PROSPECTUS
NAVARRE CORPORATION
530,000 Shares of
COMMON STOCK
This Prospectus relates to the offering of up to 530,000 shares (the
"Shares") of Common Stock, no par value, of Navarre Corporation (the
"Company") which may be offered from time to time by the shareholders
named herein (the "Selling Shareholders"). The Company will not receive any
of the proceeds from the sale of the Shares by the Selling Shareholders.
See "Use of Proceeds."
The Company will bear all expenses of the offering hereunder other than
underwriting discounts and commissions incurred in connection with the sale
of the Shares by the Selling Shareholders. The Company's COMMON STOCK is
quoted on The Nasdaq National Market under the symbol "NAVR." On December
9, 1996, the last reported sale price of the Company's Common Stock on The
Nasdaq National Market was $4.63.
For information concerning risk factors which should be considered by
prospective purchasers of the COMMON STOCK offered hereby, see "Risk
Factors" beginning on page 5 of this Prospectus.
The Selling Shareholders have advised the Company that they intend to
sell the Shares from time to time in transactions on The Nasdaq National
Market at prices prevailing at the time of the sale or otherwise as set
forth below. The Selling Shareholders have also advised the Company that,
as of the date hereof, they have made no arrangement with any brokerage
firm for the sale of the Shares. The Selling Shareholders may be deemed to
be "underwriters" within the meaning of the Act, in which case any
commissions received by a broker or dealer may be deemed to be underwriting
commissions or discounts under the Act. See "Plan of Distribution."
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.
______________________________________________________
The date of this Prospectus is December 10, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy and information statements and other
information can be inspected and copied at the public facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and are also available at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a web site (http://www.sec.gov) at which
reports, proxy and information statements and other information regarding
the Company may be accessed. The Company's COMMON STOCK is quoted on The
Nasdaq National Market ("Nasdaq").
The Company has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended, with respect to the shares
offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto, certain
parts of which were omitted as permitted by the rules and regulations of
the Commission. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained
in this Prospectus or in any document incorporated in this Prospectus by
reference as to the content of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as
an exhibit to the Registration Statement or each other document, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission by the Company
(File No. 0-22982) are incorporated by reference in this Prospectus: (i)
the Company's Annual Report on Form 10-K for the year ended March 31,
1996; (ii) the Company's Proxy Statement for its Annual Meeting of
Shareholders held on September 5, 1996; (iii) the Company's Quarterly
Reports on Form 10-Q for the periods ended June 30, 1996 and September
30, 1996; and (iv) the description of the Company's COMMON STOCK as set
forth in the Company's Registration Statement on Form 8-A dated November
1993, including any amendments or reports filed for the purpose of
updating such information.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15 of the 1934 Act after the date of this Prospectus and
prior to the termination of the offering of securities contemplated
hereby shall also be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such
documents or reports. Any statement contained 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 other 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.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. Such documents (other than
exhibits to such documents, unless such exhibits are specifically
incorporated by reference to such documents) are available, without
charge, to any person, including any beneficial owner, to whom this
Prospectus is delivered, on written or oral request, to Navarre
Corporation, 7400 49th Avenue North, New Hope, Minnesota 55428,
Attention: Investor Relations, or by telephone at (612) 535-8333.
____________________
This Prospectus, including the information incorporated by
reference herein, contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ
significantly from those projected or contemplated in the forward-looking
statements as a result, in part, of the risk factors set forth elsewhere
in this Prospectus. In connection with the forward-looking statements
which appear in these disclosures, prospective purchasers of the
Company's COMMON STOCK offered hereby should carefully review all of such
risk factors.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in
this Prospectus and in documents incorporated herein by reference.
Unless otherwise indicated, all share information in this Prospectus
has been adjusted to reflect a two-for-one stock split effective in
June 1996.
The Company
Navarre Corporation ("Navarre" or the "Company"), a Minnesota
corporation, has been engaged in the distribution of prerecorded music
and personal computer software since 1983.
The Company operates through two principal divisions, its Music
Products Division and its Computer Products Division. Building upon
its strength and expertise as a leading independent distributor of
prerecorded music, the Company has achieved increasing sales in the
growing market for personal computer software and interactive CD-ROM
software. The Company's product line contains over 20,000 SKUs of
compact discs, cassettes, personal computer software and interactive
CD-ROM software sold to over 500 customers with over 9,000 locations
throughout the United States. Its primary customers include (i) music
and computer specialty chains, (ii) membership wholesale clubs, (iii)
mass merchandisers and discount retailers and (iv) wholesalers and
rackjobbers.
In 1994 the Company established a CD-ROM publishing company named
Digital Entertainment, Inc., which was owned eighty percent by Navarre.
All of its products are exclusively distributed by the Company through
its Computer Products Division. During fiscal 1996, the Company
acquired the minority shareholder interest in Digital Entertainment
Inc.
The Company's principal executive offices are located at 7400 49th
Avenue North, New Hope, Minnesota 55428 and its telephone number is
(612) 535-8333.
The Offering
COMMON STOCK offered by Selling Shareholders 530,000
COMMON STOCK outstanding after offering (1) 6,782,168
Nasdaq Symbol NAVR.
________________________
(1) Includes 180,000 shares issuable upon exercise of warrants by
warrant holders and excludes shares of COMMON STOCK reserved
for under the Company's 1992 Stock Option Plan.
Use of Proceeds
The Company will not receive any proceeds from sales of the Shares by
the Selling Shareholders except to the extent that the warrant holders
exercise their warrants to purchase COMMON STOCK. The Company intends
to use the $702,000 for working capital purposes. See "Use of
Proceeds."
RISK FACTORS
Prospective purchasers of the COMMON STOCK offered hereby should
consider carefully all the information contained in this Prospectus
and, in particular, the following risk factors.
Dependence Upon Significant Customers
In each of the past several years, the Company has had one or more
customers that has accounted for ten percent or more of the Company's
net sales. During the six month period ended September 30, 1996, sales
to three customers, Comp USA, Musicland Stores Corporation and Best
Buy, each represented more than ten percent of net sales. The Company
competes with other companies for the business of each of its customers
and there can be no assurance that the Company will continue to
recognize a significant amount of revenue from sales to any specific
customers. If the Company is unable to continue to sell its products
to all or any of these three customers or is unable to continue to
maintain its sales to these customers at their current levels, and is
unable to find other customers to replace the list sales, there might
be an adverse impact on the Company's revenues and future
profitability.
Seasonality
Much of the Company's business is seasonal in nature with a higher
percentage of sales during the second half of the calendar year. As a
distributor of products ultimately sold at retail, the Company's
business is affected by the pattern of seasonability common to other
suppliers of retailers, particularly the holiday selling season.
Historically, more than 70% of the Company's sales and a substantial
portion of the Company's profits have been in the third and fourth
quarters of the calendar year. Due to the lower level of sales during
the off periods, the Company has historically incurred losses during
these periods. Because of this seasonality, if the Company experiences
a weak holiday season, it could significantly affect the Company's
profitability for the entire year.
Dependence Upon Bank Borrowings; Need for Additional Financing
As a distributor of prerecorded music and personal computer software
products, the Company purchases products directly from manufacturers
for resale to retailers. As a result, the Company has significant
working capital requirements, the majority of which are to finance
inventory and accounts receivable. These working capital needs will
expand as inventory and accounts receivable increase in response to the
Company's growth. The Company has relied upon bank borrowings to
finance its expansion, primarily for inventory and accounts receivable
financing and currently has a $35.0 million credit facility in place.
At December 9, 1996, the Company had total bank borrowings of $28.9
million. Under the terms of the Company credit facility, borrowings are
dependent upon the eligibility of accounts receivable and inventory under
a predetermined formula with the bank. The Company believes that it may be
necessary for it to acquire additional bank and/or financing in the future
depending upon the growth of its business and the financing of acquisitions.
The Company borrowed $5.0 million under its credit facility for its
November 15, 1996 investment in Velvel Records LLC described below
under " -- Recent Acquisitions." In connection with that investment,
the Company has agreed with its bank that it will obtain additional
equity financing in the amount of $5.0 million on or before March 31,
1997. In addition, the Company will be required to obtain additional
debt or equity financing to pay the additional $5.0 million payment under
the Velvel Records LLC agreement due on April 10, 1997. Although the
Company is exploring various sources of additional financing at the
current time, there can be no assurance that the Company will be
able to obtain this financing upon favorable terms when required.
If the Company is unable to obtain the required $5.0 million equity
investment or additional equity financing or other bank financing, its
future growth and profitability could be adversely affected.
Recent Acquisitions
On September 3, 1996, the Company entered into a Unit Purchase
Agreement and Operating Agreement (the "Agreement") with Velvel Musical
Industries, Inc. Under the terms of the Agreement, Velvel Musical
Industries, Inc. agreed to form Velvel Records LLC, a Delaware limited
liability company ("Velvel Records") and contribute certain of its
assets to Velvel Records. The Company made an investment of $5.0
million in Velvel Records on November 15, 1996 and agreed to make an
additional investment of $5.0 million in Velvel Records on or before
April 10, 1997. In connection with its investment, the Company received the
right for a period of five years to distribute substantially all of the
Velvel Records products within the United States. The Company is also
entitled to a percent of the assets of Velvel Records in the event of a
liquidation, and in the future, if, and when Velvel Records obtains
profitability, the Company will be entitled to convert its interest into an
additional interest in the share of the profits of Velvel Records. Although
the Company believes this acquisition will help to expand its national
presence in the prerecorded music industry, there can be no assurance
that this acquisition will enable the Company to achieve its goal.
In June 1996, the Company acquired all the outstanding stock of
Record Service, Inc., and Surfside Distributors, Inc., a Hawaiian-based
distributor of prerecorded music, in an effort to expand its national
presence in the prerecorded music industry. Although the Company
believes the acquisitions will enable it to expand its national
presence and to act as an exclusive distributor for two major
recording labels in Hawaii, there can be no assurance that these
acquisitions will enable the Company to achieve these results.
In May 1996, the Company acquired an equity interest in Net
Radio Corporation, which owns and operates Net Radio Network, an
Internet-only radio network, in an effort to increase its presence in
the marketplace as a content provider on the Internet, and to become a
publisher and distributor on an international basis in both music and
interactive CD-ROM. There can be no assurance that the Company's
investment in Net Radio Corporation will help achieve these goals.
Low Industry Margins
Competition in the prerecorded music and personal computer software
distribution industry is often based on price, and distributors such as
the Company generally experience low gross and operating margins.
Consequently, the Company's profitability is highly dependent upon
achieving expected sales levels as well as effective cost and
management controls. Any erosion in the Company's gross profit margins
could affect the Company's ability to maintain profitability.
Dependence Upon Management
Eric H. Paulson, the Company's President and Chief Executive Officer,
and Charles E. Cheney, its Executive Vice President and Chief Financial
Officer, have been with the Company since its inception in 1983 and
since 1985, respectively. Although the Company has invested a
substantial amount of time and effort in developing its total
management team and its management team has over 90 years of experience
in the Industry, the loss of either Mr. Paulson or Mr. Cheney could
have a material adverse effect upon the Company. The Company carries
"key person" insurance on the life of Mr. Paulson in the amount of $1.0
million, one-half of which is pledged to cover any existing
indebtedness to the bank.
Dependence Upon Recording Artists
A portion of the sales of the Company's Music Products Division are
made pursuant to exclusive distribution agreements. The continued
growth and success of the Company depends partly upon its ability to
procure and retain these agreements and sell the underlying recordings.
In addition, the Company is dependent upon these artists and labels to
generate additional quality recordings. In order to procure future
marketing agreements, the Company regularly reviews artists. There are
no assurances that the Company will sign such artists to distribution
agreements or that it will be able to sell recordings under existing
distribution agreements. Further, there can be no assurance that
current distribution agreements will be renewed or that current
agreements will not be terminated.
Dependence Upon Software Developers and Manufacturers
The Company, through its wholly owned subsidiary Digital
Entertainment, Inc., distributes interactive CD-ROM software pursuant
to distribution agreements with software developers and manufacturers.
A portion of the sales are made pursuant to exclusive distribution
agreements. The continued growth and success of the Company depends
partly upon its ability to procure and retain these agreements and sell
the underlying software. There can be no assurances that the Company
will sign such developers and manufacturers to distribution agreements
or that it will be able to sell software under existing distribution
agreements. Further, there can be no assurance that current
distribution agreements will be renewed or that current agreements will
not be terminated.
Effect of Technology Developments on Distribution
Prerecorded music and personal computer software presently are
marketed and delivered on a physical delivery basis. If in the future
these products are marketed and delivered through technology transfers,
such as "electronic downloading" to a retail store or consumer's home,
then retail and distribution could be revolutionized. Although the
Company has made certain acquisitions and taken other measures that are
designed to mitigate the potential impact that such changes in the
retail and distribution industry could have on the Company, if this
type of sales of prerecorded music and personal computer software
became widespread, it could have a material adverse impact on the
Company. The Company believes, however, that technological changes in
sales methods will occur slowly.
Returns; Inventory Obsolescence
The Company maintains a significant investment in product inventory
and, like other companies in this industry, experiences a relatively
high level of product returns as a percentage of revenues. The
Company's agreements with its suppliers generally permit the Company to
return products that are in the suppliers' current product listing.
Adverse financial or other developments with respect to a particular
supplier could cause a significant decline in the value and
marketability of its products, and could make it difficult for the
Company to return products to such a supplier and recover its initial
product acquisition costs. Such an event could have a material adverse
effect upon the Company's business and financial results. The Company
maintains a sales return reserve based on its trailing twelve months
experience of sales returns by product line and small inventory
obsolescence reserve. The Company has historically experienced an
actual return rate range of 13% to 20%, depending upon the product,
which the Company believes is in line with the industry experience.
Although the Company's past experience indicates that these levels are
adequate to cover potential returns in these areas, there can be no
assurance that these reserves are adequate or will be adequate in the
future. The Company also takes a portion of its product offerings on
consignment in order to lessen its exposure to this risk.
Adverse Changes in Methods of Distribution
The success of the Company's current sales strategy depends upon its
wholesale and retail customers' continued purchasing of products
through the Company rather than directly from manufacturers, through
other distributors or through other means of distribution. These
customers and retailers are constantly searching for ways to lower
costs in an attempt to maintain competitive prices and meet the pricing
demands of consumers. The Company's business could be adversely
affected if its customers decide to purchase directly from
manufacturers, other distributors or other distribution channels rather
than from the Company.
Competition
The prerecorded music and personal computer software distribution
industry is highly competitive. The Company's competitors include
other national and regional distributors as well as certain suppliers
that sell directly to retailers. Certain of these competitors have
substantially greater financial and other resources than the Company.
The ability of the Company to effectively compete in the future depends
upon a number of factors, including its ability to (i) obtain
exclusive national distribution contracts and licenses with independent
labels and manufacturers, (ii) maintain its margins and volume,
(iii) expand its sales through a varied range of products and
personalized services, (iv) anticipate changes in the marketplace
including technological developments, and (v) maintain operating
expenses at an appropriate level.
Possible Volatility of Stock Price
The stock markets have experienced price and volume fluctuations,
resulting in changes in the market prices of the stock of many
companies which may not have been directly related to the operating
performance of those companies. In addition, the market price of the
Company's COMMON STOCK has increased and fluctuated significantly since
April 1996. The Company believes that factors such as indications of
the market's acceptance of the Company's products and failure to meet
market expectations, as well as general volatility in the securities
markets, could cause the market price of the COMMON STOCK to fluctuate
substantially.
USE OF PROCEEDS
The Company will not receive any proceeds from sales of the Shares by
the Selling Shareholders except to the extent that the warrant holders
exercise their warrants to purchase COMMON STOCK. The Company intends
to use the $702,000 in proceeds from the exercise of warrants for
working capital purposes.
SELLING SHAREHOLDERS
The Selling Shareholders in the table below, with the exception of
Stewart Marlowe, who are the shareholders of Net Radio Corporation
("NRC"), acquired the Shares from the Company in a private transaction
on May 1, 1996 pursuant to an Option Agreement among the Company, NRC,
and the shareholders of NRC. Stewart Marlowe acquired Shares from the
Company in a private transaction on June 27, 1996 pursuant to a Stock
Purchase Agreement between the Company and Stewart Marlowe, as the
sole shareholder of Record Service, Inc., and its subsidiary Surfside
Distributors, Inc. The holders of warrants ("Warrant Holders") to
purchase the Company's Common Stock, identified in the table below,
received their warrants in connection with the Company's 1993 Public
Offering of its COMMON STOCK. The Company originally issued a warrant
to Hamilton Investments, Inc., the Representative of the Underwriters
in connection with the Company's initial public offering. Hamilton
Investments, Inc. subsequently transferred warrants to purchase 36,000
shares to persons who were then officers or employees of Hamilton
Investments, Inc.
The following table sets forth certain information with respect to
the beneficial ownership of the Company's COMMON STOCK by all Selling
Shareholders and Warrant Holders as of November 1, 1996, and as
adjusted to reflect the sale of the Shares.
Number of Maximum Number of
Shares Beneficially Number of Shares to be
Owned Prior Shares to Beneficially Owned
Name to Offering be Sold(1) After The Offering(1)
Stewart Marlowe 180,000 180,000 0
Hamilton
Investments, Inc2. 144,000 144,000 0
Robert W. Griggs 36,676 36,676 0
Scott Bourne 26,302 26,302 0
Scot Combs 24,450 24,450 0
Terrence K. Mahoney 16,300 16,300 0
Pablo Nyarady 13,584 13,584 0
Patrick Mahoney 13,584 13,584 0
Carl Halverson 8,892 8,892 0
Thomas Mandt 8,212 8,212 0
Mark Bartholomay2 7,200 7,200 0
Geoffrey S. Parker2 7,200 7,200 0
Deborah Hopp 7,026 7,026 0
Douglas Lennick 6,792 6,792 0
Randy L. Hines2 5,400 5,400 0
Douglas McConnell2 5,400 5,400 0
Terry T. Stewart2 5,400 5,400 0
Mark Hempel 5,126 5,126 0
Ron Buck 3,056 3,056 0
William M. Gerstner2 2,700 2,700 0
Joseph W. Kacergis2 2,700 2,700 0
Total 530,000 530,000 0
________________________
(1) Assumes the sale of all the Shares offered hereunder.
(2) Represents shares issuable upon exercise of warrant.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholders may
sell the Shares from time to time in one or more transactions (which
may include block transactions) on Nasdaq at market prices prevailing
at the time of the sale or at prices otherwise negotiated.
The Shares may, without limitation, be sold by one or more of the
following: (i) a block trade in which the broker or dealer so engaged
will attempt to sell the securities as agent but may position and
resell a portion of the block as principal to facilitate the
transaction; (ii) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this
Prospectus; and (iii) ordinary brokerage transactions and transactions
in which the broker solicits purchasers.
The Company has been advised that, as of the date hereof, the
Selling Shareholders have made no arrangement with any broker for the
sale of the Shares. Underwriters, brokers or dealers may participate
in such transactions as agents and may, in such capacity, receive
brokerage commissions from the Selling Shareholders or purchasers of
such securities. Such underwriters, brokers or dealers may also
purchase Shares and resell such Shares for their own account in the
manner described above. The Selling Shareholders and such
underwriters, brokers or dealers may be considered "underwriters" as
that term is defined by the Securities Act of 1933, although the
Selling Shareholders disclaim such status. Any commissions, discounts
or profits received by such underwriters, brokers or dealers in
connection with the foregoing transactions may be deemed to be
underwriting discounts and commissions under the Securities Act of
1933.
In addition to the foregoing, the Company has entered into a lock-
up agreement which places additional restrictions on Mr. Marlowe's
ability to sell Shares of the Company received by Mr. Marlowe in
connection with the Company's purchase of Record Service, Inc. and its
subsidiary, Surfside Distributors, Inc. Specifically, Mr. Marlowe,
subject to any additional requirements under the federal securities
laws, has agreed to sell his Shares subject to the following
restrictions: (i) 45,000 Shares may be sold immediately; (ii) 60,000
Shares held pursuant to an escrow agreement entered into at the time of
the Company's acquisition for Record Service, Inc. may be sold from
time to time as such Shares are released from the escrow agreement; and
(iii) 75,000 Shares may be sold after a period of two years have
elapsed from the date of issuance of such Shares.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby
will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Navarre Corporation at
March 31, 1996 and 1995, and for each of the fiscal years or periods
ended March 31, 1996, 1995 and 1994 and the year ended December 31,
1993 appearing in Navarre Corporation's Annual Report (Form 10-K) for
the year ended March 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference and in the registration
statement. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
