<PAGE> 1
2,335,000 SHARES
DOVE AUDIO, INC.
COMMON STOCK
This Prospectus relates to an aggregate of 2,335,000 shares (the "Shares")
of common stock, $.01 par value per share (the "Common Stock"), of Dove Audio,
Inc., a California corporation (the "Company"), of which (i) 950,000 Shares
are currently issued and outstanding and (ii) 1,385,000 Shares are issuable by
the Company upon the exercise of certain warrants (the "Warrants") issued by the
Company to purchase shares of Common Stock, all of which may be offered for sale
by the holders (collectively, the "Selling Shareholders"). See "Description of
Securities".
The Company will receive proceeds from the applicable Selling Shareholders
in the event the Warrants are exercised, except in certain cases in which such
warrants are exercised pursuant to the "net" or cashless exercise provisions
thereof. There is no assurance that any of the Warrants will be exercised. The
Company will not receive any proceeds from the sale of Shares offered by the
Selling Shareholders.
The Common Stock is listed on the Nasdaq SmallCap Market under the
trading symbol "DOVE." On September 11, 1996, the closing bid price of the
Common Stock as reported on the Nasdaq SmallCap Market was $3.50 per share.
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK
FACTORS" COMMENCING ON PAGE 6 HEREOF.
--------------------
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 Selling Shareholders, acting as principal for their own account,
directly or through agents, dealers, brokers or underwriters to be designated
from time to time, may sell the Shares from time to time on terms to be
determined at the time of sale. To the extent required, the number of Shares to
be sold, the respective purchase price and public offering price, the name of
any agent, dealer, broker or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each Selling
Shareholder reserves the sole right to accept or reject, in whole or in part,
any proposed purchase of the Shares.
The date of this Prospectus is September 17, 1996
<PAGE> 2
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"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Company's Common Stock is listed on the Nasdaq
SmallCap Market. Such material can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
Additional information regarding the Company and the Shares offered
hereby is contained in the Registration Statement on Form S-3 (of which this
Prospectus is a part) and the exhibits thereto filed with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. For further information pertaining to the Company
and the Shares offered hereby, reference is hereby made to the Registration
Statement (including documents incorporated by reference therein) and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance such statements are qualified in their entirety by reference to
the copy of such contract or other document filed as an exhibit to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents
heretofore filed with the Commission pursuant to the Exchange Act:
1. Annual Report of the Company on Form 10-KSB for the fiscal year ended
December 31, 1995;
2. Amendment to Annual Report of the Company on Form 10-KSB/A for the
fiscal year ended December 31, 1995 filed April 29, 1996;
3. Amendment No. 2 to Annual Report of the Company on Form 10-KSB/A for
the fiscal year ended December 31, 1995 filed September 12, 1996;
4. Quarterly Report of the Company on Form 10-QSB for the fiscal quarter
ended March 31, 1996 filed May 13, 1996;
5. Amendment No. 1 to Quarterly Report of the Company on Form 10-QSB/A
for the fiscal quarter ended March 31, 1996 filed July 12, 1996;
6. Amendment No. 2 to Quarterly Report of the Company on Form 10-QSB/A
for the fiscal quarter ended March 31, 1996 filed September 11, 1996;
7. Quarterly Report of the Company on Form 10-QSB for the fiscal
quarter ended June 30, 1996;
8. Amendment No. 1 to Quarterly Report of the Company on Form 10-QSB/A
for the fiscal quarter ended June 30, 1996 filed September 10, 1996;
9. Current Report of the Company on Form 8-K/A filed March 8, 1996; and
10. The description of Common Stock contained in the Company's
Registration Statement on Form 8-A, filed on October 14, 1994.
2
<PAGE> 3
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 the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. 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, in any accompanying Prospectus Supplement 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.
Copies of all documents incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) will be provided without charge to each person, including any
beneficial owner, who receives a copy of this Prospectus on the request of such
person made to Dove Audio, Inc., 8955 Beverly Boulevard, West Hollywood,
California 90048, tel: (310) 786-1600, Attention: Simon Baker.
3
<PAGE> 4
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements (including the notes thereto) incorporated herein. Unless the
context otherwise requires, all references in this Prospectus to the "Company"
or "Dove" refer to Dove Audio, Inc. and its subsidiaries. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
Dove Audio, Inc. is a diversified entertainment company primarily
engaged in the publication of audio and printed books, the production of
television programming and the distribution of feature films. The Company was
founded in 1985 as one of the first publishers of audio books and has grown to
become one of the leading independent publishers of audio books in the United
States. In the last two years, the Company has implemented a strategy of
diversification and expansion into other areas of the media and entertainment
industry in part to develop and exploit fully existing and newly acquired
titles. This diversification strategy has included the publication of printed
books beginning in 1994 under the Dove imprint and the distribution of feature
films commencing in 1995. As part of its expansion strategy, the Company entered
into a publication and distribution agreement for select audio projects with
Reader's Digest Association, Inc. and a multi-year domestic home video agreement
with Paramount Pictures Corporation. Additionally, in April 1996, the Company
acquired Four Point Entertainment, Inc. ("Four Point" or "Dove Four Point"), an
independent producer of television programming and post-production house. To
reflect the Company's diversified business, the Company intends to change its
name to Dove Entertainment, Inc., subject to approval by shareholders, at its
next annual meeting.
Through its audio division, the Company has produced and distributed an
average of approximately 100 to 120 new audio titles annually since its
inception and has built a library of over 1,200 audio titles. The Company's
audio books generally consist of audio recordings of abridged and unabridged
works from well-known authors such as Sidney Sheldon, Amy Tan and Jack Higgins
and read by the author or celebrity actors such as Roger Moore, Sharon Stone and
Gregory Peck. The Company's most successful audio books to date have been "The
Bridges of Madison County" read by its author Robert James Waller and "A Brief
History of Time" read by Michael Jackson. Audio titles scheduled for release in
1996 include "Bad As I Wanna Be," by Dennis Rodman, "My Other Life," by Paul
Theroux, "Rush Limbaugh's A Big Fat Idiot," by Al Franken, "Chance" by Robert
Parker and "The Year of the Tiger" by Jack Higgins.
In order to expand the scope of its publishing operations, the Company
commenced the publication of printed books in 1994. The Company has released
various printed book titles that are specifically targeted to certain audiences.
Such books include the New York Times No. 1 Bestseller "Nicole Brown Simpson:
The Private Diary of a Life Interrupted" and two other New York Times
Bestsellers, "You'll Never Make Love In This Town Again" and "Dreams Into
Action" by Milton Katselas. The Company is currently developing up to 70 books
for potential publication in 1996/1997, including a biography of Yitzak Rabin
with a forward by President Clinton, an anthology entitled "The 50 Greatest
Mysteries of All Time," the novel "White Flame" by James Grady and "Iced" by
Carol Higgins Clark. There is no assurance that the Company will publish any
or all of such books in development or that any of such books that are
developed will be successful. The Company also has released a series of
children's books and audio tapes under the "Dove Kids" label, including the
1994 Grammy Award-winning audio, "Audrey Hepburn's Enchanted Tales."
4
<PAGE> 5
Since 1986, based on its relationships with well-known authors and
actors, the Company has been active as an independent developer and producer of
long-form television programming, consisting of movies-for-television and
mini-series for the major domestic television networks. In 1996, the Company
produced the movie-for-television "Home Song," based on the LaVyrle Spencer
novel and starring Lee Horsley and Deborah Raffin, which aired on CBS. The
Company is currently in pre-production of "Family Blessings" for CBS, based on
a LaVyrle Spencer novel. In addition, the Company has acquired all
distribution rights in the United States and Canada (excluding French speaking
Canada) and acquired the sole and exclusive audio, print and interactive
rights worldwide to "Wilde," the Oscar Wilde story being produced by Samuelson
Entertainment Ltd. The Company has also commenced production of projects for
initial release in video format, including children's and business videos and
a video documentary based on the Company's book "You'll Never Make Love In
This Town Again." There is no assurance the Company will complete any such
production projects or that any such completed projects will be successful for
the Company.
In April 1996, the Company significantly expanded its presence in
television programming through the acquisition of Four Point. Dove Four Point
develops and produces both episodic series and long-form television programming,
including pilots, series, telefilms, mini-series, talk shows, game shows and
infomercials for the major network, cable and syndicated markets. In addition,
Dove Four Point owns and operates post-production and edit facilities for its
own and third-party programming. Since its inception ten years ago, Four Point
has produced over 26 television shows (accounting for 1,415 episodes of national
television programmming), including "American Gladiators" and "Amazing
America." In September 1996, Dove Four Point is scheduled to launch two new
syndicated shows, "Scoop with Sam and Dorothy" (distributed by ACI-Pearson)
and "The John Bradshaw Show" (distributed by Metro-Goldwyn-Mayer, Inc.). Dove
Four Point is also developing another
potential syndicated series, "Make Me Laugh" (and is in discussion for potential
distribution of such series by Buena Vista in association with The Walt Disney
Company).
During the second quarter of 1995, the Company formed a wholly-owned
subsidiary, Dove Pictures (f/k/a Dove International, Inc.) ("Dove Pictures") to
engage in domestic distribution of feature films. The feature films acquired
by the Company are distributed on home video by Paramount Pictures Corporation
in the United States and/or Canada. During the second quarter of 1996, the
Company released the feature film "A Boy Called Hate" and plans to release up
to an additional five feature films on its video label (in some cases, after
a limited theatrical release) by the end of the year.
The Company was incorporated in California in 1985. Its principal
executive offices are located at 8955 Beverly Boulevard, West Hollywood,
California 90048. Its telephone number is (310) 786-1600.
5
<PAGE> 6
RISK FACTORS
Prospective investors should consider carefully the following factors,
as well as all of the other information set forth in this Prospectus, in
evaluating an investment in the Shares.
LIMITED PROFITABILITY; UNCERTAINTY AS TO FUTURE OPERATING RESULTS.
Although the Company has achieved limited profitability for the years
ended December 31, 1994 and 1995 and the three months ended March 31, 1996, the
Company's expenses have increased each fiscal year and can be expected to
increase in connection with the expansion of the Company's publishing,
television and film distribution activities. Accordingly, the Company's future
profitability will depend upon obtaining at least corresponding increases in
revenues from operations. There can be no assurance that the Company will
achieve revenue growth in the future or that the Company's future operations
will be profitable.
CERTAIN RISKS RELATING TO THE FOUR POINT ACQUISITION.
There is no assurance that the Four Point acquisition will be
successful. Shortly after the consummation of such acquisition, following the
initial preparation of Four Point's unaudited financial statements for the
three months ending April 30, 1996, the Company determined that Four Point's
shareholders' equity may be less than the amount specified in the purchase
agreement. The Company's liquidity has also been adversely affected by the
need to fund certain operating expenses of Dove Four Point. In addition, there
is no assurance that any of Dove Four Point's programming in development will
lead to a production commitment or that any series programming ordered by a
network or syndicator will not be canceled due to ratings, clearances or
otherwise.
GROWTH AND ACQUISITION RISKS.
The Company intends to continue to actively pursue a strategy of growth
both internally through expansion of its product line and externally by the
acquisition of companies or assets. Such expansion may place substantial burdens
on the Company's management resources and financial controls and there is no
assurance that such increasing burdens will not have an adverse effect on the
Company's results of operations and financial condition or that the Company will
successfully manage such growth. In addition to the risks inherent in the
commercialization of new products, the acquisitions, in particular, may involve
a number of special risks, including adverse effects on the Company's operating
results, diversion of management's attention, dependence on hiring and training
of key personnel, risks associated with unanticipated problems or legal
liabilities and amortization of acquired intangible assets. Furthermore, there
can be no assurance that the Company will be able to identify, acquire or
profitably manage additional companies or successfully integrate additional
companies into the Company without substantial costs, delays or other problems.
CERTAIN RISKS RELATING TO THE ENTERTAINMENT INDUSTRY.
The publishing, television and film industries are highly speculative
and historically have involved a substantial degree of risk. The markets for the
Company's products are also subject to rapidly changing consumer preferences,
resulting in short product life cycles and frequent introduction of new
products, many of which are unsuccessful. The inability to maintain a sufficient
level of demand for any particular television project, audio or published book
or film may result in the expenditure of significant funds to develop such
product without corresponding revenues and could adversely affect the Company's
future operations. The Company's success will be largely dependent on its
ability to anticipate and respond to factors affecting the industry, including
the introduction of new market entrants, demographic trends, general economic
conditions, particularly as they affect available discretionary income levels,
and discount pricing and promotion strategies by competitors. There can be no
assurance that the Company will be able to anticipate and respond to changing
consumer tastes and preferences and there is a substantial risk that any of the
Company's projects will not be successful, resulting in costs not being recouped
and anticipated profits not being realized.
6
<PAGE> 7
DEPENDENCE ON A LIMITED NUMBER OF PROJECTS.
The Company's business is dependent on its ability to acquire or
develop rights to exploit new audio, book, television and film properties that
will have broad market appeal. To date, the majority of the Company's revenues
are attributable to a small percentage of the Company's projects and the loss of
a major project in any period or the failure or less-than-expected performance
of a major product in any period, unless replaced by new projects, could have an
adverse effect on the Company's results of operation and financial condition.
POSSIBLE NEED FOR ADDITIONAL FINANCING; LIQUIDITY.
The Company's operations in general, and its publishing, television and
film operations in particular, are capital intensive. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations,
that the net proceeds, if any, from the exercise of the Warrants, together with
projected cash flow from operations and available cash resources, including its
proposed financing arrangements, will be sufficient to satisfy its anticipated
cash requirements for at least 12 months following the date of this Prospectus.
In the event that the Company's plans change, its assumptions change or prove to
be inaccurate or the cash flow proves to be insufficient to fund operations (due
to unanticipated expenses, delays, problems, difficulties or otherwise), the
Company would be required to seek additional financing sooner than anticipated
or curtail its activities. The Company has experienced from time to time
significant negative cash flows from operating activities which have been funded
by equity and debt financings. As the Company expands its production and
distribution activities, it expects to continue to experience negative cash
flows from operating activities from time to time. In such circumstances, the
Company will be required to fund at least a portion of production and
distribution costs, pending receipt of anticipated future revenues, from working
capital or from additional debt or equity financings from outside sources. To
the extent that the Company finances an acquisition or increases its working
capital by sales of equity securities, any such issuance of equity securities
would result in dilution to the interests of the Company's shareholders.
Additionally, to the extent that the Company incurs indebtedness or issues debt
securities in connection with any acquisition or otherwise, the Company will be
subject to risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. There can be no assurance
that additional financing will be available to the Company on commercially
reasonable terms, or at all.
RETURNS AND REMAINDER SALES IN THE PUBLISHING INDUSTRY -- POTENTIAL EFFECT ON
RESULTS OF OPERATION AND FINANCIAL CONDITION.
In accordance with industry practice, substantially all of the
Company's sales of audio and printed book products are and will continue to be
subject to potential return by distributors and retailers if not resold to the
public. Historically, the Company has experienced significant returns and there
can be no assurance that the Company will not experience returns of its audio
and printed book products in excess of its historical returns. As a result
primarily of returns of "The Private Diary of Lyle Menendez", the Company's
provision for returns as a percentage of gross revenue increased from 31% in
1994 to 47% in 1995. Although the Company makes allowances and reserves
for returned products, significant increases in return rates could materially
and adversely impact the Company's results of operations or financial condition.
In addition, the Company from time to time makes price concessions or allowances
or grants credits to distributors or retailers in order to minimize returns, and
such concessions and allowances may adversely affect the Company's operating
results. Certain of the Company's revenues are derived from sales at discount
prices of excess inventory of books, including returned book products, effected
through warehouse, outlet and other stores ("remainder sales"). Revenues from
remainder sales typically have not exceeded the Company's per-unit costs. The
availability of remainder product at discount prices also may have the effect of
reducing sales of full-price books, and, therefore, could adversely affect the
Company's results of operation and financial condition.
7
<PAGE> 8
POTENTIAL FOR LIABILITY CLAIMS.
The nature of the Company's publishing business entails the risk of
liability claims, which may be heightened because of the controversial nature of
certain of its publications. The Company maintains liability insurance which it
believes is adequate to protect its assets. However, there can be no assurance
that claims will not be asserted in the future, or that any damages assessed
against the Company for existing and future claims will not exceed the limits of
available insurance coverage or that adequate insurance, on terms the Company
believes are commercially reasonable, will continue to be available. In
addition, the potential negative publicity that could arise from a liability
claim could have a material adverse effect on the Company, even if the Company
were ultimately to prevail in the defense of the claim.
LIMITED EXPERIENCE IN BOOK PUBLISHING AND FILM DISTRIBUTION.
Since it was founded in 1985, the Company has predominantly operated as
a publisher of audio books and a producer of television programming. The Company
has only recently begun its book publishing and film distribution businesses.
The Company's risks in these areas will be subject to the risks inherent in a
new venture in these industries. There can be no assurance that such businesses
will be successful or that the Company will be able to successfully integrate
these businesses into its operations.
DEPENDENCE ON CERTAIN OUTLETS FOR PUBLISHING PRODUCT.
During the years ended 1994 and 1995, book revenues, net of returns,
from book distribution to three retail outlets (Waldenbooks, B. Dalton and
Ingram) accounted in the aggregate for approximately 51% and 36% of net sales,
respectively. The level of the Company's sales of books through these and other
outlets significantly depends on shelf space allocated to such products. There
can be no assurance that the Company will be able to maintain current levels of
shelf space or distribution in such chains or in other distribution outlets or
that alternative distribution channels will be available in the future. Loss of
any of these retail outlets as a distribution channel or loss of a significant
amount of shelf space would have a material adverse effect on the Company's
results of operation and financial condition.
COMPETITION.
Competition is intense within the publishing, television and motion
picture industries and between each of these industries and other entertainment
media. Many major publishing houses have established operations and the Company
anticipates increased competition in the future from major record companies. The
cost of obtaining publishing rights from popular authors is escalating and, in
many cases, obtaining such rights is beyond the Company's capital resources. The
Company expects this trend to continue. As a result, it may become more
difficult to acquire rights to "blockbuster" works by authors with past
successes. Such ability may limit the opportunities available to the Company to
publish in audio format the works of such authors. In addition, increased
competition within the publishing industry could result in greater price
competition in the sale of books. Reductions in prices of books, as a result of
competition or otherwise, would adversely affect the Company's results of
operations and financial condition.
In addition, the Company is in competition with major television
companies and film studios as well as with numerous smaller companies for the
services of performing artists, other creative and technical personnel and
creative material. Many of the entities against which the Company competes have
substantially greater financial, personnel, technological, marketing, managerial
and other resources than the Company and have well established reputations in
the publishing, television and film industries. There can be no assurance that
the Company will continue to successfully compete.
8
<PAGE> 9
VARIABILITY OF QUARTERLY RESULTS.
The Company's operating revenues, cash flow and net earnings
historically have fluctuated significantly from quarter to quarter, depending in
large part on the delivery or availability dates of its programs and product and
the amount of related costs incurred and amortized in the period. Therefore,
year-to-year comparisons of quarterly results may not be meaningful and
quarterly results during the course of a fiscal year may not be indicative of
results that may be expected for the entire fiscal year. Such fluctuations may
adversely affect the market price of the Company's Common Stock.
NATURE OF ACCOUNTING PRINCIPLES APPLICABLE TO THE ENTERTAINMENT INDUSTRY.
The Company recognizes revenues from the sale of audio and printed
books, including the licensing of audio and printed book rights to third
parties, net of estimated returns and allowances, upon shipment of the product
or upon availability of the rights pursuant to the Company's licensing
arrangements. To allow for returns, the Company establishes a reserve against
revenues from audio and printed book sales, the magnitude of which is based on
management's estimate of returns. The Company's future reported revenues will be
negatively impacted if the Company's actual return experience exceeds its
established reserves. There can be no assurance that the Company's actual return
experience will not exceed its reserves, such as occurred in the fourth quarter
of 1995 primarily related to returns of the printed book "The Private Diary of
Lyle Menendez."
Audio and printed book inventory is valued at the lower of cost or
market using estimated average cost, determined using the first-in, first-out
method. If the Company's reserves for excess inventory are not adequate at any
time, the Company will be required, under generally accepted accounting
principles, to write down audio and printed book inventory, which will increase
cost of sales. Any such write-downs would have an adverse impact on the
Company's operating results. Excess inventory may arise as a result of, among
other things, customer returns. The extent of any write-downs will depend on,
among other things, the amount of actual returns received and the level of
production and sales activity. The Company establishes reserves against such
write-downs based on past experience with similar products. There can be no
assurance that the Company's reserve for excess inventory at any time will be
adequate and that additional write-downs will not be necessary.
Film costs, which include development, production and acquisition costs
of television programming and feature films, are capitalized and amortized, and
participations and royalties are accrued, in accordance with the individual film
forecast method in the proportion that current quarter's revenue bears to the
estimated total revenues from all sources. These costs are stated at the lower
of unamortized costs or estimated realizable value on an individual film basis.
Revenue forecasts for films are periodically reviewed by management, and the
Company's results of operations may be adversely affected as a result of a
write-down of carrying value of particular films in the event management's
estimate of ultimate revenues is materially decreased. There can be no assurance
that the Company will not incur write-downs in the future in respect of its film
and television operations; any such write-downs would have an adverse impact on
operating results.
KEY PERSONNEL.
The Company has been and continues to be dependent on the services of
Michael Viner and Deborah Raffin. Historically, the personal relationships
brought to the Company by Mr. Viner and Ms. Raffin have been important to the
Company. The Company maintains, and expects to continue to maintain as long as
the Company's Board of Directors considers the maintenance of such a policy to
be appropriate, a key-man life insurance policy on Mr. Viner's life with
benefits of $500,000 payable to the Company (and an additional $500,000 payable
to Ms. Raffin) in the event of Mr. Viner's death. In addition, the Company may
be dependent on the continued services of Ronald M. Ziskin, who has entered into
a three-year employment agreement as Chief Operating Officer of Dove Four Point
in connection with the Four Point acquisition. As the Company grows, it will
also need to hire additional qualified personnel. Competition for such personnel
is intense, and the loss of key employees or inability to hire and retain
additional qualified personnel would have a material adverse effect on the
Company. In addition, the success of the Company's audio and printed books is in
large part dependent upon the individuals with whom the Company contracts as
readers and authors. The Company does not have long-term contractual
arrangements with its readers and authors, and specific individuals may not be
available with respect to particular projects.
9
<PAGE> 10
CONTROL BY MANAGEMENT.
As of September 1, 1996, Michael Viner and Deborah Raffin beneficially
owned, in the aggregate, approximately 36% of the Common Stock (including
250,000 shares subject to outstanding options and 214,113 shares issuable upon
conversion of the Company's Series A Preferred Stock). Accordingly, such
persons, acting together, will continue to be in a position to exercise
significant control over the general affairs of the Company, including the
ability to elect directors, increase the authorized capital of the Company,
dissolve, merge, or sell the assets of the Company and generally direct the
affairs of the Company.
FOREIGN MARKET RISKS.
The Company is seeking to expand product sales in foreign markets
(including acting as foreign sales agent in its newly-established film
distribution business). There can be no assurance that the Company will be able
to expand sales in foreign markets or that such markets will prove to be viable.
To the extent that the Company is able to successfully expand its operations in
foreign markets, the Company may become increasingly subject to risks inherent
in foreign trade, including shipping delays, increased collection and currency
risks, trade restrictions, export duties and tariffs and international
political, regulatory and economic developments, all of which could have an
adverse effect on the Company's operating results. The Company has limited
experience in managing international transactions and has not historically
hedged against foreign currency fluctuation.
GOVERNMENT REGULATION.
The Federal Communications Commission ("FCC") repealed its financial
interest and syndication rules effective as of September 21, 1995. Those FCC
rules, which were adopted in 1970 to limit television network control over
television programming and thereby foster the development of diverse programming
sources, had restricted the ability of the established, major U.S. television
networks (i.e., ABC, CBS and NBC), to own and syndicate television programming.
The impact of the repeal of the FCC's financial interest and syndication rules
on the Company's operations cannot be predicted at the present time, although it
is expected that there will be an increase in in-house productions of television
programming for the networks' own use and potentially a decrease of programming
from independent suppliers such as the Company. It is possible that this change
will have a negative impact on the Company's business. Additionally, in
international markets, the Company may be subject to local content and quota
requirements which effectively prohibit or limit access to particular markets.
In a decision released September 1, 1995, the FCC repealed the Prime
Time Access Rule, effective August 30, 1996. The Prime Time Access Rule
generally prohibits network-affiliated television stations in the top 50
television markets from broadcasting more than three hours of network program,
or programs previously aired on a network during the four prime time viewing
hours (i.e., 7:00 p.m. -- 11:00 p.m. Eastern and Pacific times, and 6:00 p.m. --
10:00 p.m. Central and Mountain times). Due to the Prime Time Access Rule,
network-affiliated television stations often acquire a certain amount of
programming (typically including game shows) for exhibition during prime
time from independent television producers and syndicators. While the
Company's sale of syndicated programming during prime time is to both
independent television stations and network-affiliated stations, it is
possible that the repeal of the Prime Time Access Rule may constrict the
market for the Company's television programming product and that the Company
might be subject to increased competition.
10
<PAGE> 11
Under the Telecommunications Act of 1996 enacted in February 1996 (the
"1996 Act"), manufacturers of television set equipment will be required to equip
all new television receivers with a so-called "V-Chip" which would allow for
parental blocking of violent, sexually-explicit or indecent programming based on
a rating for any given program that would be broadcast along with the program.
Unless the television industry establishes a voluntary ratings system by
February 1998, the FCC is directed by the 1996 Act to develop a ratings system
based upon the recommendations of an advisory committee selected by the FCC. A
coalition of various segments of the entertainment industry has announced plans
to devise a voluntary industry ratings code for rating video programming with
respect to violent, sexual or indecent content. The industry coalition has
announced its intent to have these new guidelines in place before February 1997.
Other provisions of the 1996 Act revise the multiple broadcast
ownership rules, allow local exchange telephone companies to offer multichannel
video programming service, subject to certain regulatory requirements, and allow
for cable companies to offer local exchange telephone service.
The impact on the Company of the changes brought about by the 1996 Act
and by accompanying changes in FCC rules cannot be predicted at the present
time, although it is expected that there will be an increase in the demand for
video programming product as a result of the likelihood that these regulatory
changes will facilitate the advent of additional exhibition sources for such
programming. However, it is possible that recent alliances of certain program
producers and television station group owners, coupled with the recent FCC rule
revisions allowing a single television station licensee to own television
stations reaching up to 35% of the nation's television households, may place
additional competitive pressures on program suppliers such as the Company, to
the extent they are unaligned with the major networks or any television station
group owners.
ABSENCE OF DIVIDENDS.
No dividends have been paid on the Common Stock to date, and the
Company does not anticipate paying dividends on the Common Stock in the
foreseeable future.
AUTHORIZATION OF PREFERRED STOCK.
The Company's Articles of Incorporation authorize the issuance of up to
2,000,000 shares of preferred stock with the designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without shareholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting, or other
rights of the Selling Shareholders of the Common Stock. The Board of Directors
has designated 214,113 shares as Series A Preferred Stock, which are held by
Michael Viner and Deborah Raffin. In the event of additional issuances, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying, or preventing a change in control of the Company. See
"Description of Securities."
11
<PAGE> 12
OUTSTANDING OPTIONS AND WARRANTS.
As of September 1, 1996, there will be outstanding options granted
under the Company's Stock Incentive Plan to purchase an aggregate of 94,999
shares of Common Stock, at exercise prices ranging from $6.00 to $9.75 per
share, an additional 305,001 shares issuable upon exercise of options available
for future grant under the Company's Stock Incentive Plan, other options and
warrants to purchase an aggregate of 2,010,000 shares of Common Stock, at
exercise prices ranging from $.01 to $12.00 per share and 214,113 shares of
Series A Preferred Stock which are convertible into an aggregate of 214,113
shares of Common Stock. To the extent that outstanding options or warrants are
exercised or shares of Series A Preferred Stock are converted, the interests of
the Company's shareholders immediately prior to such exercise or conversion will
be diluted. Moreover, the terms upon which the Company will be able to obtain
additional equity may be adversely affected since the Selling Shareholders of
the outstanding options, warrants and Series A Preferred Stock can be expected
to exercise or convert, as the case may be, them at a time when the Company
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company than those provided by such securities.
SHARES ELIGIBLE FOR FUTURE SALE.
Substantially all of the 5,313,240 shares of Common Stock
outstanding as of the date of this Prospectus and, subject to issuance, the
2,319,112 shares of Common Stock issuable upon exercise of outstanding options
or warrants or issuable upon conversion of outstanding convertible securities
will be freely tradeable in the public markets, in certain cases pursuant to a
registration statement or available exemption from registration. No prediction
can be made as to the effect, if any, that sales of shares of Common Stock or
even the availability of such shares for sale will have on the market prices
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold in the public market may adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Description of
Securities -- Shares Eligible for Future Sale."
BROAD DISCRETION IN APPLICATION OF PROCEEDS.
The Company intends to use all of the net proceeds, if any, from the
exercise of the Warrants for working capital and other general corporate
purposes, including financing the acquisition of book and film properties and
the repayment of certain indebtedness incurred in connection with the
acquisition of Four Point. Accordingly, the Company will have broad discretion
as to the application of such proceeds without shareholder approval. The Company
has not determined the specific amount of funds and the timing of any payments
that may be required in connection with any such acquisitions. See "Use of
Proceeds."
12
<PAGE> 13
USE OF PROCEEDS
The Company will use the proceeds received from the exercise of the
Warrants, if any, for working capital and general corporate purposes. The
Company will receive no proceeds from the sale of the Shares pursuant to this
Prospectus.
The Company expects to continue to use a significant amount of its
working capital to finance its development, production and distribution
activities both domestically and in international markets.
The Company from time to time considers the acquisition of assets or
businesses complimentary to its current operations and may use a portion of the
net proceeds for such purposes. However, the Company does not have pending any
agreements for the acquisition of any business nor has it allocated any portion
of the net proceeds for any specific acquisitions.
SELLING SHAREHOLDERS
The Selling Shareholders are (i) certain persons who from time to time
hold Shares or Warrants exercisable therefor, (ii) Whale Securities Co., L.P.
(or their permitted assignees) and (iii) Joseph Stevens and Company, L.P. (or
their permitted assignees). It is unknown if, when, or in what amounts a Selling
Shareholder may offer Shares for sale. None of the Selling Shareholders has held
any position or office or held any other material relationship with the Company
or any of its affiliates within the past three years, other than (a) Whale
Securities Co., L.P. and Joseph Stevens & Company, L.P. who placed certain
securities sold by the Company and have certain rights to nominate a director or
attendee of meetings of the Board of Directors, (b) Mr. Sidney Sheldon, who
served as a director of the Company from its founding in 1985 until 1995 and (c)
Mr. Brian Levenberg, who served as the Acting Chief Financial Officer until
February 1996 and controller until May 1996.
There is no assurance that the Selling Shareholders will sell any or
all of the Shares offered hereby, that any of the Warrants will be exercised or
that any Shares issued upon exercise of the Warrants, if any, will be sold by
any of the Selling Shareholders. To the extent required, the public offering
price of the Shares to be sold, the names of any agent, dealer or underwriter
employed by such Selling Shareholders in connection with such sale, and any
applicable commission or discount with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement.
13
<PAGE> 14
The Shares covered by this Prospectus may be sold from time to time so
long as this Prospectus remains in effect; provided, however, that the Selling
Shareholder is first required to contact the Company's Corporate Secretary to
confirm that this Prospectus is in effect. Although the Company will use its
best efforts to maintain this Prospectus in effect for up to three years, there
can be no assurance that such will be the case. Since a Selling Shareholder may
be liable if he sells Shares when this Prospectus is not in effect, the Company
requires each Selling Shareholder to contact it to confirm that this Prospectus
is then in effect prior to any sale of Shares. The Selling Shareholders expect
to sell the Shares at prices then attainable, less ordinary brokers commissions
and dealers' discounts as applicable.
The Selling Shareholders and any broker or dealer to or through whom
any of the Shares are sold may be deemed to be underwriters within the meaning
of the Securities Act with respect to the Shares offered hereby, and any
profits realized by the Selling Shareholders or such brokers or dealers may be
deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the Selling
Shareholders are not expected to exceed normal selling expenses for sales
over-the-counter or otherwise, as the case may be. The registration of the
Shares under the Act shall not be deemed an admission by the Selling
Shareholders or the Company that the Selling Shareholders are underwriters for
purposes of the Act of any Shares offered under this Prospectus.
SELLING SHAREHOLDER LIST
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK(1)
Investor Before Offered(2)
Offering(2)
<S <C> <C>
James D. Cavanaugh 12,500 12,500
Alan G. Ghynoweth 6,250 6,250
William Dunn and Vita Wong 50,000 50,000
Robert H. Greenblatt 62,500 62,500
F. Roy MacKintosh 6,250 6,250
John McKinney 25,000 25,000
Pequot Endowment Fund, L.P.(3) 125,000 125,000
Harish H. Shah 12,500 12,500
Michael L. Snow 12,500 12,500
Wayne Ranches Profit Sharing 12,500 12,500
Boris and Marianne Yanovsky 62,500 62,500
Brent Cali 6,250 6,250
Mary Ann Connelly 12,500 12,500
Neil W. and Nita R. Freeman 12,500 12,500
Roy Furman 25,000 25,000
Ben Schwartz 12,500 12,500
Eric H. Paulson 12,500 12,500
Sidney Sheldon, Trustee of the 636,913(4) 25,000(4)
Sidney and Alexandria Sheldon
Revocable Trust, dated
April 18,1994(4)
Chilton International (BVI) Ltd. 62,500 62,500
Chilton Investment Partners, L.P 62,500 62,500
M.B. Walker Joint Trustee 25,000 25,000
Walker & Walker Limited Money
Purchase Pension Plan dated 6/30/70
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
Westminster Capital, Inc. 50,000 50,000
David P. Pfeil 50,000 50,000
Norton Herrick 375,000 375,000
Michael Cantor 12,500 12,500
Gary Benson 62,500 62,500
Ledger Domain Partners 25,000 25,000
Richard M. Wexler 6,250 6,250
Daniel T. McFadden 12,500 12,500
Argossy Limited 25,000 25,000
James de P. Todd 6,250 6,250
Celine B. Shea 25,000 25,000
Everest Capital Fund LP 75,000 75,000
Everest Capital International Ltd. 175,000 175,000
Victor Drai & Loryn Laughlin-Drai 6,250 6,250
Brian Levenberg 3,124 3,124
Victor & Elyse Reichenstein 6,250 6,250
Roderick MacAlpine 25,000 25,000
Beale H. Ong Pension Plan & Trust 12,500 12,500
Global Asset Allocation Consultants 12,500 12,500
Robert E. Pumphrey Jr. MD PSP 12,500 12,500
Kinston Pathology PA P/S/P 12,500 12,500
Combermere Corp. PSP 25,000 25,000
River Investments & Holdings Inc. 12,500 12,500
James V. Lyons, MD SEP/IRA 12,500 12,500
The Jaquar Investment Group 12,500 12,500
Gerard Romain TTEE Profit
Sharing Money Purchase Plan 6,250 6,250
Jeanne Viner Bell 6,250 6,250
John P. Sisson 6,250 6,250
Greg T. Buckholtz 12,500 12,500
James M. Schultz 12,500 12,500
Karen V. Fawcett and Victor M. Krame 6,250 6,250
Daniel Drimmer 6,250 6,250
Eugene Wood, MD Sep. IRA 6,250 6,250
Dr. James Thomas Sr. IRA 37,500 37,500
Ari Meyers 6,250 6,250
James Whiteside 12,500 12,500
Southern Medical Association PA 12,500 12,500
Law Offices of Frederick C. Parsons
III Profit Sharing Plan 12,500 12,500
Barnabe Palomares MD IRA 12,500 12,500
Elba Palomares IRA 12,500 12,500
James C. Hughes, III, MD TTEE PS TR 12,500 12,500
Robert J. Gay MD SEP/IRA 12,500 12,500
George Schimenti 9,376 9,376
Jonathan Axelrod 12,500(3) 12,500(3)
Kenneth Berg 6,250(3) 6,250(3)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
Irving Decter 6,250(3) 6,250(3)
Isaac R. Dweck 6,250(3) 6,250(3)
Jerry Finkelstein 12,500(3) 12,500(3)
Larry Gordon 12,500(3) 12,500(3)
Jeffrey S. Gutfreund 6,250(3) 6,250(3)
Gabriel Kaplan 6,250(3) 6,250(3)
Raj Kandia, M.D., a medical
corporation, Target
Benefit Plan Trust 6,250(3) 6,250(3)
Joel D. Preblod 12,500(3) 12,500(3)
Leonard M. Schiller 6,250(3) 6,250(3)
Suzanne Schiller 6,250(3) 6,250(3)
Stanley Schneider 6,250(3) 6,250(3)
Kenneth Smalheiser 6,250(3) 6,250(3)
Mark L. Saginor 6,250(3) 6,250(3)
Barbara Stone 6,250(3) 6,250(3)
Target Capital Corp. 12,500(3) 12,500(3)
John E. Tate 6,250(3) 6,250(3)
Morris Wolfson 6,250(3) 6,250(3)
Whale Securities Co., L.P. 190,000(5) 190,000(5)
Joseph Stevens & Company, L.P. 95,000(6) 95,000(6)
Total Offered: 2,335,000
</TABLE>
(1) Except for Sidney Sheldon (see Note (4)), all Selling Shareholders own less
than 1% of the outstanding shares of Common Stock after completion of the
offering, assuming the sale of all of the shares of Common Stock registered
as part of the registration statement of which this Prospectus is a part.
(2) Except as otherwise indicated by Note (3), Note (4), Note (5) or Note (6),
50% of the Common Stock included herein represents Common Stock issuable by
the Company upon exercise of warrants to purchase shares of Common Stock,
which warrants are exercisable after September 14, 1996. Such warrants were
issued as part of the Company's private placement commenced in November 1995
and completed in January 1996. See "Description of Securities - Units;
Redeemable Warrants."
(3) Represents Common Stock issuable by the Company upon exercise of warrants
to purchase shares of Common Stock, which warrants are currently
exercisable. Such warrants were issued as part of the Company's 1994 private
placement. See "Description of Securities - Units; Redeemable Warrants."
(4) Includes 12,500 shares of Common Stock issuable upon exercise of warrants to
purchase shares of Common Stock, which warrants are exercisable after
September 14, 1996. Such warrants were issued as part of the Company's
private placement commenced in December 1995 and completed in January 1996.
See "Description of Securities - Units; Redeemable Warrants." After the
completion of the offering hereby (assuming the sale by Mr. Sheldon of all
of the shares of Common Stock registered for him as part of the registration
statement of which this Prospectus is a part), Mr. Sheldon will beneficially
own 611,913 shares of Common Stock or approximately 11.5% of the outstanding
shares of Common Stock.
(5) Represents warrants to purchase 7.6 units, each unit consisting of the
right to acquire 12,500 shares of Common Stock and 12,500 warrants, each of
which entitles the holder thereof to purchase one share of Common Stock,
issued as part of the Company's private placement commencing in November
1995 and completed in January 1996. See "Description of Securities --
Units, Redeemable Warrants."
(6) Represents warrants to purchase shares of Common Stock issued as part of
the Company's 1994 private placement. See "Description of Securities --
Units; Redeemable Warrants."
16
<PAGE> 17
PLAN OF DISTRIBUTION
This Prospectus covers up to 2,335,000 shares of the Company's Common
Stock. All of the Shares offered hereby are being sold by the Selling
Shareholders. The Company will receive no proceeds from the sale of the Shares
by the Selling Shareholders. The Company will receive proceeds upon the
exercise, if any, of any of the Warrants, except in certain cases if such
Warrants are exercised pursuant to the "net" or cashless exercise Provisions
thereof.
The distribution of the Shares by the Selling Shareholders is not
subject to any underwriting agreement. The Selling Shareholders may sell the
Shares offered hereby from time to time in transactions in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale or
otherwise, at fixed prices which may be changed, at market prices prevailing at
the time of sale, at prices related to prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of the
customary commissions). The Selling Shareholders and any broker-dealers that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be underwriters and any commissions received by them and any profit
on the resale of the Shares commissioned by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Shareholders will pay any transaction costs associated with effecting any sales
that occur.
If any Selling Shareholder sells his, her or its Shares, or options
thereon, pursuant to this Prospectus at a fixed price or at a negotiated price
which is, in either case, other than the prevailing market price or in a block
transaction to a purchaser who resells, or if any Selling Shareholder pays
compensation to a broker-dealer that is other than the usual and customary
discounts, concessions or commissions, or if there are any arrangements either
individually or in the aggregate that would constitute a distribution of the
Shares, a post-effective amendment to the registration statement of which this
Prospectus is a part would need to be filed and declared effective by the
Commission before such Selling Shareholder could make such sale, pay such
compensation or make such a distribution. The Company is under no obligation to
file a post-effective amendment to the registration statement of which this
Prospectus is a part under such circumstances.
The Selling Shareholders are not restricted as to the price or prices
at which they may sell their Shares. Sales of such Shares may have an adverse
effect on the market price of the Common Stock. Moreover, the Selling
Shareholders are not restricted as to the number of Shares that may be sold at
any one time, and it is possible that a significant number of Shares could be
sold at the same time which may also have an adverse effect on the market price
of the Company's Common Stock.
17
<PAGE> 18
DESCRIPTION OF SECURITIES
The following description of the Company's securities is not complete
and is qualified in all respects by the provisions of the Company's Articles of
Incorporation and its Restated Bylaws, copies of which have been attached as
exhibits to the documents incorporated herein by reference and to which
reference is made for a detailed description of the provisions thereof
summarized below.
GENERAL
The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, $.01 par value per share and 2,000,000 shares
of preferred stock, $.01 par value per share, of which 214,113 shares have been
designated as Series A Preferred Stock. As of June 3, 1996, there were
outstanding 5,313,240 shares of Common Stock and 214,113 shares of Series A
Preferred Stock.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to vote
on all matters submitted to the shareholders; in electing directors, however,
each shareholder is entitled to cumulate votes for any candidate if, prior to
the voting, such candidate's name has been placed in nomination and any
shareholder has given notice of an intention to cumulate votes. The Common Stock
is not subject to redemption or to liability for further calls. Selling
Shareholders of Common Stock will be entitled to receive such dividends as may
be declared by the Board of Directors of the Company out of funds legally
available therefor and to share pro rata in any distribution to shareholders.
The shareholders have no conversion, preemptive or other subscription rights.
Shares of authorized and unissued Common Stock are issuable by the Company Board
without any further shareholder approval.
PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, the
Company is authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the shareholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of preferred stock. The issuance of additional
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes could, among other things, adversely
affect the voting power of the holders of Common Stock and Preferred Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.
Series A Preferred Stock.
The Series A Preferred Stock has a stated value of $4.00 per
share (the "Stated Value"). The holders of Series A Preferred Stock cannot vote
on any matters submitted to the shareholders of the Company, except as required
by applicable law.
The Series A Preferred Stock has a dividend preference at an
annual rate per share equal to eight percent of the outstanding shares (based on
$4.00 per share). Such dividends are payable annually. Such dividends are
cumulative and, to the extent in arrears, will bear interest at the annual rate
of eight percent, compounded quarterly. So long as accumulated dividends with
respect to the Series A Preferred Stock remain unpaid, the Company may not pay
any dividends or make any distribution on its capital stock (other than
dividends payable solely in equity securities of the Company), and the Company
may not purchase or otherwise acquire or redeem any securities junior in
preference to the Series A Preferred Stock.
18
<PAGE> 19
The Series A Preferred Stock bears a preference upon
dissolution or liquidation of the Company in an amount equal to the Stated Value
plus all accumulations of unpaid dividends and interest accruing thereon (in the
aggregate, the "Liquidation Preference"). The Series A Preferred Stock is
redeemable at the option of the Company, at any time after December 31, 1999, at
a redemption price equal to 110% of the Liquidation Preference and all
accumulated unpaid dividends and interest accruing thereon.
The Series A Preferred Stock is convertible at the option of
the holder, at any time, at an initial conversion ratio (the "Conversion Ratio")
of one share of Common Stock per share of Series A Preferred Stock. The
Conversion Ratio is subject to adjustment in the event of the issuance by the
Company of certain securities, or rights to acquire securities, which, in
general, have a dilutive effect upon the outstanding capital stock of the
Company. In addition, the Conversion Ratio is subject to adjustment in the event
of a subdivision or combination of the outstanding shares of Common Stock or in
the event of the reclassification of the capital stock of the Company or a
reorganization of the Company.
So long as shares of Series A Preferred Stock are outstanding,
the Company may not, without the approval of a majority of the then outstanding
shares of Series A Preferred Stock voting as a class, (i) alter or change the
rights, preferences or privileges of the shares of Series A Preferred Stock so
as to affect adversely such shares, (ii) amend its Articles of Incorporation so
as to affect adversely the shares of Series A Preferred Stock (except that the
Company may authorize or increase the number of authorized shares of Common
Stock), or (iii) increase the authorized number of shares of Series A Preferred
Stock, issue any class or series of equity securities senior to the Series A
Preferred Stock in the event of liquidation or dissolution of the Company or
reissue any shares of Series A Preferred Stock that may be acquired by the
Company by reason of redemption, purchase, or otherwise (and all such shares
shall be canceled, retired and eliminated from the shares which the Company
shall be authorized to issue).
UNITS; REDEEMABLE WARRANTS
On September 2, 1994 the Company consummated the sale of 300,000 Units
(the "1994 Units") at a price of $4.00 per Unit in a private placement (the
"1994 Private Placement"). Each Unit consists of one share of Common Stock and
one Redeemable Warrant (the "1994 Redeemable Warrants"). The shares of Common
Stock comprising the 1994 Units and the shares of Common Stock issuable upon
exercise of the 1994 Redeemable Warrants were registered for resale under the
Registration Statement relating to the Company's initial public offering. The
following description of the 1994 Redeemable Warrants summarizes the detailed
provisions of the 1994 Redeemable Warrants and the related Placement Agency
Agreement. Such statements do not purport to be complete and are qualified in
their entirety by reference to the 1994 Redeemable Warrants and the related
Placement Agency Agreement which are filed as exhibits to the Registration
Statement.
Each two 1994 Redeemable Warrants entitle the holder thereof to
purchase one share of Common Stock at a price of $8.00 per share (subject to
adjustment under certain circumstances) for a period of four years commencing on
the 1994 Private Placement closing date. The 1994 Redeemable Warrants are
redeemable by the Company at a price of five cents ($.05) per share underlying
the 1994 Redeemable Warrants at any time after six months from the closing date,
provided the Common Stock has traded on a nationally recognized stock exchange
or on NASDAQ at a per share closing price of $11.00 per share of more (subject
to adjustment under certain circumstances) for twenty (20) consecutive trading
days, and provided further that the 1994 Redeemable Warrants may only be
redeemed by the Company at such time as a majority of the holders thereof have
(or are granted) the right to demand registration of the Common Stock underlying
the 1994 Redeemable Warrants under the Securities Act or to sell such Common
Stock pursuant to Rule 144 promulgated under the Securities Act. The 1994
Redeemable Warrants do not confer upon the holder any voting or any other rights
of a shareholder of the Company. Pursuant to the related Placement Agency
Agreement, the Company has agreed and, pursuant to the several subscription
agreements between the purchasers and the Company, each of the purchasers of the
1994 Units has agreed, that the shares underlying the 1994 Redeemable Warrants
may be sold only through the underwriter, Joseph Stevens & Co.
19
<PAGE> 20
The exercise price of the 1994 Redeemable Warrants and the number and
kind of shares of Common Stock or other securities and property to be obtained
upon exercise of the 1994 Redeemable Warrants are subject to adjustment in
certain circumstances including a stock split, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock. Additionally,
an adjustment would be made upon the sale of all or substantially all of the
assets of the Company so as to enable holders of 1994 Redeemable Warrants to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable in such event by a holder of the number of shares of
Common Stock that might otherwise have been purchased upon exercise of such 1994
Redeemable Warrant. No adjustment for previously paid cash dividends, if any,
will be made upon exercise of the 1994 Redeemable Warrants.
In the event that the Company should merge with another company, become
a party to a consolidation or transfer all or substantially all of its assets to
another company, each 1994 Redeemable Warrant then outstanding would, without
the consent of any holder, become exercisable exclusively for the kind and
amount of securities, cash and other property receivable upon the merger,
consolidation or transfer by a holder of the number of shares of Common Stock
into which such Unit might have been converted immediately prior to such merger,
consolidation or transfer.
From November 1995 through January 1996, the Company sold 76
Units (the "Private Placement") each unit consisting of (i) 12,500 shares of
Common Stock and (ii) 12,500 Common Stock Purchase Warrants (the "Warrants").
Each Warrant is exercisable to purchase one share of Common Stock at an exercise
price of $12.00 per share, commencing nine months following the closing of the
Private Placement (or earlier upon the mutual consent of the Company and the
Placement Agent) and expires at the close of business on the last day of the
sixtieth month following the closing of the Private Placement. The exercise
price and number of shares of Common Stock or other securities issuable on
exercise of the Warrants are subject to adjustment in certain circumstances,
including in the event of a stock dividend, recapitalization, or certain mergers
or consolidations of the Company. However, the Warrants are not subject to
adjustment for issuances of Common Stock at prices below the exercise price of
the Warrants. Reference is made to the terms of the Warrant for a complete
description of the terms and conditions therein (the description contained
herein being qualified in its entirety by reference thereto).
The Warrants are redeemable by the Company, upon the Placement Agent's
consent, at any time commencing nine months after the closing of the Private
Placement upon notice of not less than 30 days, at a price of $.10 per Warrant;
provided, that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third day prior to the day on which the Company gives notice
has been at least 150% of the then effective exercise price of the Warrants. The
holders of the Warrants shall have the right to exercise their Warrants until
the close of business on the date fixed for redemption.
No fractional shares will be issued upon exercise of the 1995/1996
Warrants. In lieu thereof, the shares of Common Stock will be rounded down to
the nearest whole share.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent for the Common Stock is U.S. Stock Transfer
Corporation, Glendale, California.
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the 5,313,240 shares of Common Stock outstanding,
and subject to issuance, the 2,319,112 shares of Common Stock issuable upon
exercise of outstanding options or warrants or issuable upon conversion of
outstanding convertible securities will be freely tradeable in the public
markets, in certain cases pursuant to a registration statement or available
exemption from registration.
20
<PAGE> 21
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or even the availability of such shares for sale will have on the
market prices prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
the prevailing market price for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
EXPERTS
The consolidated financial statements of Dove Audio, Inc. as of and
for the year ended December 31, 1995 have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
On July 24, 1995, Ernst & Young LLP, successor to Kenneth, Leventhal &
Company, resigned as the Company's independent accountants. Kenneth, Leventhal &
Company audited the Company's 1992, 1993 and 1994 financial statements and
effective June 1, 1995 was merged into Ernst & Young LLP. In connection with the
Company's fiscal year ended December 31, 1994, there were no disagreements with
Kenneth Leventhal & Company on any manner of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to their satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with the Company's Report on
Form 8-K filed July 26, 1995.
The audit report of Kenneth Leventhal & Company on the consolidated
financial statements of the Company for the fiscal year ended December 31, 1994
did not contain any adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Company engaged KPMG Peat Marwick LLP as its principal accountants
as of September 18, 1995.
21
<PAGE> 22
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER TO SELL OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.......................................... 2
Incorporation by Reference..................................... 2
The Company.................................................... 4
Risk Factors................................................... 6
Use of Proceeds................................................ 13
Selling Shareholders........................................... 13
Plan of Distribution........................................... 17
Description of Securities...................................... 18
Experts........................................................ 21
</TABLE>
================================================================================
DOVE AUDIO, INC.
2,335,000 SHARES
COMMON STOCK
----------
PROSPECTUS
----------
September 17, 1996
================================================================================
