2,335,000 SHARES
NEWSTAR MEDIA INC.
COMMON STOCK
This Prospectus relates to 2,335,000 shares of common stock
of NewStar Media Inc., formerly known as Dove Entertainment, Inc.
and Dove Audio, Inc. 950,000 shares are currently issued and
outstanding, and 1,385,000 shares are issuable by us upon the
exercise of warrants. All of these shares may be sold from time
to time by the shareholders holding the shares. We will not
receive any proceeds from the sale of the shares. However, we
will receive proceeds upon the exercise of any of the warrants,
except in certain cases if such warrants are exercised pursuant
to the "net" or cashless exercise provisions in such warrants.
Our common stock is listed on the Nasdaq SmallCap Market
under the trading symbol "NWST." On March 9, 2000, the
closing bid price of the common stock as reported on the Nasdaq
SmallCap Market was $1 per share.
This investment involves a high degree of risk. Consider
carefully the risk factors beginning on page 3 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed on the accuracy or adequacy of the
prospectus. Any representation to the contrary is a criminal
offense.
The selling shareholders may sell the shares from time to
time on terms to be determined at the time of sale. Each selling
shareholder reserves the sole right to accept or reject, in whole
or in part, any proposed purchase of the shares.
March 9, 2000
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the
information that may be important to you. You should read the
entire prospectus and the documents incorporated by reference
carefully before you decide to purchase our shares of common
stock being offered by this prospectus. You should also
carefully consider the information provided in this prospectus
under the heading "Risk Factors." Significant additional
information may be found in our reports on forms 10-K and 10-Q
that are incorporated herein by reference.
NewStar Media Inc., formerly known as Dove Entertainment,
Inc. and Dove Audio, Inc., commenced business in 1985 as one of
the pioneers of the audio book industry and has become one of the
leading independent producers (i.e., unaffiliated with any single
book publisher) of audio books in the United States.
Through Dove Audio, our audio division, we have produced and
distributed an average of approximately 100 to 120 new audio
titles annually since our inception and have built a library of
over 1,400 audio titles currently offered for sale. We also
publish printed books through our NewStar Publishing division.
Through Dove Four Point, Inc. and NewStar Television Inc. we
engage in the production and development of television
programming. In 1995, we formed Dove International, Inc., now
known as NewStar Worldwide Inc., which is engaged in the
distribution of feature films and television programming.
We were incorporated in California in 1985. Our principal
executive offices are located at 8955 Beverly Boulevard, Los
Angeles, California 90048. Our telephone number is (310) 786-
1600.
The shares being offered were or will be issued upon the
exercise of warrants. We are registering those shares to allow
their resale by the selling shareholder.
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the
following factors, as well as all of the other information set
forth or incorporated by reference in this Prospectus, in
evaluating an investment in the shares.
We have incurred losses and may be unable to achieve
profitability. We also have experienced significant negative
cash flows.
We had a net loss of $4,936,000 for the fiscal year ended
December 31, 1998, a net loss of $16,570,000 for the fiscal year
ended December 31, 1997 and a net loss of $6,673,000 for the
fiscal year ended December 31, 1996. Our expenses can be
expected to increase. Accordingly, for us to be profitable,
there must be at least corresponding increases in revenues from
operations. We cannot assure you that we will achieve revenue
growth or that our operations will be profitable.
On November 12, 1997, we entered into an agreement with The
Chase Manhattan Bank ("Chase Bank") providing us with an
$8,000,000 loan facility for working capital purposes. In May
1998, the loan facility was increased to $10,000,000 with the
other terms of the original agreement remaining substantially the
same. The loan facility is secured by substantially all of our
assets. The loan facility runs for three years until November 4,
2000.
We were not in compliance with certain of the financial
compliance tests at December 31, 1998, March 31, 1999 and June
30, 1999 and requested waivers from Chase Bank. As of August 16,
1999, we received such waivers and we entered into amendments and
waivers to the loan facility with Chase Bank.
As a result of such amendments and waivers, we were in
compliance with the aforementioned financial compliance tests.
On January 28, 1999, Chase Bank and we were notified by one of
the guarantors that there would be no approvals for guarantees of
further extensions of credit under the Chase Loan. In connection
with the drafting of certain amendments and waivers to the Chase
Loan, we reached agreement with the guarantor for an extension
and modification of the guarantee agreement to provide for a
revised guarantee of $2,000,000.
At September 30, 1999, we had borrowed $8,300,000 against
the facility and had $17,000,000 of available funds for
borrowing. In addition, Chase Bank had provided a letter of
credit for $287,000 in respect of certain litigation.
We have experienced significant negative cash flows from
operations, including $10,659,000 and $8,691,000 for the years
ended December 31, 1998 and December 31, 1997, respectively, and
$5,844,000 for the nine months ended September 30, 1999. These
negative cash flows have resulted from, among other things,
losses from operations, use of working capital for expansion of
audio and printed book publishing, development of our
Http://www.AudioUniverse.com website, development of television
programming and the acquisition of theatrical motion picture
product. The Company currently is experiencing a severe shortage
of working capital. In the event that additional funding is not
obtained in the near future, the Company may not be able to
continue operations.
To the extent we obtain financing through sales of equity
securities, any such issuance of equity securities would result
in dilution to the interests of our shareholders. Additionally,
to the extent that we incur indebtedness or issue debt securities
in connection with any acquisition or otherwise, we 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. If we receive funding through
a sale or sales of assets, those assets will no longer be
available to the Company and its shareholders. Any proceeds from
a sale of assets would be used to pay down the Company's loan
facility. There is no assurance that the Company would be able
to reborrow such funds.
From time to time, we must fund our television production
activities and publishing and television operations in advance of
receipt of revenues.
Our television production activities can affect our capital
needs in that the revenues from the initial licensing of
television programming may be less than the associated production
costs. Our ability to cover the production costs of particular
programming is dependent upon the availability, timing and the
amount of fees obtained from distributors and other third
parties, including revenues from foreign or ancillary markets
where available. In any event, from time to time we are required
to fund at least a portion of our production costs, pending
receipt of programming revenues, out of our working capital.
Although our strategy generally is not to commence principal
photography without first obtaining commitments which cover all
or substantially all of the budgeted production costs, from time
to time we may commence principal photography without having
obtained commitments equal to or in excess of such costs. In
these circumstances, we will be required to fund at least a
portion of production and distribution costs, pending receipt of
anticipated future revenues, from working capital, from
additional debt or equity financings from outside sources or from
other financing arrangements, including bank financing. We
cannot assure you that any such additional financing will be
available on acceptable terms. If we are unable to obtain
financing, we may be required to reduce or curtail certain
operations.
In order to obtain rights to certain properties for our
publishing and television operations, we may be required to make
advance cash payments to sources of such properties, including
book authors and publishers. While we generally attempt to
minimize the magnitude of such payments and to obtain advance
commitments to offset such payments, we are not always able to do
so and there is no assurance we will be able to do so in the
future.
Our common stock could be delisted from the Nasdaq SmallCap
Market.
Although our common stock currently trades on the Nasdaq
SmallCap Market, we cannot assure you that our common stock will
continue to be traded on that market. On October 13, 1998, we
were notified by Nasdaq that our common stock will continue to be
listed on The Nasdaq SmallCap Market via an exception from the
net tangible assets requirement. Although we were not in
compliance with the net tangible assets requirement as of March
31, 1998, we were granted a temporary exception from this
standard subject to meeting certain conditions. In addition to
complying with all continued listing requirements, (1) on or
before November 16, 1998, we were required to make a public
filing containing a September 30, 1998 balance sheet, with pro
forma adjustments for any significant transactions or events
occurring on or before the filing date, evidencing at least
$2,700,000 in net tangible assets; and (2) on or before January
11, 1999, we were required to achieve a bid price for our common
stock of at least $1.00 per share and maintain such a bid price
for a minimum of ten consecutive trading days. On December 7,
1998, Nasdaq notified us that we satisfied both conditions.
On March 10, 1999, we were notified by Nasdaq that we failed
to satisfy Marketplace Rule 4310(c)(4) for continued listing of
our common stock on the Nasdaq SmallCap Market by failing to
maintain a closing bid price greater than or equal to $1.00.
Nasdaq informed us that no delisting action with respect to the
bid price deficiency was to be initiated at the time of such
notification. Instead, Nasdaq provided us ninety calendar days
from the date of the notification in which to regain compliance
with the minimum bid price requirement. We were to be deemed in
compliance if at anytime within ninety calendar days from March
9, 1999, the shares of our stock had a closing bid price of at
least $1.00 or more for a minimum of ten consecutive trading
days. Our shares had a closing bid price of at least $1.00 for
ten consecutive trading days during that period.
On April 19, 1999, Nasdaq informed us that Nasdaq had
determined that we were not in compliance with the net tangible
assets/market capitalization/net income requirements pursuant to
NASD Marketplace Rule 4310(c)(2). Also on that date, Nasdaq sent
separate correspondence to us in which Nasdaq noted that we had
received a "going concern" opinion from our independent auditor,
and expressed concern that, in light thereof, we may not be able
to sustain compliance with Nasdaq's continued listing
requirements. Nasdaq requested information from us by May 5,
1999 about our proposal for achieving compliance with Marketplace
Rule 4310(c)(2) and a timeline for resolution of the items that
led to the "going concern" opinion. On May 5, 1999, we submitted
our response to Nasdaq. Nasdaq did not take any further action
after May 5, 1999 with respect to its April 19, 1999
notification.
On September 23, 1999, Nasdaq informed us that our common
stock failed to maintain a minimum bid price greater than or
equal to $1.00 over the last thirty consecutive trading days, as
required under Marketplace Rule 4310(c)(4). We were provided
ninety calendar days, or until December 23, 1999, to regain
compliance with the minimum bid price requirement of Rule
4310(c)(4). If at any time before December 23, 1999, the bid
price of the Company's shares was equal to or greater than $1.00
for a minimum of ten consecutive trading days the staff of Nasdaq
would determine if compliance with the requirement had been
achieved. We were unable to demonstrate compliance with the
requirement on or before December 23, 1999, but requested a
hearing before the Nasdaq panel. Pending the hearing the
delisting was stayed.
Subsequently, we received another notification from Nasdaq
that we were not in compliance with the net tangible
assets/market capitalization/net income requirements pursuant to
NASD Market Place Rule 4310(c)(2).
On February 3, 2000 we appeared at a hearing before the
Nasdaq panel. Since then we have had further conversations with
Nasdaq and are providing additional information required by the
panel. We have not received a decision.
If at some future date our securities should cease to be
listed on the Nasdaq SmallCap Market, they may continue to be
traded on the OTC - Bulletin Board. If our common stock is
delisted from the Nasdaq SmallCap Market, it would likely be more
difficult to buy or sell the common stock or to obtain timely and
accurate quotations to buy or sell. In addition, the delisting
process could result in a decline in the trading market for our
common stock which could depress stock price, among other
consequences. We cannot assure you that at any time we will be
able to satisfy all of the conditions for continued listing on
the Nasdaq SmallCap Market.
Our television operations entail significant risks.
We fund operating expenses of our television operations,
even at the development stage. Television programming in
development may not be produced or sold. In addition, series
programming ordered by a network or syndicator may be canceled.
Also, there is a substantial risk that our television projects
will not be successful, resulting in costs not being recouped and
anticipated profits not being realized.
The publishing, television and film industries are highly
speculative and involve a substantial degree of risk.
The markets for our products are subject to rapidly changing
consumer preferences, resulting in short product life cycles and
frequent introduction of new products, many of which are
unsuccessful. We fund the development of our television and
publishing projects. If there is no or low demand for a
television project, audio or published book or film, we may
expend significant funds to develop such product without
corresponding revenues. That could adversely affect our future
operations. Our success will be largely dependent on our ability
to anticipate and respond to factors affecting the entertainment
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. We may not be
able to anticipate and respond to changing consumer tastes and
preferences. There is a substantial risk that our projects will
not be successful, resulting in costs not being recouped and
anticipated profits not being realized.
We are dependent on a limited number of projects.
Our business is dependent on our ability to acquire or
develop rights to exploit new audio, book, television and film
properties that will have broad market appeal. The majority of
our revenues have come from a small percentage of our projects.
The loss of a major project in any period or the failure or
less-than-expected performance of a major product in any period
could have an adverse effect on our results of operation and
financial condition.
The returns we experience and the price concessions and
allowances we grant in our publishing business could adversely
affect our business.
In accordance with industry practice, substantially all of
our sales of audio and printed book products are and will
continue to be subject to return by distributors and retailers if
not resold to the public. We have experienced significant
returns. These returns have been much greater than the average
in the book or audio book industry. We may experience returns of
our audio and printed book products in excess of our historical
returns. Although we make allowances and reserves for returned
products, significant increases in return rates could materially
and adversely impact our results of operations or financial
condition. In addition, we make price concessions or allowances
or grant credits to distributors or retailers in order to
minimize returns, and such concessions and allowances may
adversely affect our operating results. Certain of our revenues
are derived from sales at discount prices of excess inventory of
books, including returned book products, effected through
warehouse, outlet and other stores. Revenues from these sales
typically have not exceeded our per-unit costs. The availability
of product at discount prices also may have the effect of
reducing sales of full-price books, and, therefore, could
adversely affect our results of operation and financial
condition.
Potential claims for defamation, violation of right of privacy
and other claims could adversely affect our business.
One of the risks of our publishing and television business
is legal claims for defamation, violation of right of publicity
or privacy and other liability claims. Because of the
controversial nature of some of our publications, the risk of
liability claims may be greater for us compared to publishers in
general. We maintain liability insurance which we believe is
adequate to protect our assets. However, damages assessed
against us for existing and future claims may exceed the limits
of insurance coverage. Adequate insurance, on terms we believe
are commercially reasonable, may not be available in the future.
In addition, the potential negative publicity that could arise
from a liability claim could have a material adverse effect on
us, even if we were ultimately to prevail in the defense of the
claim.
Our publishing business is dependent upon shelf space at and
distribution through major outlet chains.
The level of our sales of books and audio books through
major outlets depends significantly on shelf space allocated to
such products. We may not be able to maintain current levels of
shelf space or distribution in major outlet chains or in other
distribution outlets (including, increasingly, distribution
channels over the internet). 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 our results
of operation and financial condition. We may not be able to
distribute our television product to television outlets to which
we have distributed in the past and/or alternate outlets may not
be available in the future. Loss of any television outlets would
have a material adverse effect on our results of operation and
financial condition.
Competition is intense within the publishing, television and
motion picture industries and between each of these industries
and other entertainment media.
We are in competition with major television companies and
film studios, major publishing houses, other audio book companies
and numerous smaller companies. We compete with these companies
for sales and for the services of performing artists, other
creative and technical personnel and creative material. Many
major publishing houses have established audio book operations
and we anticipate increased competition in the future from major
record companies. We also anticipate increased competition from
internet based spoken word and audiobook companies that provide
distribution via downloading. Many of the entities against which
we compete have substantially greater financial, personnel,
technological, marketing, managerial and other resources and have
well-established reputations in the publishing, television and
film industries. We may not be able to successfully compete.
The cost of obtaining publishing rights from popular authors is
escalating and, in many cases, obtaining such rights is beyond
our capital resources. We expect 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 us to publish the works
of such authors in audio format. In addition, increased
competition within the publishing industry could result in
greater price competition in the sale of books and audio books.
Reductions in prices of books and audio books, would adversely
affect our results of operations and financial condition.
The variability of our quarterly results could adversely affect
our stock price.
Our operating revenues, cash flow and net earnings (losses)
historically have fluctuated significantly from quarter to
quarter, depending in large part on the delivery or availability
dates of our programs and product and the amount of related costs
incurred and amortized in the period. For example, the demand
for audio books is seasonal, with the majority of shipments
taking place in the third and fourth quarters of the year.
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 our common stock.
Inadequate reserves or writedowns with respect to our publishing
and entertainment business could adversely affect our business.
We recognize 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 our licensing arrangements. To allow for returns, we
establish a reserve against revenues from audio and printed book
sales, the magnitude of which is based on management's estimate
of returns. Our future reported revenues will be negatively
impacted if the actual returns exceed our established reserves.
Actual returns may exceed our reserves.
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. Under generally accepted accounting
principles, if our reserve for excess inventory is not adequate
at any time, we will be required to write down audio and printed
book inventory, which will increase cost of sales. Any such
write-downs would have an adverse impact on our 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 quantity of actual returns
received and the level of production and sales activity and the
state and volatility of the remainder market. We
establish reserves against such write-downs based on past
experience with similar products. Our reserve for excess
inventory may not be adequate and additional write-downs may 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 our 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. We may
incur write-downs of our film and television operations in the
future and such write-downs would have an adverse impact on
operating results.
We are dependent on our ability to hire qualified personnel and
authors.
As we grow, we will need to hire additional qualified
personnel. Competition for qualified 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 us. In addition, the success of our audio and printed
books is in large part dependent upon readers and authors. We do
not have long-term contractual arrangements with our readers and
authors.
Management controls a significant percentage of our stock.
As of February 1, 2000, Media Equities International, LLC
beneficially owned approximately 7,642,042 shares of our common
stock, approximately 27.5% taking into account conversion or
exercise of preferred stock and warrants held by Media Equities
International, LLC. This number includes 6,218,000 shares
underlying warrants, which do not have voting rights until the
warrants are exercised, and shares issuable upon conversion of
preferred stock, which currently have voting rights. Media
Equities International, LLC is controlled by Terrence A. Elkes,
Kenneth F. Gorman, Ronald Lightstone, Bruce Maggin and John T.
Healy.
Mr. Elkes is Chairman of the Board of Directors and Chief
Executive Officer of our company. Mr. Gorman is Vice-Chairman of
our company. Messrs. Healy, Maggin and Lightstone are directors.
As of February 1, 2000, Mr. Elkes, through a limited
partnership, owned approximately 4,426,515 shares of our common
stock, which is approximately 20.5% of the outstanding common
stock, not including shares owned by Media Equities
International, LLC. As of February 1, 2000, Mr. Gorman, through
a limited partnership, owned approximately 4,476,514 shares of
our common stock, which is approximately 20.5% of the outstanding
common stock, not including shares owned by Media Equities
International, LLC. As of January 1, 2000, Mr. Lightstone owned
approximately 1 million shares of our common stock, which is
approximately 5% of the outstanding common stock, not including
shares owned by Media Equities International, LLC, but including
shares granted to him under his employment agreement with us that
have not yet vested.
Accordingly, Media Equities International, LLC and/or
Terrence Elkes and/or Kenneth Gorman and/or Ronald Lightstone
will continue to be in a position to exercise significant control
over our general affairs, including the ability to elect
directors, increase the authorized capital of our company,
dissolve, merge, or sell the assets of our company and generally
direct the affairs of our company.
The provisions of our Articles of Incorporation may inhibit a
change in control.
Our Articles of Incorporation authorize the issuance of up
to 2,000,000 shares of preferred stock with designations, rights
and preferences determined by its Board of Directors.
Accordingly, our Board of Directors is empowered, without
shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights preferential to
the rights of the shareholders of the common stock. The Board of
Directors has designated 214,113 shares as Series A Preferred
Stock, 5,000 shares as Series B Preferred Stock, 5,000 shares as
Series C Preferred Stock, 400,000 shares of Series D Preferred
Stock and 1,500 shares as Series E Preferred Stock. We could use
preferred stock as a method of discouraging, delaying, or
preventing a change in control of our company.
We have outstanding a significant number of options and warrants.
As of February 1, 2000, there were outstanding options
granted under our Stock Incentive Plans to purchase an aggregate
of 1,989,000 shares of common stock, at exercise prices ranging
from $0.50 to $6.00 per share, warrants to purchase an aggregate
of 4,664,013 shares of common stock at exercise prices ranging
from $0.50 to $12.00 per share, 4,000 shares of Series B
Preferred Stock which are convertible into an aggregate of
2,000,000 shares of common stock, 1,920 shares of Series C
Preferred Stock which are convertible into an aggregate of
960,000 shares of common stock and 214,113 shares of Series D
Preferred Stock which is convertible into an aggregate of 258,000
shares of common stock. There are also approximately 1,300
shares of Series E Preferred Stock held in escrow which are
convertible into common stock only upon release from escrow. To
the extent that outstanding options or warrants are exercised or
shares of preferred stock are converted, the interests of our
shareholders immediately prior to such exercise or conversion
will be diluted.
We are subject to legal proceedings and claims that could have a
material adverse effect on our business.
We are involved in numerous litigation and arbitration
matters. These matters cost us substantial amounts in legal fees
and divert the attention of management and employees from
productive activities. In addition, if the outcome of litigation
or arbitration proceedings is decided against us, we may incur
significant monetary liability.
Below is a brief explanation of significant litigation and
arbitration proceedings. In addition to these proceedings, we
are a party to various other legal proceedings and claims
incidental to our business.
We are a defendant in a case entitled Steven A. Stern and
Steven A. Stern as assignee of the claims of Sharmhill
Productions (BC), Inc., a bankrupt company v. Dove Audio, Inc.
et. al. (British Columbia Supreme Court, Vancouver Registry No.
C930935). The plaintiff claims that he was fraudulently induced
to enter into an agreement relating to the film "Morning Glory".
He is seeking in excess of $4.5 million in damages. We believe
that we have good and meritorious defenses to the action.
Nevertheless, we may not prevail in the action.
In March 1996, we were served with a complaint in an action
entitled Alexandra D. Datig v. Dove Audio, et al. (Los Angeles
Superior Court Case No. BC145501). The action was brought by a
contributor to, and relates to, the book "You'll Never Make Love
In This Town Again." The Datig complaint sought in excess of a
million dollars in monetary damages. In October 1996, we
obtained a judgment of dismissal of the entire action, which
judgment also awarded us our attorney's fees and costs in
defending the matter. Ms. Datig, appealed the judgment. On July
15, 1999, the Court of Appeal of the State of California Second
Appellate District Division 3 issued its opinion on plaintiff's
appeal from judgment in the matter, which opinion was modified on
August 13, 1999. The appeals court reversed the judgment and
remanded the proceedings to the trial court. While we believe
that we have good and meritorious defenses to the claims in the
action at the trial court level, there is no assurance that we
will prevail in the action.
In June 1997, we were served with a complaint in an action
entitled Michael Bass v. Penguin USA Inc., et al. (New York
Superior Court Case No. 97-111143). The complaint alleged among
other things that the book "You'll Never Make Love In This Town
Again" defamed Mr. Bass and violated his rights of publicity
under New York statutes. The complaint sought damages of
$70,000,000 for defamation and $20,000,000 for violation of the
New York right of publicity statutes and an injunction taking the
book out of circulation and prohibiting the use of Mr. Bass'
name. The action in New York was voluntarily stayed after Mr.
Bass filed a similar action in the State of California entitled
Michael Bass v. Penguin USA et. al. (California Superior Court
Case No. SC049191) seeking essentially the same damages. The
action in California was dismissed with prejudice on July 6,
1998. However, there is no assurance that the plaintiff will not
appeal the dismissal, or in the event of such an appeal, that we
will prevail.
In August 1997, Michael Viner and Deborah Raffin Viner,
former principals, commenced an arbitration against us seeking
specific performance of, and alleging breach of, a termination
agreement to which they and we are a party, and claimed damages
in excess of $165,000 and additional reimbursements allegedly due
for other items. We filed our own claims against the former
principals. On July 17, 1998, the arbitrator ruled in favor of
us on some issues and in favor of the former principals on other
issues, resulting in a net recovery by the former principals of
approximately $30,000. The arbitrator also confirmed an earlier
ruling that a provision of the termination agreement prohibiting
the former principals from competing with us in the audio book
business for a period of four years from June 10, 1997 is valid
and enforceable, and enjoined and restrained the former
principals from engaging in the audio book business during that
period. On November 20, 1998, the Los Angeles County Superior
Court confirmed the arbitrator's award. The former principals
have appealed the court's order confirming this award.
On September 28, 1998, the former principals commenced an
arbitration against us, alleging breach of, and seeking specific
performance of, the termination agreement. In December 1998, the
former principals asserted that they were entitled to rescission
of the termination agreement for material failure of
consideration, or, in the alternative, unspecified damages
against us. In a decision dated March 31, 1999, the arbitrator
determined that the former principals may not rescind the
termination agreement on the grounds presented to the arbitrator.
The arbitrator issued a subsequent decision dated November 19,
1999, which he thereafter corrected and amended and purported to
later clarify, in which he determined that a provision of the
termination agreement prohibiting the former principals from
hiring, soliciting, encouraging the departure of, or engaging or
seeking to employ authors under contract to us or included in our
catalogs is void and unenforceable. The arbitrator also
determined that the former principals had the discretion to elect
to receive payments under the termination agreement in cash,
rather than preferred stock. The former principals have sought
to have the Los Angeles Superior Court confirm the clarified,
corrected and amended award. While we believe that we have good
and meritorious grounds to have the clarified, corrected and
amended award vacated, we may not prevail.
On June 1, 1999, a complaint entitled Michael Viner and
Deborah Raffin v. NewStar Media Inc. (BC 211240) was filed in Los
Angeles Superior Court. The plaintiffs allege violation of the
Lanham Act, statutory and common law unfair competition and false
advertising, and seek damages in an amount according to proof,
punitive damages, and preliminary and permanent injunctive
relief. On August 4, 1999 we removed the action to the United
States District Court for the Central District of California
Western Division (Case No. 99-07970 CBM (SHx)). While we believe
that we have good and meritorious defenses to the claims in the
action, there is no assurance that we will prevail in the action.
On March 1, 2000, a complaint entitled Michael Viner and
Deborah Raffin Viner v. NewStar Media Inc. (BC 225685) was filed
in Los Angeles Superior Court. The plaintiffs allege that they
are entitled to indemnity for the arbitration proceedings that
MEI commenced against the former principals in the second quarter
of 1999. While we believe that we have good and meritorious
defenses to the claims in the action, there is no assurance that
we will prevail in the action.
In December of 1997, we were served with a complaint in an
action entitled Gerald J. Leider v. Dove Entertainment, Inc.,
f.k.a. Dove Audio, Inc. (Los Angeles Superior Court Case No. BC
183056). Mr. Leider is a former Chairman of the Board and
consultant to our company and sought damages of approximately
$287,000 for breach of contract and $60,000 for unpaid consulting
fees. Mr. Leider also sought a declaration that we must comply
with certain purported stock option agreements and for an order
for inspection and copying of certain of our records and an award
of expenses related thereto. On April 21, 1998, Mr. Leider
obtained a writ of attachment for approximately $287,000 in
respect of his claims, for which we substituted an undertaking
for the amount of attachment. We have settled this action.
On July 6, 1998, a first amended complaint in the action
entitled Mattken Corp. and Gerald J. Leider v. NewStar Media,
Inc. was filed in the Los Angeles County Superior Court (BC
191736). The plaintiffs alleged breach of contract arising out
of a purported agreement between Mr. Leider and us in connection
with executive producer services on the motion picture "Morning
Glory", and a purported sales agency agreement between Mattken
Corp. and us. Plaintiffs were seeking in excess of $350,000. We
have settled this action.
On July 10, 1998 an action entitled Palisades Pictures LLC,
Nothing to Lose Productions Inc., CUB Films, Mark Severini, Eric
Bross and Jeff Dowd v. Dove International, Inc., Dove Audio, Inc.
and NewStar Media, Inc. was filed in Los Angeles County Superior
Court (BC 194069). Plaintiffs alleged breach of contract, breach
of implied covenant of good faith and fair dealing, breach of
fiduciary duty, interference with prospective economic advantage
and promissory estoppel, arising out of an alleged distribution
agreement pursuant to which Dove International, Inc. was to have
distributed the motion picture "Nothing to Lose." Plaintiffs
were seeking damages in excess of $1,000,000, plus punitive and
exemplary damages. On August 30, 1999, the plaintiffs dismissed
the action without prejudice for the purpose of settlement
discussions, and the defendants entered into a tolling agreement
so that the plaintiffs could refile the action if the matter is
not settled. We cannot assure you that we will be able to settle
the matter, or if the matter is not settled, that we will prevail
in the action.
In February 1999, we were served with a complaint in an
action entitled Norton Herrick v. NewStar Media Inc., Michael
Viner and Deborah Raffin Viner (Los Angeles Superior Court Case
No. SC055421). The action was brought by one of the shareholders
who opted out of the settlement of our class action lawsuits.
The complaint alleges fraud, negligent misrepresentation,
violation of sections 25400 and 25401 of the California
Corporations Code and breach of fiduciary duty, and seeks
recovery of in excess of $1,000,000 plus exemplary and punitive
damages. We have settled this action.
USE OF PROCEEDS
We will use the proceeds received from the exercise of any
warrants for working capital and general corporate purposes. We
will not receive any of the proceeds from the sale of the shares
pursuant to this prospectus.
SELLING SHAREHOLDERS
The following table sets forth the selling shareholders and
certain information as of September 12, 1996, other than the
information regarding Norton Herrick, Michael Herrick, Howard
Herrick and Evan Herrick which is as of February 1, 2000. 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 us or any of
our affiliates within the past three years, other than Whale
Securities Co., L.P. and Joseph Stevens & Company, L.P., Mr.
Sidney Sheldon, and Mr. Brian Levenberg. Whale Securities Co.,
L.P. and Joseph Stevens & Company, L.P. placed certain securities
sold by us and had certain rights to nominate a director or
attendee of meetings of our Board of Directors. Mr. Sidney
Sheldon served as a director of our company from its founding in
1985 until 1995. Mr. Brian Levenberg served as the Acting Chief
Financial Officer until February 1996 and controller until May
1996.
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 our Corporate Secretary to confirm that this prospectus
is in effect.
<PAGE>
<TABLE>
<CAPTION>
SELLING SHAREHOLDER LIST
BENEFICIAL OWNERSHIP OF COMMON STOCK
Investor Before Offered <1>
Offering <1>
<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.<2> 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 Sidney and 636,913 <3> 25,000 <3>
Alexandria Sheldon Revocable Trust, dated
April 18,1994<3>
Chilton International (BVI) Ltd. 62,500 62,500
Chilton Investment Partners, L.P 62,500 62,500
M.B. Walker Joint Trustee Walker & Walker 25,000 25,000
Limited Money Purchase Pension Plan dated
6/30/70
Westminster Capital, Inc. 50,000 50,000
David P. Pfeil 50,000 50,000
Norton Herrick 315,000 <7> 315,000 <7>
Michael Herrick 20,000 <8> 20,000 <8>
Howard Herrick 20,000 <8> 20,000 <8>
Evan Herrick 20,000 <8> 20,000 <8>
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 12,500 12,500
Sharing Plan
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 6,250 6,250
George Schimenti 9,376 9,376
Jonathan Axelrod 12,500 <2> 12,500 <2>
Kenneth Berg 6,250 <2> 6,250 <2>
Irving Decter 6,250 <2> 6,250 <2>
Isaac R. Dweck 6,250 <2> 6,250 <2>
Jerry Finkelstein 12,500 <2> 12,500 <2>
Larry Gordon 12,500 <2> 12,500 <2>
Jeffrey S. Gutfreund 6,250 <2> 6,250 <2>
Gabriel Kaplan 6,250 <2> 6,250 <2>
Raj Kandia, M.D., a medical corporation, 6,250 <2> 6,250 <2>
Target Benefit Plan Trust
Joel D. Preblod 12,500 <2> 12,500 <2>
Leonard M. Schiller 6,250 <2> 6,250 <2>
Suzanne Schiller 6,250 <2> 6,250 <2>
Stanley Schneider 6,250 <2> 6,250 <2>
Kenneth Smalheiser 6,250 <2> 6,250 <2>
Mark L. Saginor 6,250 <2> 6,250 <2>
Barbara Stone 6,250 <2> 6,250 <2>
Target Capital Corp. 12,500 <2> 12,500 <2>
John E. Tate 6,250 <2> 6,250 <2>
Morris Wolfson 6,250 <2> 6,250 <2>
Whale Securities Co., L.P. 190,000 <5> 190,000 <5>
Joseph Stevens & Company, L.P. 95,000 <6> 95,000 <6>
--------
Total Offered <4>: 2,335,000
<FN>
<1> Except as otherwise indicated by Note (2), Note (3), Note
(5) or Note (6), 50% of the common stock included herein
represents common stock issuable by us 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 our private placement commenced in November 1995 and
completed in January 1996.
<2> Represents common stock issuable by us upon exercise of
warrants to purchase shares of common stock, which warrants are
currently exercisable. Such warrants were issued as part of our
1994 private placement.
<3> 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 our private placement commenced in
December 1995 and completed in January 1996. After the
completion of this offering, 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.
<4> Except for Sidney Sheldon (see Note (3)), 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.
<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 our private
placement commencing in November 1995 and completed in January
1996.
<6> Represents warrants to purchase shares of common stock
issued as part of our 1994 private placement.
<7> Represents 187,500 shares of common stock and 127,500
shares of common stock issuable by us upon the exercise of
warrants issued as part of our private placement commenced in
November 1995 and completed in January 1996.
<8> Represents 20,000 shares of common stock issuable by us
upon the exercise of warrants issued as part of our private
placement commenced in November 1995 and completed in January
1996.
</FN>
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
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,
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. We are 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 our
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 our common stock.
DESCRIPTION OF SECURITIES
The following description of our securities is not complete
and is qualified in all respects by the provisions of our
Articles of Incorporation and Restated Bylaws. Copies of our
Articles of Incorporation and Restated Bylaws have been attached
as exhibits to the documents incorporated herein by reference and
reference is made to such exhibits for a detailed description of
the provisions of the Articles of Incorporation and Restated
Bylaws summarized below.
General
Our authorized capital stock consists of 50,000,000 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, 5,000
shares have been designated as Series B Preferred Stock, 5,000
shares have been designated as Series C Preferred Stock, 400,000
shares have been designated as Series D Preferred Stock and 1,500
shares have been designated as Series E Preferred Stock.
As of February 1, 2000, there were outstanding 21,612,058 shares
of common stock and 220,033 shares of preferred stock. The
following is a brief description of the common 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. Holders
of common stock will be entitled to receive such dividends as may
be declared by our Board of Directors 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 our Board without any further
shareholder approval.
Transfer Agent and Registrar
The Transfer Agent for the common stock is U.S. Stock
Transfer Corporation, Glendale, California.
EXPERTS
Our consolidated financial statements as of and for the year
ended December 31, 1998 have been incorporated by reference
herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and
copy any document we file at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public
reference room. You may also obtain our SEC Filings from SEC's
Website at http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those documents.
The information incorporated by reference is considered to be
part of this prospectus. When we file information with the SEC
in the future, that information will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future filings we will make prior
to the termination of the offering with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998;
2. Our Amendment to Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1998 filed April 28, 1999;
3. Our Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1999;
4. Our Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1999;
5. Our Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1999;
6. Our Current Report on Form 8-K filed May 27, 1999;
7. Our Current Report on Form 8-K filed October 1, 1999;
8. Our Information Statement on Schedule 14C filed June 8,
1999;
9. Our Proxy Statement on Schedule 14A filed November 19, 1999;
and
10. The description of our common stock contained in our
Registration Statement on Form 8-A, filed on October 14, 1994.
You may request a copy of these filings, at no cost, by
writing or telephoning us at:
NewStar Media
8955 Beverly Boulevard
Los Angeles, California 90048
(310)786-1600
<PAGE>
NEWSTAR MEDIA INC.
2,335,000 SHARES
COMMON STOCK
PROSPECTUS
March 9, 2000
TABLE OF CONTENTS
Prospectus Summary 2
Risk Factors 3
Use of Proceeds 10
Selling Shareholders 10
Plan of Distribution 15
Description of Securities 15
Where you can find more information 16
Information Incorporated by Reference 16
You should rely only on the information contained or incorporated
by reference in this prospectus and in any accompanying
prospectus supplement. No one has been authorized to provide you
with different information. The common stock is not being
offered in any jurisdiction where the offer is not permitted.
You should not assume that the information in this prospectus or
any prospectus supplement is accurate as of any date other than
the date on the front of the documents.
