the IPO, (i) offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of Common Stock that you acquire at the IPO
or any other securities convertible into or exchangeable or exercisable for any
shares of Common Stock, or (ii) publicly disclose the intention to make any such
offer, sale, pledge or disposal without the prior written consent of Credit
Suisse First Boston Corporation. The benefit of this provision runs not only to
the Company, but also to Credit Suisse First Boston. Either the Company or
Credit Suisse First Boston may enforce this provision against you.
Standstill Provision
- --------------------
Without the prior written consent of the Company, you agree that you,
whether individually or with one or more affiliates, will not acquire any shares
of the Company's Voting
<PAGE>
Robin Williams
June 17, 1999
Page 2
Securities (as defined below) in the open market or otherwise if and to the
extent such acquisition results in you holding greater than 10% of the total
Voting Securities of the Company. "Voting Securities" shall mean shares of the
Common Stock of the Company and any other securities of the Company convertible
into Common Stock but shall not include securities exercisable for Common Stock.
You will not be obligated to dispose of any Voting Securities if the aggregate
percentage of the total Voting Securities that you beneficially own increases as
a result of a recapitalization, reclassification or other restructuring of the
Company or a repurchase of securities by the Company or any other action taken
by the Company. The restrictions set forth in this Standstill Provision shall
terminate on the date that is nine months after the closing of the IPO.
If this letter accurately sets forth our understanding concerning this
transaction, please sign the enclosed copy of this letter and return it to me
via facsimile at (973) 890-2442 and via first class mail. Please contact me
with any questions.
Sincerely,
AUDIBLE, INC.
By: /s/ Andrew J. Huffman
_____________________________________
Andrew J. Huffman
President and Chief Executive Officer
Accepted and Agreed to:
By: /s/ Robin Williams
__________________________
Robin Williams
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Audible, Inc:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG LLP
- ---------------------
Short Hills, New Jersey
June 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 9,652 10,526
<SECURITIES> 0 0
<RECEIVABLES> 243 30
<ALLOWANCES> 8 21
<INVENTORY> 190 130
<CURRENT-ASSETS> 10,385 10,996
<PP&E> 1,568 1,472
<DEPRECIATION> 1,164 1,074
<TOTAL-ASSETS> 10,991 11,600
<CURRENT-LIABILITIES> 2,845 2,926
<BONDS> 0 0
28,719 27,725
0 0
<COMMON> 76 74
<OTHER-SE> (21,026) (19,603)
<TOTAL-LIABILITY-AND-EQUITY> 10,991 11,600
<SALES> 315 376
<TOTAL-REVENUES> 315 376
<CGS> 215 928
<TOTAL-COSTS> 1,850 8,453
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15 115
<INCOME-PRETAX> (1,467) (8,138)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,467) (8,138)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,467) (8,138)
<EPS-BASIC> (.20) (1.15)
<EPS-DILUTED> (.20) (1.15)
</TABLE>
