-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WnenZpMNEhl2rLG2AnmWlYBXOf74DeAOVndSTDwL1cE46p6RAaocTvca6wIMvjNU v40exAHWoVYMJR4ERemFCg== 0001019687-99-000387.txt : 19990712 0001019687-99-000387.hdr.sgml : 19990712 ACCESSION NUMBER: 0001019687-99-000387 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990709 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWSTAR MEDIA INC CENTRAL INDEX KEY: 0000930436 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 954015834 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-82553 FILM NUMBER: 99661622 BUSINESS ADDRESS: STREET 1: 8955 BEVERLY BLVD CITY: LOS ANGELES STATE: CA ZIP: 90048 BUSINESS PHONE: 3107861600 MAIL ADDRESS: STREET 1: 301 NORTH CANNON DR SUITE 207 STREET 2: 8955 BEVERLY BLVD CITY: WEST HOLLYWOOD STATE: CA ZIP: 90048 FORMER COMPANY: FORMER CONFORMED NAME: DOVE ENTERTAINMENT INC DATE OF NAME CHANGE: 19970516 FORMER COMPANY: FORMER CONFORMED NAME: DOVE AUDIO INC DATE OF NAME CHANGE: 19941021 S-3 1 NEWSTAR MEDIA INC. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999 REGISTRATION NO. SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NEWSTAR MEDIA INC. (Exact Name of Registrant as Specified in its Charter) CALIFORNIA 95-4015834 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 8955 BEVERLY BOULEVARD LOS ANGELES, CALIFORNIA 90048 (310) 786-1600 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ROBERT C. MURRAY VICE PRESIDENT AND GENERAL COUNSEL NEWSTAR MEDIA INC. 8955 BEVERLY BOULEVARD LOS ANGELES, CALIFORNIA 90048 (310) 786-1600 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AS DETERMINED BY MARKET CONDITIONS. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or reinvestment plans, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM TITLE OF CLASS OF AMOUNT MAXIMUM OFFERING AGGREGATE SECURITIES TO BE PRICE PER OFFERING AMOUNT OF TO BE REGISTERED REGISTERED SHARE(1) PRICE REGISTRATION FEE ----------------- ---------- ---------------- --------- ----------------- Common Stock, par value $.01 per 9,641,757 shares $1.547 $14,915,798 $4,147
(1) Estimated solely for the purpose of determining the registration fee based on the average of the high and low prices of the Common Stock reported on the NASDAQ on July 2, 1999 in accordance with Rule 457(c) under the Securities Act of 1933. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. -ii- 9,641,757 SHARES NEWSTAR MEDIA INC. COMMON STOCK This Prospectus relates to an aggregate of 9,641,757 shares of common stock, $.01 par value per share of NewStar Media Inc., a California corporation. All of the shares are issued and outstanding and will be sold by the shareholders holding such shares. The Company will not receive any proceeds from the sale of the shares. The common stock is listed on the Nasdaq SmallCap Market under the trading symbol "NWST." On July 2, 1999, the closing bid price of the common stock as reported on the Nasdaq SmallCap Market was $1.594 per share. THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 2 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. The Information In This Prospectus Is Not Complete and May Be Changed. The Selling Shareholders May Not Sell the Shares Until the Registration Statement Filed With the Securities and Exchange Commission Is Effective. This Prospectus Is Not an Offer To Sell the Shares and It Is Not an Offer to Buy the Shares in Any State Where the Offer or Sale Is Not Permitted. The mailing address and telephone number of the principal executive offices of the Company is 8955 Beverly Boulevard, Los Angeles, California 90048 Tel: 310-786-1600. July 9, 1999 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. ALL REFERENCES TO THE "COMPANY" OR "NEWSTAR" REFER TO NEWSTAR MEDIA INC. AND ITS SUBSIDIARIES. NET OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING. The Company 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. The Company's expenses can be expected to increase in connection with the expansion of the Company's publishing, television and film distribution activities. Accordingly, for the Company to be profitable, there must be at least corresponding increases in revenues from operations. There is no assurance that the Company will achieve revenue growth or that the Company's operations will be profitable. On November 12, 1997, the Company entered into an agreement with The Chase Manhattan Bank ("Chase Bank") providing the Company with an $8,000,000 loan facility for working capital purposes ("Chase Loan"). This facility was increased in May 1998 to $10,000,000. The Chase Loan is secured by substantially all of the Company's assets. The Chase Loan terminates on November 4, 2000. The Company was not in compliance with certain of the financial compliance tests under the Chase Loan at December 31, 1998 and June 28, 1999 and has requested waivers from Chase Bank. As of June 28, 1999, the Company has not received any such waivers and although the Company and Chase Bank are in the process of drafting amendments and waivers to the Chase Loan, there is no assurance that the Company will actually receive such amendments and waivers. Accordingly, the Company has continued to classify Notes Payable to Chase Bank as a current liability as of March 31, 1999. At June 28, 1999, the Company had borrowed $7,500,000 against the total facility of $10,000,000. In addition, Chase Bank had provided a letter of credit for $287,000 in respect of certain litigation. On January 28, 1999, the Company and Chase Bank were notified by one of the guarantors under the Chase Loan that there would be no approvals for guarantees of further extensions of credit under the Chase Loan. Accordingly, as of January 28, 1999, the Company had borrowed the maximum amount permitted to be borrowed under the Chase Loan. The Company believes that its current capital resources may not be sufficient to cover immediate capital requirements. The Company has 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 $1,600,000 for the three months ended March 31, 1999. Such 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 television programming and the acquisition of theatrical motion picture product. The Company plans to significantly increase the level of activity in both its audio book and television production operations. In addition, the Company has plans to expand its development, production and distribution activities in both its publishing and television operations (although there is no assurance that the Company will expand or that such expansion will be profitable). Such expansion may include future acquisitions of library product or other assets complementary to its current operations or acquisitions of rights involving significantly greater outlays of capital than required in the business conducted to date by the Company. In the event that additional working capital is not obtained or not obtained in significant amounts, the Company's operations may be significantly curtailed. To the extent the Company obtains financing through 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. -2- The Company's television production activities can affect its capital needs in that the revenues from the initial licensing of television programming may be less than the associated production costs. The ability of the Company 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, the Company from time to time is required to fund at least a portion of its production costs, pending receipt of programming revenues, out of its working capital. Although the Company's 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 the Company may commence principal photography without having obtained commitments equal to or in excess of such costs. 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, from additional debt or equity financings from outside sources or from other financing arrangements, including bank financing. There is no assurance that any such additional financing will be available on acceptable terms. If the Company is unable to obtain such financing, it may be required to reduce or curtail certain operations. In order to obtain rights to certain properties for the Company's publishing and television operations, the Company may be required to make advance cash payments to sources of such properties, including book authors and publishers. While the Company generally attempts to minimize the magnitude of such payments and to obtain advance commitments to offset such payments, the Company is not always able to do so and there is no assurance it will be able to do so in the future. NO ASSURANCE AS TO LISTING ON THE NASDAQ SMALLCAP MARKET. Although the Common Stock currently trades on the Nasdaq SmallCap Market, there is no assurance that the common stock will continue to be traded on that market. On October 13, 1998, the Company was notified by The Nasdaq Stock Market, Inc. ("Nasdaq") that the Company's common stock will continue to be listed on The Nasdaq SmallCap Market via an exception from the net tangible assets requirement. Although the Company was not in compliance with the net tangible assets requirement as of March 31, 1998, the Company was granted a temporary exception from this standard subject to the Company meeting certain conditions. In addition to complying with all continued listing requirements, (1) on or before November 16, 1998, the Company was 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, the Company was required to achieve a bid price for its 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 the Company that the Company satisfied both conditions. On March 10, 1999, the Company was notified by Nasdaq that the Company failed to satisfy Marketplace Rule 4310(c)(4) for continued listing of its common stock on the Nasdaq SmallCap Market by failing to maintain a closing bid price greater than or equal to $1.00. Nasdaq informed the Company that no delisting action with respect to the bid price deficiency was to be initiated at the time of such notification. Instead, Nasdaq provided the Company ninety calendar days from the date of the notification in which to regain compliance with the minimum bid price requirement. The Company will be deemed in compliance if at anytime within ninety calendar days from March 9, 1999, the shares of the Company's stock have a closing bid price of at least $1.00 or more for a minimum of ten consecutive trading days. Since March 10, 1999, the shares of the Company's stock have had a closing bid price of at least $1.00 for ten consecutive trading days, however, the Company has not been notified by Nasdaq that is has regained compliance with the minimum bid price requirement. On April 19, 1999, Nasdaq informed the Company that Nasdaq had determined that the Company was 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 the Company in which Nasdaq noted that the Company has received a "going concern" opinion from its independent auditor, and expressed concern that, in light thereof, the Company may not be able to sustain -3- compliance with Nasdaq's continued listing requirements. In connection therewith, Nasdaq requested information from the Company by May 5, 1999 about the Company's 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, the Company submitted its response to Nasdaq. If Nasdaq does not deem the response sufficient to warrant continued listing, Nasdaq will immediately issue a formal notice of deficiency which specifies the date that the Company's common stock would be delisted from the Nasdaq SmallCap Market. There can be no assurance that the Company's stock will remain listed on the Nasdaq SmallCap Market. If at some future date the Company's securities should cease to be listed on the Nasdaq SmallCap Market, they may continue to be traded on the OTC - - Bulletin Board. If the Company's common stock is delisted from the Nasdaq SmallCap Market, it would likely be more difficult to buy or sell the Company's 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 the Company's common stock which could depress the Company's stock price, among other consequences. There is no assurance that at any time the Company will be able to satisfy all of the conditions for continued listing on the Nasdaq SmallCap Market. RISKS RELATING TO NEWSTAR TELEVISION. The Company funds operating expenses of its 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 the Company's television projects will not be successful, resulting in costs not being recouped and anticipated profits not being realized. 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. Expansion may place substantial burdens on the Company's management resources and financial assets and controls. Those burdens may have an adverse effect on the Company's results of operations and financial condition. There are risks in the commercialization of new products. Acquisitions 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. The Company may not 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. RISKS RELATING TO THE ENTERTAINMENT INDUSTRY. The publishing, television and film industries are highly speculative and involve 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 Company funds the development of its television and publishing projects. If there is no or low demand for a television project, audio or published book or film, the Company may expend significant funds to develop such product without corresponding revenues. That 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 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. The Company may not be able to anticipate and respond to changing consumer tastes and preferences. There is a substantial risk that the Company's projects will not be successful, resulting in costs not being recouped and anticipated profits not being realized. -4- 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. The majority of the Company's revenues have come from a small percentage of the Company's 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 the Company's results of operation and financial condition. RETURNS AND REMAINDER SALES IN THE PUBLISHING INDUSTRY. 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 return by distributors and retailers if not resold to the public. The Company has experienced significant returns. These returns have been much greater than the average in the book or audio book industry. The Company may experience returns of its audio and printed book products in excess of its historical returns. 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 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. Revenues from these sales typically have not exceeded the Company's 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 the Company's results of operation and financial condition. POTENTIAL FOR LIABILITY CLAIMS. One of the risks of the Company's 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 its publications, the risk of liability claims may be greater for the Company compared to publishers in general. The Company maintains liability insurance which it believes is adequate to protect its assets. However, damages assessed against the Company for existing and future claims may exceed the limits of insurance coverage. Adequate insurance, on terms the Company believes 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 the Company, even if the Company were ultimately to prevail in the defense of the claim. DEPENDENCE ON CERTAIN OUTLETS. The level of the Company's sales of books and audio books through major outlets depends significantly on shelf space allocated to such products. The Company may not be able to maintain current levels of shelf space or distribution in major outlet chains or in other distribution outlets. 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. The Company may not be able to distribute its television product to television outlets to which it has 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 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. The Company is in competition with major television companies and film studios, major publishing houses, other audio book companies and numerous smaller companies. The Company competes 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 the Company anticipates increased competition in the future from major record companies. 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. The Company may not be able to successfully compete. -5- 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 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 the Company's results of operations and financial condition. VARIABILITY OF QUARTERLY RESULTS. The Company's 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 its 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 the Company's common stock. NATURE OF ACCOUNTING PRINCIPLES APPLICABLE TO THE PUBLISHING AND ENTERTAINMENT INDUSTRIES. 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 actual returns exceed the Company's established reserves. Actual returns may exceed the Company's 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 the Company's reserves for excess inventory are not adequate at any time, the Company 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 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 quantity of actual returns received and the level of production and sales activity and the state and the state and volatility of the remainder market. The Company establishes reserves against such write-downs based on past experience with similar products. The Company's 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 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. The Company may incur write-downs of its film and television operations in the future and such write-downs would have an adverse impact on operating results. KEY PERSONNEL. As the Company grows, it 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 the Company. In addition, the success of the Company's audio and printed books is in large part dependent upon readers and authors. The Company does not have long-term contractual arrangements with its readers and authors. -6- CONTROL BY MANAGEMENT. As of July 2, 1999, Media Equities International, LLC beneficially owned approximately 7,642,042 shares of common stock of the Company (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). The beneficial owners of Media Equities International, LLC are 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 the Company. Mr. Gorman is Vice-Chairman of the Board of Directors and Vice Chairman of the Office of the Chief Executive of the Company. Mr. Lightstone is Vice-Chairman of the Office of the Chief Executive of the Company, and a director of the Company. Mr. Maggin and Mr. Healy are directors of the Company. As of July 2, 1999, Mr. Elkes, through a limited partnership, owned approximately 4,426,515 shares of the Company's common stock (approximately 20.5% of the outstanding common stock), not including shares owned by Media Equities International, LLC. As of July 2, 1999, Mr. Gorman, through a limited partnership, owned approximately 4,426,514 shares of the Company's common stock (approximately 20.5% of the outstanding common stock), not including shares owned by Media Equities International, LLC. As of July 2, 1999, Mr. Lightstone owned approximately 1,142,698 shares of the Company's common stock (approximately 5.3% 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 the Company 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 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. ABSENCE OF DIVIDENDS. The Company has never paid dividends on its common stock, and the Company does not anticipate paying dividends on the common stock in the near future. In addition, the Company is restricted from paying cash dividends on the common stock by the Company's working capital credit facility. AUTHORIZATION OF PREFERRED STOCK. The Company's 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, the Company's 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. The Company could use preferred stock as a method of discouraging, delaying, or preventing a change in control of the Company. -7- OUTSTANDING OPTIONS AND WARRANTS. As of July 2, 1999, there were outstanding options granted under the Company's Stock Incentive Plan to purchase an aggregate of 587,500 shares of Common Stock, at exercise prices ranging from $1.00 to $6.00 per share, warrants to purchase an aggregate of 4,664,013 shares of Common Stock at exercise prices ranging from $2.00 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. In addition, on May 14, 1999, the Board of Directors authorized the grant of options to purchase an aggregate of 3,665,000 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 the Company's shareholders immediately prior to such exercise or conversion will be diluted. LEGAL PROCEEDINGS AND CLAIMS. The Company is involved with numerous litigation and arbitration matters. These matters cost the Company 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 the Company, the Company may incur significant monetary liability. Below is a brief explanation of significant litigation and arbitration proceedings. In addition to these proceedings, the Company is a party to various other legal proceedings and claims incidental to its business. The Company is 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. The Company believes that it has good and meritorious defenses to the action. Nevertheless, the Company may not prevail in the action. In March 1996, the Company was 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, the Company obtained a judgment of dismissal of the entire action, which judgment also awarded the Company its attorney's fees and costs in defending the matter. Ms. Datig, has appealed the judgment. The Company may not be successful on appeal. In June 1997, the Company was 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 the Company will prevail. In August 1997, Michael Viner and Deborah Raffin Viner (the "Former Principals") commenced an arbitration against the Company seeking specific performance of, and alleging breach of, a termination agreement to which they and the Company are a party (the "Termination Agreement"), and claimed damages in excess of $165,000 and additional reimbursements allegedly due for other items. The Company filed its own claims against the Former Principals. On July 17, 1998, the arbitrator ruled in favor of the Company 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 -8- Former Principals from competing with the Company 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 the Company, 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 the Company. 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. While the Company believes that it has good and meritorious defenses to the action, the Company may not prevail. In February 1999, the Company was 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 the Company's 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. While the Company believes that it has good and meritorious defenses to the action, the Company may not prevail. In December of 1997, the Company was 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 the Company and has sought damages of approximately $287,000 for breach of contract and $60,000 for unpaid consulting fees. Mr. Leider also is seeking a declaration that the Company must comply with certain purported stock option agreements and for an order for inspection and copying of certain records of the Company 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 the Company has substituted an undertaking for the amount of attachment. Although the Company believes that it has good and meritorious defenses and setoffs to such action, there is no assurance that the Company will prevail in such action. The Company has filed a separate complaint against Mr. Leider for breach of fiduciary duty, fraud and breach of covenant of good faith and fair dealing asserting that Mr. Leider entered into purported agreements with the Company that were unfair to the Company, were not disclosed to the Board or the Company's shareholders and were never approved by the Board or the Company's shareholders. 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 allege breach of contract arising out of a purported agreement between Mr. Leider and the Company in connection with executive producer services on the motion picture "Morning Glory", and a purported sales agency agreement between Mattken Corp. and the Company. Plaintiffs are seeking in excess of $350,000. The Company believes that it has good and meritorious defenses to the action. Nevertheless, there is no assurance that the Company will prevail in the 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 allege 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 are seeking damages in excess of $1,000,000, plus punitive and exemplary damages. The Company believes that it has good and meritorious defenses to the action. Nevertheless, there is no assurance that the Company will prevail in the action. -9- USE OF PROCEEDS The shares to be sold pursuant to this Prospectus are currently outstanding and will be sold by the selling shareholders. The Company will receive no proceeds from the sale of the shares pursuant to this Prospectus. SELLING SECURITY HOLDERS The following table sets forth the selling shareholders and certain information as of July 2, 1999. It is unknown if, when, or in what amounts a selling shareholder may offer shares for sale. There is no assurance that the selling shareholders will sell any or all of the shares offered hereby. 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. Media Equities International, LLC is a limited liability company, the members of which are Apollo Partners, LLC, H.A.M. Media Group and Ronald Lightstone. Apollo Partners, L.L.C. is a limited liability company, the members of which are Terrence A. Elkes and Kenneth F. Gorman, and H.A.M. Media Group is a limited liability, the members of which are Bruce Maggin and John T. Healy. Mr. Elkes is Chairman of the Board of Directors and Chief Executive Officer of the Company, Mr. Gorman is Vice-Chairman of the Board of Directors and Vice-Chairman of the Office of the Chief Executive of the Company, Mr. Lightstone is Vice-Chairman of the Office of Chief Executive of the Company, and a director of the Company, and Mr. Healy and Mr. Maggin are directors of the Company. The Elkes Limited Partnership is controlled by Mr. Elkes and the Gorman Limited Partnership is controlled by Mr. Gorman. Peter Engel is the President and Chief Executive Officer of NewStar Publishing and Internet Services, a division of the Company. Tin Man Enterprises and Custom Duplicating are significant vendors of the Company. Leopold, Petrich & Smith is a law firm that has represented the Company on various litigation matters. Stanton L. Stein, Robert L. Kahan, Marcia J. Harris, Samuel R. Pryor, Steven E. Peden, Susan A. Grueneberg, Bennett A. Bigman, David G. Baram, Joseph R. Taylor, Steven J. Rosenwasser and Karen L. Dillon were partners in the law firm of Stein & Kahan, one of the Company's outside law firms that has represented the Company in various litigation matters. Farid Novian and Farhad Novian are partners in the law firm of Novian & Novian, one of the Company's outside law firms that has represented the Company in various litigation matters. Steinberg, Nutter & Brent is one of the Company's outside law firms that has represented the Company in certain litigation matters. Michael Viner is the former president and chief executive officer of, a former director of, and a former principal shareholder of the Company. Deborah Raffin is a former officer of, a former director of, and a former principal shareholder of the Company. 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 is 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 of 1933, as amended (the "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. -10- SELLING SHAREHOLDER LIST
SELLING SHAREHOLDER BENEFICIAL OWNERSHIP OF OFFERED PERCENT OF OUTSTANDING COMMON STOCK BEFORE COMMON STOCK BENEFICIALLY OFFERING (1) OWNED (2) Media Equities International, LLC 7,642,042(3) 18,089(4) 27.5% Elkes Limited Partnership (5) 4,426,515 3,775,193 20.5% Gorman Limited Partnership (6) 4,426,514 3,746,974 20.5% % Ronald Lightstone 1,142,698(7) 377,705 5.3% Peter Engel 250,000 250,000 1.2% American Audio Literature, Inc 300,000 300,000 1.4% Fred Tarter 83,333 83,333 * Custom Duplicating 188,236 94,118 * Tin Man Enterprises 94,118 42,518 * Leopold, Petrich & Smith 67,704 26,598 * Stanton L. Stein 103,196 103,196 * Robert L. Kahan 51,598 51,598 * Marcia J. Harris 17,199 17,199 * Samuel R. Pryor 17,199 17,199 * Steven E. Peden 17,199 17,199 * Susan A Grueneberg 17,199 17,199 * Bennett A. Bigman 17,199 17,199 * David G. Baram 17,199 17,199 * Joseph R. Taylor 17,199 17,199 * Steven J. Rosenwasser 17,202 17,202 * Karen L. Dillon 17,199 17,199 * Farhid Novian 40,000 40,000 * Farid Novian 40,000 40,000 * Steinberg, Nutter & Brent Law Corporation 37,641 37,641 * Michael Viner & Deborah Raffin 110,000 500,000(8) * * Less than 1%
-11- (1) Represents the amount of shares disclosed by such selling shareholder to the Company as being owned by such selling shareholder. (2) All percentages are based on 21,565,658 shares of common stock outstanding as of July 8, 1999, except for the percentage for Media Equities International, LLC which is based on 27,783,658 shares (which includes the 21,565,658 outstanding shares and shares issuable upon exercise or conversion of warrants and preferred stock held by Media Equities International, LLC). (3) Represents (i) 3,000,000 shares of common stock issuable upon exercise of warrants, (ii) 2,000,000 shares of common stock issuable upon conversion of Series B Preferred Stock, (iii) 960,000 shares of common stock issuable upon conversion of Series C Preferred Stock, (iii) 258,000 shares of common stock issuable upon conversion of Series D Preferred Stock, (iv) 1,405,953 issued and outstanding shares of common stock owned of record by MEI and (v) 18,089 shares of common stock to be offered hereunder. (4) Represents 18,089 of common stock issued as partial payment of dividends on Preferred Stock. (5) Does not include 7,642,042 of common stock deemed beneficially owned by Terrence A. Elkes indirectly through Media Equities International, LLC. (6) Does not include 7,642,042 shares of common stock deemed beneficially owned by Kenneth F. Gorman indirectly through Media Equities International, LLC. (7) Does not include 7,642,042 shares of common stock deemed beneficially owned by Mr. Lightstone indirectly through Media Equities International, LLC. (8) Represents shares issuable upon conversion of Series E Preferred Stock, some of which is held in escrow and some of which may have been released from escrow to Michael Viner and Deborah Raffin Viner. PLAN OF DISTRIBUTION This Prospectus covers up to 9,641,757 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 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 Act. The selling shareholders will pay any transaction costs associated with effecting any sales that occur. -12- 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 held by a selling shareholder, 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. 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 Company's common stock. Moreover, some of 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. MATERIAL CHANGES On April 21, 1999, the Board of Directors of the Company approved and adopted an amendment to the Articles of Incorporation of the Company that increases the number of shares of the Company's authorized Common Stock from 20,000,000 shares to 50,000,000 shares. In accordance with the California General Corporation Law and the By-Laws of the Company, on April 1, 1999, Media Equities International, LLC, Elkes Limited Partnership ("ELP"), Gorman Limited Partnership ("GLP") and Ronald Lightstone, who then held, in the aggregate, approximately 66% of the outstanding voting power of the Company, approved the amendment by written consent in lieu of a meeting of shareholders. The increase was approved to provide a sufficient number of authorized shares of Common Stock for (i) issuance in connection with the private placement and issuance of shares of Common Stock to raise additional equity capital for the Company (the "Equity Investment") and (ii) other general corporate purposes. The Equity Investment provided the Company with approximately $4.2 million of additional equity capital through the sale of approximately 3.5 million shares of Common Stock to persons previously unaffiliated with the Company (the "New Investors"), and certain of the Company's officers and other then current holders of Common Stock. The New Investors had expressed an interest in investing in the Company through the purchase of shares of the Company's Common Stock. To accommodate the New Investors' desire to purchase Common Stock which had been registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and the Company's desire to consummate the transactions in an expeditious manner, ELP, GLP and Mr. Lightstone sold or agreed to sell to the New Investors a minimum of 1,300,000, 1,000,000 and 30,000 shares of Common Stock, respectively, which shares had been previously registered for resale under the Securities Act pursuant to a registration statement on Form S-3 (the "Registered Shares"). Contemporaneously with the sale of the Registered Shares by ELP, GLP and Mr. Lightstone to the New Investors, ELP, GLP and Mr. Lightstone purchased or agreed to purchase, and paid for, an equal number of unregistered shares of Common Stock from the Company, all at the same price at which the Registered Shares are sold to the New Investors. In addition, certain of the Company's officers and current holders of the Company's Common Stock also expressed an interest in making an additional investment in the Company. ELP and GLP each purchased an additional 416,667 shares of the Common Stock and Peter H. Engel, President of the Company's publishing division ("Engel"), purchased 250,000 shares of Common Stock. Each of these purchases was at substantially the same price as the sales to the New Investors. -13- TRANSFER AGENT AND REGISTRAR The transfer agent for the Company's common stock is U.S. Stock Transfer Corporation, Glendale, California. EXPERTS The consolidated financial statements of NewStar Media Inc. as of December 31, 1998 and for the years in the two year period 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. The Company engaged KPMG LLP as its principal accountants as of September 18, 1995. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's by-laws, as amended, provide that the Company will indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the Company, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in the best interest of the Company, and, in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, the Company will indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was an agent of the corporation, against expenses actionably and reasonably incurred by such person in connection with the defense of settlement of such action if such person acted in good faith and in a manner he or she believed to be in the best interest of the corporation and its shareholders, except that no such indemnification will be made (a) in respect of any claim, issue or matter as to which such persons will have been adjudged to be liable to the Company in the performance of such person's duty to the Company and its shareholders, unless, and only to the extent that, the court in which such proceeding is or was pending determines that, in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses, (b) of amounts paid in settling or otherwise disposing of a pending action without court approval, or (c) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. For these purposes, "agent" means any person who is or was a director, officer, employee or other agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was serving as a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation. "Proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. The rights to indemnification provided by the Bylaws are not exclusive of any other right which any person may have or acquire under a statute, bylaw, agreement, vote of shareholders or of disinterested directors or otherwise. -14- The Company maintains directors, officers and corporate liability insurance policies. The policies pay for covered losses of each director or officer of the Company arising from a claim made against the director or officer for any actual or alleged wrongful act in such persons capacity as a director or officer. Except to the extent set forth above, there is no article, provision, bylaw, contract, arrangement or statute under which any director or officer of the Company is insured or indemnified in any manner against any liability which may be incurred in such capacity. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The public may read and copy such reports, proxy statements and other information at the SEC Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Commission maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information filed by the Company with the Commission. 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 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 or incorporated by reference therein. 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, 1998; -15- 2. Amendment No. 1 to Annual Report of the Company on Form 10-KSB for fiscal year ended December 31, 1998; 3. Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended March 31, 1999; 4. Current Report of the Company on Form 8-K filed May 27, 1999; 5. Information Statement on Schedule 14C filed June 8, 1999; 6. The description of common stock contained in the Company's Registration Statement on Form 8-A, filed on October 14, 1994. 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 therein) will be provided without charge to each person, including any beneficial owner who receives a copy of this Prospectus, on the written or oral request of such person made to NewStar Media Inc., 8955 Beverly Boulevard, Los Angeles, California 90048, tel.: (310) 786-1600, Attention: General Counsel. 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. UNTIL SEPTEMBER 15, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. -16- NEWSTAR MEDIA INC. 9,641,757 SHARES COMMON STOCK PROSPECTUS JULY 9, 1999 TABLE OF CONTENTS
PAGE ---- RISK FACTORS.................................................................................................2 Net Operating Losses; Need for Additional Financing........................................2 No Assurance as to Listing on the Nasdaq SmallCap Market...................................3 Risks Relating to NewStar Television.......................................................4 Growth and Acquisition Risks...............................................................4 Risks Relating to the Entertainment Industry...............................................4 Dependence on a Limited Number of Projects.................................................5 Returns and Remainder Sales in the Publishing Industry.....................................5 Potential for Liability Claims.............................................................5 Dependence on Certain Outlets..............................................................5 Competition................................................................................5 Variability of Quarterly Results...........................................................6 Nature of Accounting Principles Applicable to the Publishing and Entertainment Industries.................................................................................6 Key Personnel..............................................................................6 Control By Management......................................................................7 Absence of Dividends.......................................................................7 Authorization of Preferred Stock...........................................................7 Outstanding Options and Warrants...........................................................8 Legal Proceedings and Claims...............................................................8 USE OF PROCEEDS.............................................................................................10 SELLING SHAREHOLDERS........................................................................................10 PLAN OF DISTRIBUTION........................................................................................12 MATERIAL CHANGES............................................................................................13 TRANSFER AGENT AND REGISTRAR................................................................................14 EXPERTS.....................................................................................................14 INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................................................14 AVAILABLE INFORMATION.......................................................................................15 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................................15
-17- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION The following table sets forth costs and expenses payable in connection with the sale and distribution of the securities being registered. All amounts are estimates except the Securities and Exchange Commission registration fee. SEC registration fee $4,147.00 Legal fees and expenses $2,500.00 Accounting fees and expenses $2,500.00 Transfer agent and registrar fees $1,000.00 Miscellaneous $5,000.00 Total $15,147.00 None of the expenses of issuance and distribution of the shares is to be borne by the selling shareholders. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's by-laws, as amended, provide that the Company will indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the Company, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner he or she reasonably believed to be in the best interest of the Company, and, in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, the Company will indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was an agent of the corporation, against expenses actionably and reasonably incurred by such person in connection with the defense of settlement of such action if such person acted in good faith and in a manner he or she believed to be in the best interest of the corporation and its shareholders, except that no such indemnification will be made (a) in respect of any claim, issue or matter as to which such persons will have been adjudged to be liable to the Company in the performance of such person's duty to the Company and its shareholders, unless, and only to the extent that, the court in which such proceeding is or was pending determines that, in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for expenses, (b) of amounts paid in settling or otherwise disposing of a pending action without court approval, or (c) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. For these purposes, "agent" means any person who is or was a director, officer, employee or other agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was serving as a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation. "Proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. II-1 The rights to indemnification provided by the Bylaws are not exclusive of any other right which any person may have or acquire under a statute, bylaw, agreement, vote of shareholders or of disinterested directors or otherwise. The Company maintains directors, officers and corporate liability insurance policies. The policies pay for covered losses of each director or officer of the Company arising from a claim made against the director or officer for any actual or alleged wrongful act in such persons capacity as a director or officer. Except to the extent set forth above, there is no article, provision, bylaw, contract, arrangement or statute under which any director or officer of the Company is insured or indemnified in any manner against any liability which may be incurred in such capacity. ITEM 16. EXHIBITS EXHIBIT NO. DESCRIPTION ------------------------- 4.1 Specimen common stock certificate of the Company (filed as Exhibit 4.1 to Amendment No. 2 to the IPO Registration Statement filed with the Commission on November 29, 1994) 5.1 Opinion on legality 23.1 Consent of KPMG LLP 24 Power of Attorney contained on page II-5 hereto ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) The undersigned Registrant hereby undertakes that: II-2 Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, State of California, on July 9, 1999. NEWSTAR MEDIA INC. By:/S/ TERRENCE A. ELKES ---------------------------- Terrence A. Elkes, Chairman and Chief Executive Officer POWER OF ATTORNEY The Company and each person whose signature appears below constitutes and appoints Ronald Lightstone, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign and file (i) any and all amendments (including post-effective amendments) to this Registration Statement, with all exhibits thereto, and all other documents in connection therewith, and (ii) any registration statement, and any and all amendments thereto, relating to the offering covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated:
SIGNATURE TITLE DATE /s/ TERRENCE A. ELKES Chairman and Chief Executive Officer July 9, 1999 - ------------------------------------- Terrence A. Elkes /S/ JOHN BRADY Chief Financial Officer (principal July 9, 1999 - ------------------------------------- accounting officer) John Brady /S/ KENNETH F. GORMAN Director July 9, 1999 - ------------------------------------- Kenneth F. Gorman /S/ RONALD LIGHTSTONE Director July 9, 1999 - ------------------------------------- Ronald Lightstone Director July _, 1999 - ------------------------------------- John T. Healy /S/ LEE MASTERS Director July 9, 1999 - ------------------------------------- Lee Masters Director July _, 1999 - ------------------------------------- Bruce Maggin /S/ STEVEN MAYER Director July 9, 1999 - ------------------------------------- Steven Mayer
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NEWSTAR MEDIA INC. (Exact Name of Registrant as Specified in its Charter) EX-5.1 2 OPINION Exhibit 5.1 [NewStar Media Inc. Letterhead] July 8, 1999 NewStar Media Inc. 8955 Beverly Boulevard Los Angeles, CA 90048 RE: NEWSTAR MEDIA INC. REGISTRATION STATEMENT ON FORM S-3 ----------------------------------------------------- Gentlemen: This opinion is being given by me in my capacity as general counsel of NewStar Media Inc. ("NewStar") in connection with the registration on Form S-3 of 9,141,757 shares of Common Stock of NewStar that were previously issued and are outstanding (the "Shares") and 500,000 shares issuable upon conversion of Series E Preferred Stock of NewStar (the "Conversion Shares"). In connection with this opinion, I have examined and am familiar with originals or copies, certified or otherwise identified to my satisfaction, of (i) the Registration Statement on Form S-3 relating to the Shares and the Conversion Shares (the "Registration Statement"), (ii) the Articles of Incorporation of NewStar, (iii) the By-laws of NewStar and (iv) the Certificate of Determination of the Series E Preferred Stock. I have obtained from officers of NewStar and have examined the originals, or copies identified to my satisfaction, of such certificates, agreements and other assurances as I consider necessary for the purpose of rendering the opinion contained herein. I have additionally consulted with officers of NewStar and have obtained such representations with respect to matters of fact as I deem necessary or advisable; however, I have not necessarily independently verified the content of factual statements made to me in connection therewith, or the veracity of such representations. In my examination, I have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as copies, and the authenticity of the originals of such latter documents. Based on the foregoing and on such other instruments, documents and matters examined and necessary for the purpose of rendering this opinion, it is my opinion that the Shares are, and the Conversion Shares, when issued in accordance with the terms of the Certificate of Determination of the Series E Preferred Stock, will be, validly issued, fully paid and non-assessable. I hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. Very truly yours, /s/ ROBERT C. MURRAY - ----------------------------- Robert C. Murray, Esq. RCM:jj EX-23.1 3 CONSENT OF KPMG LLP EXHIBIT 23.1 [KPMG Letterhead] INDEPENDENT AUDITORS' CONSENT The Board of Directors NewStar Media Inc.: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. KPMG LLP /s/ KPMG LLP Los Angeles, California July 7, 1999 -----END PRIVACY-ENHANCED MESSAGE-----