<PAGE> 1
As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333 - _____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
HANDLEMAN COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MICHIGAN 5099 38-1242806
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code number) Identification No.)
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500 KIRTS BOULEVARD, TROY, MICHIGAN 48084-5299, (248)362-4400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
STEPHEN STROME, PRESIDENT
HANDLEMAN COMPANY
500 KIRTS BOULEVARD, TROY, MICHIGAN 48084-5299, (248)362-4400
(Name, address, including zip code, and telephone number, including area
code, of agent for service for Registrant)
Copies to:
DONALD J. KuNZ, ESQ.
HONIGMAN MILLER SCHWARTZ and COHN
2290 FIRST NATIONAL BUILDING
DETROIT, MICHIGAN 48226
(313) 465-7454
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[_]______
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]______
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]______
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Number of Maximum Maximum
Shares to Offering Price Aggregate Amount of
Title of Each Class of Securities be Per Offering Registration
to be Registered Registered Share Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 963,904 $9.6875(1) $9,337,820 $2,755
- --------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of determining the
registration fee. In accordance with Rule 457(c) under the
Securities Act of 1933, the above calculation is based on the
average of the high and low sale prices reported by the New
York Stock Exchange on July 24, 1998.
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.
<PAGE> 2
HANDLEMAN COMPANY
963,904 SHARES
COMMON STOCK
The 963,904 shares of Common Stock offered hereby are being offered by
the Selling Shareholders described in this Prospectus under "Selling
Shareholders." Handleman Company (the "Company") will not receive any of the
proceeds from the offering. The Common Stock is listed on the New York Stock
Exchange under the symbol "HDL". On July 29, 1998, the last reported sale price
for the Common Stock, as reported on the New York Stock Exchange was $9-5/16 per
share.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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Underwriting Proceeds to
Discounts and Selling
Securities Offered Price to Public Commissions Shareholders
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Common Stock Market (1) Customary (2) Net (3)(4)
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(1) The shares of Common Stock offered hereby may be sold from time to
time by the Selling Shareholders, or by pledgees, donees, transferees
or other successors in interest of the Selling Shareholders. Such
sales may be made on the New York Stock Exchange, or otherwise, at
prices and on terms then prevailing or at prices related to the
then-current market prices, or in negotiated transactions at
negotiated prices; therefore the price to the public cannot be
determined at this time.
(2) The shares may be sold by one or a combination of the following: (a) a
block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for
its account pursuant to this Prospectus; and (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers.
Brokers or dealers will receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to
the sale. The amount of any such commissions or discounts, which will
be paid by the Selling Shareholders, cannot be determined at this
time.
(3) These securities are offered on behalf of Selling Shareholders and,
therefore, no proceeds from the offering of such securities will be
paid to the Company.
(4) All proceeds are before deduction of the total expenses of this
offering, including legal, accounting, and printing expenses, which
are estimated to be approximately $30,000 and will be borne by the
Company.
The date of this Prospectus is July __, 1998.
<PAGE> 3
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY SELLING SHAREHOLDER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
COMMON STOCK TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission") relating to its business, financial position, results of
operations and other matters. Such reports and other information can be
inspected and copied at the Public Reference Section maintained by the
Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and its Regional Offices located at Citicorp Center, 500 West
Madison Street, 14th Floor, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, 13th Floor, Suite 1300, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Securities Act of 1933 (the
"Securities Act") with respect to the securities offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any documents filed with, or incorporated by reference in, the Registration
Statement as exhibits are not necessarily complete, and each such statement is
qualified in all respects by reference to the copy of the applicable documents
filed with the Commission. The Registration Statement, including the exhibits
and schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
office upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(File No. 1-7923) pursuant to the Exchange Act are incorporated by reference in
this Prospectus:
(1) The description of the Registrant's Common Stock included as
paragraph 2 on page 12 of the Registrant's Prospectus dated
November 6, 1969, under the caption "Description of Capital
Stock," filed with the Commission pursuant to the Securities
Act, as part of its Registration Statement on Form S-7, as
amended by Amendment No. 1 to Form S-7 (Registration No.
2-35029), effective November 6, 1969; and
(2) Annual Report on Form 10-K for the fiscal year ended May 2,
1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into such
documents) may be obtained upon written or oral request without charge
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by persons, including beneficial owners, to whom this Prospectus is delivered.
Requests should be made to Investor Relations, Handleman Company, 500 Kirts
Boulevard, Troy, Michigan 48084-5299, (248) 362-4400.
THE COMPANY
Handleman Company ("Handleman" or the "Company") is engaged in the
sale and distribution of music, video, book and personal computer software
products primarily to mass merchants throughout the United States, Canada,
Mexico, Argentina and Brazil. The operations of the Company are divided into
three operating units: Handleman Entertainment Resources ("H.E.R."), North
Coast Entertainment ("NCE") and Handleman International ("International"). The
Company's H.E.R. and International operating units provide additional services
as a category manager (rackjobber) to their accounts. The Company's H.E.R.
division provides such products and services in the United States, while the
International division provides such services in Canada, Mexico, Argentina and
Brazil. NCE is in the business of acquiring or licensing video, music and
software products, giving it exclusive rights to manufacture and distribute
such products. The Company is the successor to a proprietorship formed in 1934,
and to a partnership formed in 1937. Its principal offices are located at 500
Kirts Blvd., Troy, Michigan. Its telephone number is (248) 362-4400.
Recent Developments
On June 2, 1998, Handleman's Board of Directors approved a
comprehensive strategic repositioning program designed to focus on the
Company's core music distribution business and product line. The repositioning
program has four major components:
- - Exiting the domestic video, book and software distribution and service
operations.
- - Sale of NCE's Sofsource software publishing subsidiary.
- - Significant reduction of the number of customers serviced in the music
business.
- - Repurchase in the open market of up to $70 million of the outstanding
common stock of the Company over 18 months. This repurchase program is
subject to the realization of cash from asset sales and reduced
working capital needs, as well as renegotiation of existing credit
facilities.
During the first quarter of fiscal 1999, the Company sold its book
distribution business and Sofsource, its software publishing subsidiary. The
book distribution business was sold at approximately net book value and the
Sofsource sale will general a pre-tax gain in excess of $30 million. In
addition to the businesses being exited, the Company is reviewing its
operations in Argentina, Brazil and Mexico to determine how best to maximize
shareholder value from these entities.
This repositioning program is expected to result in a reduction of
900-1,000 positions (approximately 30% of the Company's total workforce). This
reduction will occur predominantly in the H.E.R. division and the Troy
corporate headquarters. Handleman will operate NCE as a holding company.
General
The Company's major business activity is to act as a link between
manufacturers of home entertainment software products and mass merchant chain
stores. Customers purchase from Handleman due to the value-added benefits the
Company adds to the basic product, and due to the benefit of only dealing with
one vendor for each product line. Manufacturers utilize the Company's services
to avoid the necessity of distributing to thousands of individual stores
throughout a vast geographic range.
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Handleman Entertainment Resources and Handleman International
The following discussion pertains to the category management
(rackjobbing) activities of the H.E.R. and International divisions, which
together comprise approximately 90% of the Company's sales.
Vendors
An important reason customers utilize H.E.R.'s and International's
services is due to the multitude of manufacturers and suppliers offering
products for sale, the complexity of programs offered by those vendors, the
"hits" nature of the business, and the high risk of inventory obsolescence.
The Company must anticipate consumer demand for individual titles. In
order to maximize sales, the Company must be able to immediately react to
"breakout" titles, while simultaneously minimizing inventory exposure for
artists or titles which do not sell. In addition, because the Company
distributes throughout vast geographic regions (U.S., Canada, Mexico, Argentina
and Brazil) it must adapt selections it offers to local tastes. This is
accomplished via a coordination of national and local purchasing
responsibility, both monitored by inventory control programs.
The Company purchases from many different vendors. The volume of
purchases from individual vendors fluctuates from year-to-year based upon the
salability of selections being offered by such vendors. Though within each
product line a small number of major, financially sound vendors account for a
high percentage of purchases, product must be selected from a variety of
additional vendors in order to maintain an adequate selection for consumers.
The Company must closely monitor its inventory exposure and accounts payable
balances with smaller vendors which may not have the financial resources to
honor their return commitments.
Since the public's taste for the products the Company supplies is
broad and varied, Handleman is required to maintain sufficient inventories to
satisfy diverse tastes. The Company minimizes the effect of obsolescence
through planned purchasing methods and computerized inventory controls. Since
substantially all vendors from which the Company purchases product offer some
level of return allowances and price protection, the Company's exposure to
markdown risk is limited unless vendors are unable to fulfill their return
obligations or non-saleable product purchases exceed vendor return limitations.
Vendors offer a variety of return programs, ranging from 100% returns to zero
return allowance. Other vendors offer incentive and penalty arrangements to
restrict returns. Accordingly, the Company may possess in its inventories
non-saleable product that can only be returned to vendors with cost penalties
or may be non-returnable until the Company can comply with the provisions of
the vendor's return policies.
Handleman generally does not have distribution contracts with
manufacturers or suppliers; consequently, its relationships with them may be
discontinued at any time by such manufacturers or suppliers, or by Handleman.
Customers
H.E.R.'s and International's customers utilize their services for a
variety of reasons. Products must be selected from a multitude of vendors
offering numerous titles, different formats (e.g., compact discs, cassettes)
and different payment and return arrangements. As a result, customers avoid
most of the risks inherent in product selection and the risk of inventory
obsolescence.
H.E.R. and International also offer their customers a variety of
"value-added" services:
STORE SERVICE: Sales representatives visit individual retail
stores and meet with store management to discuss upcoming productions, special
merchandising efforts, department changes, current programs, or breaking
releases which will increase sales. They also monitor inventory levels, check
merchandise displays and install point-of-purchase advertising materials.
ADVERTISING: Handleman supplies point-of-purchase materials and
assists customers in preparing radio, television and print advertisements.
FIXTURING: Handleman provides specially designed fixtures that
emphasize product visibility and accessibility.
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FREIGHT: Handleman coordinates delivery of product to each store.
PRODUCT EXCHANGE: Handleman protects its continuing customers
against product markdowns by offering the privilege of exchanging
slower-selling product for newer product.
The nature of the Company's business lends itself to computerized
ordering, distribution and store inventory management techniques. The Company
is able to tailor the inventories of individual stores to reflect the customer
profile of each store and to adjust inventory levels, product mix and
selections according to seasonal and current selling trends.
The Company determines the selections to be offered in its customers'
retail stores, and ships these selections to the stores from one of its
distribution centers. Slow-selling items are removed from the stores by the
Company and are recycled for redistribution or return to the manufacturers.
Returns from customer stores occur for a variety of reasons, including new
releases which did not achieve their expected sales potential, ad product to be
returned after the ad has run, regularly scheduled realignment pick-ups and
customer directed returns. The Company provides a reserve for the gross profit
margin impact of estimated customer returns.
During the fiscal year ended May 2, 1998 one customer, Kmart
Corporation, accounted for approximately 33% of the Company's consolidated
sales, while a second customer, Wal-Mart, accounted for approximately 32%.
Handleman generally does not have contracts with its customers, and such
relationships may be changed or discontinued at any time by the customers or
Handleman; the discontinuance or a significant unfavorable change in the
relationships with either of the two largest customers would have a materially
adverse effect upon the Company's future sales and earnings.
Operations
The Company distributes products from facilities in the U.S., Canada,
Mexico, Brazil and Argentina. Besides economies of scale and through-put
considerations in determining the number of facilities it operates, the Company
must also consider freight costs to and from customers' stores and the
importance of timely delivery of new releases. Due to the nature of the home
entertainment software business, display of new releases close to authorized
"street dates" is an important driver of both retail sales and customer
satisfaction.
The Company also operates regional return centers in the United States
and Canada as a means to expedite the processing of customer returns. In order
to minimize inventory investment, customer returns must be sorted and
identified for either redistribution or return to vendors as expeditiously as
possible. An item returned from one store may be required for shipment to
another store. Therefore, timely recycling prevents purchasing duplicate
product for a store whose order could be filled from returns from other stores.
During fiscal 1996, the Company opened its second high-technology
automated distribution center ("ADC") in Indianapolis, Indiana. The Company had
previously realigned its Western region by replacing certain distribution
centers with its first ADC located in Sparks, Nevada. The Company has decided
to consolidate the distribution and return processing activities currently at
the Albany, Atlanta and Baltimore warehouses into the Company's ADC in
Indianapolis, Indiana. This consolidation will be completed by the end of
calendar 1998.
Due to the opening of the two ADCs, the Company has been able to
transfer the operations of 13 music/video/software shipping branches, 4 book
shipping branches and 4 product return centers to the ADCs. Management expects
that transitioning additional warehouse activities into the Company's two ADCs
will further reduce operating costs and decrease inventory levels, while
improving the Company's speed and reliability in supplying products to its
customers.
The Company also has installed a new proprietary inventory management
system ("PRISM"). PRISM automates and integrates the functions of ordering
product, receiving, warehousing, order fulfillment, ticket printing and
perpetual inventory maintenance. PRISM also provides the basis to develop title
specific billing to allow the Company to better serve its customers.
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North Coast Entertainment
NCE, a subsidiary of Handleman Company, includes the Company's
proprietary product operations. NCE is the umbrella company for subsidiaries
which acquire or develop master recordings, exclusive licensing and
distribution agreements, and original productions. Such items are manufactured
and then distributed to either rackjobbers, including H.E.R. and International,
distributors or directly to retailers. NCE has operations in the United States
and Canada, and to a lesser extent in Germany and the United Kingdom. In
addition, NCE products are available in Mexico and South America. Most NCE
products are categorized as budget, with many retailing for under $10. Products
are designed to provide high margins to the retailer at prices that generate
impulse sales.
NCE, the proprietary products group of the Company, provides the
following opportunities:
- NCE enables the Company to take a more active, and more
profitable, role in the production of home entertainment
products. This enhances the Company's profit potential.
- NCE provides the Company with a wide array of product
development and licensing opportunities for music and video
products. This enables the Company to offer a broader range of
more profitable products to its customers.
- NCE gives the company access to new distribution channels, new
markets and new customers. For example, the Company can
cross-sell music and video to new or existing customers through
any NCE subsidiary sales organization.
NCE is currently comprised of a group of enterprises operating under
different names:
- Anchor Bay Entertainment markets a wide selection of video titles
ranging from children's programs such as Thomas the Tank Engine,
Tots TV, family movies like Huckleberry Finn, the Mobil
Masterpiece Theater line, a popular Collector's Edition Series,
holiday titles, best-selling horror/sci-fi movies and original
fitness videos. Anchor Bay's film library encompasses several
thousand titles and includes such classics as David O. Selznick's
"Duel in the Sun" and Alfred Hitchcock's "Rebecca," as well as
modern thrillers such as George Romero's "Dawn of the Dead" and
John Carpenter's "Halloween." Its fitness programs include the
popular series Crunch and a brand new line of Paula Abdul dance
theme exercise videos. Anchor Bay provides films on the digital
video disk format, the fastest growing segment of the video
market. Anchor Bay supplies products to rackjobbers, specialty
stores, mass merchants and distributors, as well as via direct
response and catalog channels.
- Madacy Entertainment Group packages and markets music and video
products. In addition, the company owns the masters to more than
2,000 classical recordings. Its diverse offerings include a wide
selection of pop, classical, contemporary and dance titles.
Madacy has created a special expertise in compilation albums and
recently signed an agreement with Time Inc. to package, promote
and distribute for retail sale a number of Time/Life's musical
collections, previously only available through direct channels.
As a value-added service, Madacy also supplies private label
products to major retailers. Mediphon GmbH, a German-based
subsidiary, distributes audio products throughout Germany and the
rest of Europe.
- Sellthrough Entertainment markets special holiday music and video
products. While Sellthrough's business is focused primarily on
its Christmas catalog, the company is expanding its sales to
include Halloween and other holidays. In addition to H.E.R., its
customers include mass merchants, drug stores, grocery stores and
specialty stores.
On May 18, 1998, NCE and The itsy bitsy Entertainment Company ("itsy
bitsy") entered into an agreement for the purchase of shares of itsy bitsy. As
a result, NCE owns a 75% share in itsy bitsy. Managerial and operating control
of itsy bitsy will remain with its current management, who are retaining a
meaningful minority interest in the company.
itsy bitsy is an entertainment marketing firm with exclusive rights to
a number of children's properties, including Teletubbies, Tots TV and Noddy.
Under the terms of the agreement, itsy bitsy will establish a children's unit
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with responsibility for the acquisition, development and marketing of future
children's entertainment properties and concepts for NCE.
This transaction advances a long-standing relationship among NCE, its
subsidiary Anchor Bay Entertainment, Inc., itsy bitsy and itsy bitsy
management. Anchor Bay has worked with itsy bitsy or its management team on
Tots TV, Teletubbies, and expansion of the video label for Thomas The Tank
Engine. Anchor Bay continues to hold the video rights to Thomas The Tank
Engine, Tots TV and other successful properties.
The Company sold Sofsource, its software publishing subsidiary, to The
Learning Company at a pre-tax gain in excess of $30 million. The transaction
closed during the first quarter of fiscal 1999. Sofsource had been a profitable
growth business within Handleman's NCE subsidiary. However, the software
industry is going through significant consolidation. Sofsource is at a point
where the resources necessary for growth are best provided by another investor
that has the critical mass and commitment to focus on the industry.
NCE's management will continue to focus its attention on growing the
business through licensing and acquiring or producing new products, as well as
via new markets, geographical growth, growth within the home entertainment and
educational categories, and selective acquisitions and joint ventures.
Competition
Handleman is primarily a category manager (rackjobber) of music
products. The business of the Company is highly competitive as to both price
and alternative supply arrangements in all of its product lines. Besides
competition among the Company's mass merchant customers, the Company's
customers compete with alternative sources from which consumers could purchase
the same product, such as (1) specialty retail outlets, (2) electronic
specialty stores, (3) video rental outlets, and (4) record clubs. The Company
competes directly for sales to its customers with (1) manufacturers which
bypass wholesalers and sell directly to retailers, (2) independent
distributors, and (3) other rackjobbers. In addition, some large mass merchants
have "vertically integrated" so as to provide their own rackjobbing. Some of
these companies, however, also purchase from independent rackjobbers. Also, new
methods of in-home delivery of entertainment software products are being
introduced.
The Company believes that the distribution of home entertainment
software will remain highly competitive. The Company believes that customer
service and continual progress in operational efficiencies are the keys to
growth and profitability in this competitive environment.
Industry Outlook
Information regarding industry outlook by product line follows (all
years cited herein are calendar years):
Music
According to the Recording Industry Association of America, the U.S.
music industry posted sales, at list price, of $12.2 billion in 1997, declining
2% from 1996. According to Veronis, Suhler & Associates ("Veronis"), an
entertainment industry investment banker, the U.S. market is expected to grow
at a 5.6% compound annual rate through 2001. According to Soundscan, mass
merchant sales accounted for 27% of music sales in calendar 1997 compared to
24% in 1996.
Compact discs ("CDs") accounted for over 83% of music industry net
revenues in 1997. Despite the growing dominance of CDs, cassettes still remain
a popular format. Industry-wide sales of cassettes, including cassette singles,
still represent sales of over $1.6 billion. Car stereos and portable systems,
two areas where CDs have had less impact, still rely principally on the
cassette. The size, cost and convenience of cassettes are also important
factors in the continuing market for this music format.
Video
According to Videoscan, the U.S. sellthrough video industry
experienced a decrease in unit sales for 1997. In 1997, approximately 267
million units were sold compared to 281 million units in 1996. Veronis projects
industry video sales to grow at a 11.2% compound annual rate through 2001.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby by the Selling Shareholders.
DETERMINATION OF OFFERING PRICE
The offering price of the securities offered hereby by Selling
Shareholders may be based either on the market price of such securities on the
New York Stock Exchange as it may exist from day to day during the offering
period or may reflect a negotiated price.
SELLING SHAREHOLDERS
The persons listed in the first column of the table below are the
"Selling Shareholders." The Selling Shareholders are employees and consultants
of The itsy bitsy Entertainment Company, Inc. a Delaware corporation ("itsy
bitsy"). The Company acquired a majority interest in itsy bitsy for
consideration including common stock and warrants to purchase common stock of
the Company effective as of May 3, 1998.
The following table shows for each Selling Shareholder, as of the date
of this Prospectus, certain information with regard to beneficial ownership of
Common Stock of the Company:
<TABLE>
<CAPTION>
Amount and Percent
Amount of Beneficial Amount of of Beneficial
Ownership of Common Common Stock Ownership of Common
Name Stock Prior to Offering Hereby Offered Stock after Offering (1)
-------------------- ----------------------- -------------- ------------------------
<S> <C> <C> <C> <C>
Kenn Viselman 689,913 (1) 689,913 0 0%
Dean Koocher 68,991 (2) 68,991 0 0%
Brad Krevoy 25,000 (3) 25,000 0 0%
Josephine Interrante 25,000 (4) 25,000 0 0%
Eileen Potrock 25,000 (4) 25,000 0 0%
Graham P. Halky 15,000 (4) 15,000 0 0%
Jaymi R. Horn 15,000 (4) 15,000 0 0%
David Levine 15,000 (4) 15,000 0 0%
Michelle Kanter 10,250 (5) 10,000 0 0%
Joan Lambur 10,000 (4) 10,000 0 0%
Catherine Lyons 10,000 (4) 10,000 0 0%
Emilia Nuccio 10,000 (4) 10,000 0 0%
Fred Paprin 10,000 (4) 10,000 0 0%
Alise Robinson 10,000 (4) 10,000 0 0%
Kimberly Schuster 10,000 (4) 10,000 0 0%
Bridgitte Occhi 5,000 (4) 5,000 0 0%
Laura Spector 5,000 (4) 5,000 0 0%
Cheryl L. Chua 2,000 (4) 2,000 0 0%
Alana Shaw 2,000 (4) 2,000 0 0%
Robert Azcuy 1,000 (4) 1,000 0 0%
</TABLE>
- -----------------------
(1) Of this amount, 495,455 shares are subject to warrants issued by the
Company with an exercise price of $7.9375 per share that are fully vested
and expire on May 3, 2003.
(2) Of this amount, 49,545 shares are subject to warrants issued by the
Company with an exercise price of $7.9375 per share that are fully
vested and expire on May 3, 2003.
8
<PAGE> 10
(3) All shares are subject to warrants issued by the Company with an
exercise price of $7.9375 per share that are fully vested and expire on
May 3, 2003.
(4) All shares are subject to warrants issued by the Company with an exercise
price of $7.9375 per share. Such warrants become exercisable as to
one-third of the shares indicated on November 15 of 1998, 1999 and 2000,
and expire on May 3, 2003.
(5) Of this amount, 10,000 shares are subject to warrants issued by the
Company with an exercise price of $7.9375 per share. Such warrants become
exercisable as to one-third of the shares indicated on November 15, 1998,
1999 and 2000, and expire on May 3, 2003.
PLAN OF DISTRIBUTION
The shares offered hereby may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest of the Selling Shareholders. Such sales may be made on the New York
Stock Exchange, or otherwise, at prices and on terms then prevailing or at
prices related to the then-current market prices, or in negotiated transactions
at negotiated prices. The shares may be sold by one or a combination of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to participate.
Brokers or dealers will receive commissions or discounts from Selling
Shareholders in amounts to be negotiated immediately prior to the sale. The
Selling Shareholders and any broker-dealers that participate in the
distribution may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commission received by them and any profit
on the resale of shares sold by them may be deemed to be underwriting discounts
and commissions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Honigman Miller Schwartz and Cohn, Detroit, Michigan.
Alan E. Schwartz, a director of the Company, is a partner of Honigman Miller
Schwartz and Cohn.
EXPERTS
The consolidated financial statements and related financial statement
schedules of Handleman Company and subsidiaries incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year ended May 2, 1998,
have been audited by PricewaterhouseCoopers LLP, independent auditors, as
stated in their reports which are incorporated herein by reference, and have
been so incorporated in reliance upon such reports given upon the authority of
that firm as experts in accounting and auditing.
9
<PAGE> 11
TABLE OF CONTENTS
PAGE
Available Information.........................................................2
Incorporation of Certain Documents By Reference...............................2
The Company...................................................................3
Use of Proceeds...............................................................8
Determination of Offering Price...............................................8
Selling Shareholders..........................................................8
Plan of Distribution..........................................................9
Legal Matters.................................................................9
Experts.......................................................................9
<PAGE> 12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance
and distribution of the securities being registered are estimated to be as
follows:
TOTAL
Registration Fee....................................................... $ 2,755
Printing fees.......................................................... 6,000
Legal fees and expenses................................................ 10,000
Accounting fees and expenses........................................... 10,000
Miscellaneous.......................................................... 1,245
-------
Total.............................................................. $30,000
-------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act provide
that, with certain limitations, every corporation created under the provisions
of that law shall have the power to indemnify its directors and officers
against certain expenses, judgments, fines and amounts paid in settlement.
Article VII of the Bylaws of the Company provide for the indemnification of
the directors and officers of the Company to the extent authorized or permitted
by the Michigan Business Corporation Act. In addition, the Articles of
Incorporation of the Company limit certain personal liabilities of directors of
the Company.
The Company has obtained for itself and its officers and directors
indemnity liability insurance in the amount of $25,000,000 from Federal
Insurance Company for a period expiring November 1, 1998.
For provisions regarding the indemnification of the Registrant by the
Selling Shareholders, and the indemnification of the Selling Shareholders by
the Registrant, against certain liabilities, including liabilities under the
Securities Act of 1933, reference is made to Section 6(a) of the Registration
Rights Agreement, which is filed as Exhibit 10.1 to this Registration
Statement.
ITEM 16. EXHIBITS
(a) Exhibits
5 Opinion of Honigman Miller Schwartz and Cohn.
10.1 Registration Rights Agreement, executed on May 15, 1998,
effective as of May 3, 1998.
24.1 Consent of PricewaterhouseCoopers LLP.
24.2 Consent of Honigman Miller Schwartz and Cohn (included in
the opinion filed as Exhibit 5 to this Registration
Statement).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
<PAGE> 13
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective data of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post -effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Section 210.3-19 of this chapter at
the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section
10(a)(3) of the Act need not be furnished, provided that the
Registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in
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 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 of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance on
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.
<PAGE> 14
(2) For the purpose of determining any liability under the
Securities Act of 1933, 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.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Troy, State of
Michigan, on July 27, 1998.
HANDLEMAN COMPANY
By: /s/ STEPHEN STROME
----------------------------------------------
Stephen Strome
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ DAVID HANDLEMAN Chairman of the Board July 27 , 1998
- --------------------------------------- --------------
David Handleman
/s/ STEPHEN STROME President and Director July 27 , 1998
- --------------------------------------- --------------
Stephen Strome
/s/ LEONARD A. BRAMS Senior Vice President, Finance and July 27 , 1998
- --------------------------------------- Chief Financial Officer --------------
Leonard A. Brams
/s/ JOHN M. BARTH Director July 27 , 1998
- --------------------------------------- --------------
John M. Barth
/s/ RICHARD H. CUMMINGS Director July 27 , 1998
- --------------------------------------- --------------
Richard H. Cummings
/s/ JAMES B. NICHOLSON Director July 27 , 1998
- --------------------------------------- --------------
James B. Nicholson
/s/ LLOYD E. REUSS Director July 27 , 1998
- --------------------------------------- --------------
Lloyd E. Reuss
/s/ ALAN E. SCHWARTZ Director July 27 , 1998
- --------------------------------------- --------------
Alan E. Schwartz
/s/ GILBERT R. WHITAKER Director July 27 , 1998
- --------------------------------------- --------------
Gilbert R. Whitaker
</TABLE>
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
5 Opinion of Honigman Miller Schwartz and Cohn
10.1 Registration Rights Agreement, executed on May 15,
1998, effective as of May 3, 1998.
24.1 Consent of PricewaterhouseCoopers LLP.
24.2 Consent of Honigman Miller Schwartz and Cohn (included
in the opinion filed as Exhibit 5 to this Registration
Statement).
<PAGE> 1
EXHIBIT 5
July 29, 1998
Handleman Company
500 Kirts Blvd.
Troy, Michigan 48084
Gentlemen:
We have represented Handleman Company, a Michigan corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-3 (the "Registration Statement") for the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of a maximum of
963,904 shares of common stock of the Company (the "Common Stock").
Based upon our examination of such documents and other matters as we deem
relevant, it is our opinion that, when the applicable provisions of the
Securities Act and such "blue sky" or other securities laws as may be
applicable have been complied with:
(1) The shares of Common Stock covered by the Registration Statement and
to be issued and sold by the Company to the Selling Shareholders (as described
in the Registration Statement under the caption "Selling Shareholders")
pursuant to their exercise of Warrants have been duly authorized and, when
issued and sold by the Company pursuant to the exercise of the Warrants, will
be validly issued, fully paid and non-assessable.
(2) The shares of Common Stock covered by the Registration Statement
heretofore issued and outstanding and to be sold by the Selling Shareholders
(as described in the Registration Statement uder the caption "Selling
Shareholders") have been duly authorized and validly issued and are fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement. In giving
such consent, we do not admit hereby that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
HONIGMAN MILLER SCHWARTZ AND COHN
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is executed
on May 15, 1998 and effective as of May 3, 1998, among (i) Handleman Company,
a Michigan corporation (the "Company"), (ii) Kenn Viselman ("Mr.
Viselman"), and (iii) Dean Koocher ("Mr. Koocher"). Mr. Viselman and Mr.
Koocher are collectively referred to in this Agreement as the "Shareholders."
RECITALS
A. Pursuant to the Class A Common Stock Purchase Agreement dated as of
May 3, 1998, among the Company and the Shareholders (the "Purchase Agreement"),
the Shareholders have (i) acquired 213,904 shares (the "Issued Shares") of the
common stock, $0.01 par value (the "Common Stock"), of the Company, and (ii)
received warrants (the "Shareholder Warrants") to purchase up to 545,000 shares
of the Common Stock. Certain employees of The itsy bitsy Entertainment Company,
Inc. also received warrants ("Employee Warrants") to purchase up to 205,000
shares of the Common Stock. Together, the Shareholder Warrants and the Employee
Warrants are the "Warrants" and the Issued Shares and the shares underlying the
Warrants are the "Shares."
B. Subject to the terms of the Purchase Agreement and the Warrants,
the Shareholders are entitled, but are not obligated, to sell the Shares they
receive, in accordance with certain provisions specified in the Purchase
Agreement.
C. To facilitate such sales of the Shares, subject to the terms of the
Purchase Agreement and the Warrants, the Company has agreed to afford the
Shareholders certain registration rights with respect to the Shares.
THEREFORE, in consideration of the promises and the mutual covenants
and agreements that the Purchase Agreement contains and other good and valuable
consideration, receipt of which the parties hereby acknowledge, the parties
agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
Person. An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus. The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement,
including post-effective amendments and all material incorporated by
reference in the prospectus.
Registration Statement. Any registration statement of the
Company which covers any of the Registrable Securities (as defined in
paragraph 2) pursuant to the provisions of
<PAGE> 2
this Agreement, including the registration statement and amendments
and post-effective amendments thereto, the Prospectus and supplements
thereto, all exhibits and all material incorporated by reference in
the registration statement.
SEC. The Securities and Exchange Commission.
Securities Act. The Securities Act of 1933, as amended.
2. Securities Subject to this Agreement. The securities entitled
to the benefit of this Agreement (the "Registrable Securities") are all of the
Shares; provided, however, that a Share shall be a Registrable Security only
for so long as the Share continues to be a Restricted Security. For purposes of
this Agreement, each Share shall be a Restricted Security at the date of this
Agreement. A Share shall cease to be a Restricted Security when (i) the Company
has effectively registered the Share under the Securities Act and the
Shareholder who owns it has disposed of the Share in accordance with the
Registration Statement covering the Share, (ii) the Shareholder who owns it
shall be eligible to sell the Share to the public pursuant to Rule 144 (or any
similar provisions then in force) under the Securities Act, without any volume
or manner of sale restrictions, or (iii) the Shareholder has otherwise
transferred the Share (except as otherwise provided in Paragraph 7(h)).
3. Registration of Registrable Securities. Within 60 days after
the date of this Agreement, the Company will use reasonable efforts to cause a
Registration Statement to be filed with the SEC covering the number of
Registrable Securities owned by the Shareholders. The Company shall also use
its reasonable efforts to cause such Registration Statement to become effective
as promptly as practicable (but in no event shall the effective date of such
Registration Statement be prior to the date of filing of the Company's Annual
Report on Form 10-K for the year ended May 2, 1998 with the SEC) and to remain
effective until the twenty-five (25) month anniversary of the date of this
Agreement. In the event that the SEC will not permit the registration of the
transfer of any Shares underlying the Warrants prior to the exercise of such
Warrants, the Company will use reasonable efforts to cause a Registration
Statement to be filed with the SEC covering the Shares acquired upon exercise
of any Warrant promptly upon the request of the Holder thereof following the
exercise of such Warrant.
4. Registration Procedures. For the registration of Registrable
Securities pursuant to Section 3 of this Agreement, the Company shall use
reasonable efforts to effect the registration to permit the sale of the
Registrable Securities in accordance with the method or methods of distribution
the participating Shareholders choose. The Company shall:
(a) furnish to the participating Shareholders, without
charge, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, all documents incorporated by reference therein and all
exhibits (including those incorporated by reference);
2
<PAGE> 3
(b) deliver to the participating Shareholders, without
charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as they may
reasonably request, but only while the Company is required to cause
the Registration Statement to remain effective.
(c) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the participating Shareholders
and their respective counsel in connection with the registration or
qualification of the Registrable Securities for offer and sale under
the securities laws of the various states (the "Blue Sky Laws") and do
any and all other acts or things necessary or advisable to effect the
registration or qualification of the Registrable Securities covered by
the Registration Statement in the various states; provided, however,
that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now qualified or to take
any action which would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities
covered by such Registration Statement in any jurisdictions where it
is not now so subject.
(d) cooperate with the participating Shareholders to prepare
and deliver timely certificates representing Registrable Securities to
be sold and not bearing any restrictive legends;
(e) use reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on the
New York Stock Exchange; and
(f) make available to the participating Shareholders and any
attorney or accountant retained by the participating Shareholders the
inspection of all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information that the
participating Shareholders, the Shareholders' representatives,
underwriter, attorneys or accountants may reasonably request in
connection with the registration; provided, that such Persons shall
keep confidential any records, information or documents that the
Company designates in writing as confidential unless a court or
administrative agency requires the disclosure of the records,
information or documents.
The Company may require the participating Shareholders to furnish to
the Company information regarding the participating Shareholders and the
distribution of the Registrable Securities as the Company may from time to time
reasonably request in writing and as necessary for the registration of the
Shares.
The Shareholders agree that, upon receipt of any notice from the
Company of the happening of any of the following: (i) the SEC's issuance of any
stop order denying or suspending the effectiveness of the Registration
Statement or the initiation or threatening of any proceeding for that purpose,
(ii) the Company's receipt of any stop order denying registration or suspending
the qualification of the Registrable Securities for sale or the initiation or
threatening
3
<PAGE> 4
of any proceeding for such purpose, (iii) the happening of any event
which makes any statement made in the Registration Statement, the Prospectus or
any document incorporated by reference therein untrue or which requires any
change in the Registration Statement, the Prospectus or any document
incorporated by reference therein to make the statements not include an untrue
statement of material fact or not omit any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, the Shareholders shall discontinue the
disposition of Registrable Securities until the participating Shareholders
receive a supplemented or amended Prospectus from the Company or until the
Company advises the participating Shareholders in writing that the
participating Shareholders may resume the use of the Prospectus, and have
received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus. If the Company so directs, the
Shareholders will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in the Shareholders' possession, of the
Prospectus covering the Registrable Securities at the time the Shareholders
received the notice.
5. Registration Expenses. Regardless of when the Registration
Statement becomes effective, the Company shall bear all costs and expenses
incident to the Company's performance of, or compliance with, this Agreement,
including without limitation all registration and filing fees, fees and
expenses of compliance with the Blue Sky Laws, printing expenses, messenger,
telephone and delivery expenses, and fees and disbursements of counsel for the
Company, all independent certified public accountants of the Company and fees
and expenses of other Persons retained by the Company relating to the
distribution of the Registrable Securities and fees and disbursements of one
counsel for the shareholder up to a maximum of $5,000 (all such expenses being
herein called "Registration Expenses"). The participating Shareholders shall
pay any brokerage fees or selling expenses, incident to the registration of the
participating Shareholders' Registrable Securities and any fees of more than
one attorney or accountant retained by the Shareholders.
4
<PAGE> 5
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, the
Shareholders against all losses, claims, damages, liabilities and
expenses, joint or several, to which the Shareholders, may become
subject under federal or state securities laws or otherwise which
arise out of, or are caused by, the Company's violation of any federal
or state securities laws, including, but not limited to, any untrue or
alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or in any
application or other request that the Company files, including any
application or request filed under the Blue Sky Laws or any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based upon an untrue or
alleged untrue statement or omission or alleged omission so made which
is contained in written information furnished to the Company by any of
the Shareholders expressly for use therein or by any Shareholder's
failure to deliver a copy of the Registration Statement or Prospectus
after the Company has furnished the participating Shareholders with a
sufficient number of copies of the same. The Company will reimburse
the Shareholders for any legal or other expense the Shareholders
reasonably incur in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding. The Company
will also indemnify the underwriter, selling brokers, dealer managers
and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who
controls such persons (within the meaning of the Securities Act) to
the same extent as provided above with respect to the indemnification
of the Shareholders, if requested.
(b) Indemnification by Shareholders. In connection with any
Registration Statement in which any Shareholder's Registrable
Securities are registered and sold, the participating Shareholders
shall furnish to the Company the information and affidavits as the
Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agree to indemnify and hold
harmless, to the full extent permitted by law, the Company, its
officer, directors and employees and each Person who controls the
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the Registration
Statement, Prospectus, preliminary Prospectus or any application filed
under the Blue Sky Laws or necessary to make the statements therein
not misleading, to the extent, but only to the extent, that the untrue
statement or omission is contained in any written information or
affidavit so furnished by the Shareholder to the Company expressly for
inclusion in the Registration Statement, Prospectus or application
filed under the Blue Sky Laws. The Company shall be entitled to
receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating
in the distribution, to the same extent as provided above with respect
to information so furnished by the Persons specifically for inclusion
in any
5
<PAGE> 6
Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (i) promptly notify the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in
the defense of the claim, but the fees and expenses of the counsel
shall be at the expense of the Person unless (A) the indemnifying
party has agreed to pay the fees or expenses, (B) the indemnifying
party shall have failed to assume the defense of the claim and employ
counsel reasonably satisfactory to the Person, or (C) in the
reasonable judgment of the Person, based upon advice of its counsel, a
conflict of interest may exist between the Person and the indemnifying
party with respect to the claims (in which case, if the Person
notifies the indemnifying party in writing that the Person elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of
the claim on behalf of the Person). If the indemnifying party assumes
the defense, the indemnifying party will not be subject to any
liability for any settlement made without its consent. The
indemnifying party, however, may not unreasonably withhold its
consent. No indemnifying party will be required to consent to the
entry of any judgment or to enter into any settlement which does not
include as an unconditional term the claimant's or plaintiff's release
of the indemnified party from all liability in respect to the claim or
litigation. An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay
the fees and expenses of more than one counsel in any jurisdiction for
all parties indemnified by the indemnifying party with respect to the
claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to the claim, in which
event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnification
provided for in the preceding clauses (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated
by the preceding clauses (a) and (b), then the indemnifying party
shall contribute to the amount paid or payable by the indemnified
party as a result of the loss, claim, damage liability or expense in
the proportion as is appropriate to reflect (i) the relative fault of
the indemnified party and the indemnifying party, and (ii) any other
relevant equitable considerations.
(e) Survival. The indemnities provided in this Section 6
shall survive the Shareholders' transfer of any Registrable
Securities.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company shall not on or
after the date
6
<PAGE> 7
of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights it grants to the
Shareholders in this Agreement or otherwise conflicts with the
provisions of this Agreement. The rights granted to the Shareholders
under this Agreement do not in any way conflict with and are not
inconsistent with any rights granted under any other agreement
concerning the Company's securities.
(b) Amendments and Waivers. No amendment, modification,
supplement or waiver of any provision of this Agreement is binding on
any party unless the party consents in writing thereto.
(c) Notices. All notices and other communications that this
Agreement provides for or permits shall be made in writing by hand
delivery or registered or certified first-class mail:
(i) to the Shareholders, at the most current
address given by the Shareholders to the
Company.
(ii) To the Company at:
Handleman Company
500 Kirts Boulevard
P. O. Box 7045
Troy, Michigan 48007-7045
Attention: Secretary
All notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered;
five (5) business days after being deposited in the mail, postage
prepaid, if mailed.
(d) Governing Law. This Agreement shall be governed by the
laws of the State of New York (regardless of the laws that might
otherwise govern under applicable Michigan principles of conflicts of
law) as to all matters, including, but not limited to, matters of
validity, construction, effect, performance and remedies.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(f) Interpretation. The Section headings contained in this
Agreement are for the purposes of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
(g) Severability. If any provision of this Agreement is
determined to be illegal or invalid, such illegality or invalidity
shall have no effect on the other provisions
7
<PAGE> 8
of this Agreement, and all other provisions of this Agreement shall
remain valid, operative and enforceable.
(h) Assignment. The rights granted to the Shareholders
pursuant to this Agreement shall be assignable on one occasion and
thereafter only with the prior written consent of the Company.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HANDLEMAN COMPANY
By:/s/MICHAEL R. BEAUREGARD
---------------------------------
Its: Vice President
/s/KENN VISELMAN
---------------------------------
KENN VISELMAN
/s/DEAN KOOCHER
---------------------------------
DEAN KOOCHER
<PAGE> 1
EXHIBIT 24.1
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report dated June 2, 1998, on our audits of the financial
statements and financial statement schedule of Handleman Company as of May 2,
1998, May 3, 1997 and April 27, 1996 and for the years then ended. We also
consent to the reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
Detroit, Michigan
July 28,1998
