<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
--------
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ___________
Commission File Number 0-92402
-------
ON STAGE ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter.)
Nevada 88-0214292
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4625 W. Nevso Drive
Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 702-253-1333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
- -------------------------------- ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Redeemable Warrants to purchase shares of Common Stock
------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days:
YES X NO
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
The issuer's revenues for the most recent fiscal year ended December 31, 1997
were $15,726,074.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock as quoted on
March 20, 1998 was $14,545,745.
The number of shares of the registrant's common stock outstanding as of March
20, 1998 was 7,179,718.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART III
PRELIMINARY NOTE:
This Form 10-KSB/A-1 is being filed to report information for Items 9 -
12 of Part III in lieu of the incorporation of such information by reference to
the Registrant's definitive proxy material for its 1998 Annual Meeting of
Stockholders.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
Year First Became Director, Principal Occupations During
Name of Director Age Past Five Years and Certain Directorships
- ---------------- --- --------------------------------------------------------
<S> <C> <C>
John W. Stuart 55 John W. Stuart has served as the Chairman and Chief Executive Officer of the
Company since April 1996 and also was the President of the Company from October
1985 through March 1996. He founded the Company in 1985. He has been involved in
the theatrical business since age seven and has produced or appeared in over 200
theater productions and several feature films. Mr. Stuart received a Bachelor of
Arts degree in 1967 from California State University at Fullerton.
David Hope 39 David Hope has served as the President, Chief Operating Officer and as a
director of the Company since joining the Company in April 1996. For ten
years prior to that time, Mr. Hope served in various capacities, including most
recently as Executive Vice President and Chief Operating Officer, for ITC
Entertainment Group ("ITC"), a major independent producer and worldwide
distributor of feature films, television movies and mini-series and a subsidiary
of Polygram N.V., where, as Chief Operating Officer, he was responsible for
day-to-day operations, as well as strategic and corporate development and
acquisitions. Prior to that time, Mr. Hope was a production manager with
Hinchcliffe Productions, a United Kingdom-based producer and distributor of
documentaries and motor sport events. Mr. Hope received a degree in
Management Science in 1981 from the Loughborough University in England.
Neil H. Foster 65 Neil H. Foster has been the Executive Vice President of the Company since
October 1985 and a director of the Company since February 1995. From 1977
to 1983, Mr. Foster worked as a producer for the American Broadcasting
Companies, Inc. ("ABC"), where he assisted in the production of "ABC's Wide
World of Sports," the Grammy Awards, "Soap" and "Barney Miller."
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Year First Became Director, Principal Occupations During
Name of Director Age Past Five Years and Certain Directorships
- ---------------- --- --------------------------------------------------------
<S> <C> <C>
Jules Haimovitz 47 Jules Haimovitz has been a director of the Company since March 1997. Mr.
Haimovitz currently serves as the President and Chief Operating Officer of King
World Productions, a leading syndicator of television programs. From January 1995
to March 1997, he served as the Chief Executive Officer of ITC after it was sold
to PolyGram N.V., one of the world's leading global music and entertainment
companies. Prior to such time, from April 1993 to January 1995, Mr. Haimovitz
served as ITC's President and Chief Executive Officer while it was owned by
Midland Montague Ventures. Mr. Haimovitz was also acting President of Video
Jukebox Network Inc., a publicly traded interactive music video service, from
October 1992 through August 1993, and a director of such company from August 1990
to November 1995. From March 1989 to January 1992, Mr. Haimovitz was President,
Chief Operating Officer and a director of Spelling Entertainment Inc.
("Spelling"), a company he helped found by engineering the acquisitions of
Worldvision Enterprises Inc. and Laurel Entertainment Inc. by, and the merger of
such companies with, Spelling's predecessor, Aaron Spelling Productions, Inc.
Mark S. Karlan 39 Mark S. Karlan has been a director of the Company since March 1998. Mr.
Karlan has been President, Chief Executive Officer and a Director of
Imperial Credit Commercial Mortgage Investment Corp., a publicly traded real
estate investment trust, since July 1997. From 1990 to 1997, Mr. Karlan was
a private real estate investor managing all aspects of approximately $100
million of real estate transactions including the acquisition, financing, leasing
and sale of office, retail, industrial and residential assets. Mr. Karlan received
a Bachelor of Arts degree in Economics from Harvard College in 1980 and a
Master of Business Administration degree from the Harvard Business School
and a Juris Doctor degree from the Harvard Law School, both in 1994.
James L. Nederlander 38 James L. Nederlander has been a director of the Company since August 1996.
He has also been the Chairman of the Nederlander Producing Company of
America, a producer of live entertainment shows, since August 1996 and prior
to such time, commencing in 1980, he was Executive Vice President of such
organization.
Mark Tratos 46 Mark Tratos has been a director of the Company since March 1997. Mr. Tratos
has been the managing partner of the law firm Quirk & Tratos of Las Vegas,
Nevada since 1983. He received a Juris Doctor degree from Lewis and Clark
Law School in 1979. Since 1982, Mr. Tratos has also served as a member of
the adjunct faculty of the University of Nevada Las Vegas teaching a variety
of subjects in the areas of fine and performing arts and entertainment and
business law.
</TABLE>
2
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EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John W. Stuart.................................... 55 Chairman and Chief Executive Officer
David Hope ....................................... 39 President, Chief Operating Officer
Neil H. Foster.................................... 65 Executive Vice President
Kiranjit S. Sidhu................................. 33 Senior Vice President, Chief Financial Officer and
Treasurer
Christopher R. Grobl.............................. 30 General Counsel and Secretary
</TABLE>
The employment backgrounds for John W. Stuart, David Hope and Neil H.
Foster are described under "Directors of the Company."
Kiranjit S. Sidhu has been the Company's Senior Vice President, Chief
Financial Officer and Treasurer since joining the Company in August 1995. Prior
to joining the Company, Mr. Sidhu served as Chief Financial Officer and
Corporate Secretary for Aspen Technologies, a computer peripheral manufacturer,
from July 1994 to July 1995. From January 1993 to June 1994, Mr. Sidhu served as
President and a director for Aspen Peripherals, a computer peripheral reseller.
From February 1992 to June 1993, Mr. Sidhu served as a financial consultant to
ITC. From January 1992 to July 1993, Mr. Sidhu served as Vice President of
Finance and a director for Nuvo Holdings of America, a computer peripheral
manufacturer. Mr. Sidhu holds a Master of Business Administration degree from
the Wharton School of Business and a Bachelor of Arts in Computer Science from
Brown University.
Christopher R. Grobl has been the General Counsel and Secretary of the
Company since November 1994. Mr. Grobl received a Bachelor of Arts in 1990 from
the University of Illinois and a Juris Doctor in 1994 from the John Marshall Law
School in Chicago, Illinois.
3
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ITEM 10. Executive Compensation
Summary Compensation Table. The following table sets forth, for the
years ended December 31, 1997 and 1996, certain compensation paid by the Company
to its Chief Executive Officer and the other most highly paid executive officers
of the Company, whose cash compensation exceeded $100,000 for the year ended
December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
-------------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options/ SARs Compensation
--------------------------- ---- ------ ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
John W. Stuart......................... 1997 $250,000 -- $ 239,398(1) -- $9,615(2)
Chairman and Chief Executive Officer 1996 $250,000 -- $1,780,424(3) -- --
David Hope............................. 1997 $221,461 $ 37,865 -- -- --
President and Chief Operating Officer 1996 $130,769 -- $ 23,673(4) 311,300 --
Kiranjit S. Sidhu...................... 1997 $161,596 $162,129(5) -- 85,000 --
Senior Vice President 1996 $123,461 -- -- 24,794 --
</TABLE>
- ------------------
(1) Includes $221,500 in compensation representing the forgiveness of certain
indebtedness owed by Mr. Stuart to the Company.
(2) Represents payment of unused vacation time carried forward from prior
years.
(3) Includes $1,780,424 in compensation representing the forgiveness of certain
indebtedness owed by Mr. Stuart to the Company.
(4) Includes $9,212 representing car and health insurance allowances and
$14,461 representing non-recurring relocation-related expenses.
(5) Represents the issuance of 40,532 shares of Common Stock to Mr. Sidhu
pursuant to his employment agreement.
Option Grants. The following table sets forth certain information
regarding stock options granted during the year ended December 31, 1997 to the
persons named in the Summary Compensation Table.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable
Value At Assumed
Percent of Annual Rates of Stock
Total Options Price Appreciation For
Granted to Option Term(2)
Options Employees in Exercise Expiration ---------------
Name Granted(1) 1997 Price Date 5% 10%
---- ---------- ---- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Stuart................. -- -- -- -- -- --
Chairman and Chief Executive
Officer
David Hope..................... -- -- -- -- -- --
President and Chief Operating
Officer
Kiranjit S. Sidhu.............. 85,000 77% $4.00 08/13/07 $213,824 $541,872
Senior Vice President
</TABLE>
4
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- ----------
(1) These options were granted under the Option Plan and have a term of ten
years, subject to earlier termination in certain events related to the
termination of employment.
(2) The potential realizable values are based on an assumption that the stock
price of the Common Stock starts equal to the exercise price shown for the
particular option grant and appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the term of
the option. These amounts are reported net of the option exercise price,
but before any taxes associated with exercise or subsequent sale of the
underlying stock. The actual value, if any, an option holder may realize
will be a function of the extent to which the stock price exceeds the
exercise price on the date the option is exercised and also will depend on
the option holder's continued employment through the vesting period. The
actual value to be realized by the option holder may be greater or less
than the values estimated in this table.
Year End Values. The following table summarizes option exercises during
1997 and the value of vested and unvested options for the persons named in the
Summary Compensation Table at December 31, 1997. Year-end values are based upon
a price of $4.125 per share, which was the closing market price of a share of
the Company's Common Stock on December 31, 1997.
Aggregated Option Exercises in Last Year and
Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at December 31, 1997 December 31, 1997 (1)
---------------------------- ----------------------------
Shares Acquired
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Stuart -- -- -- -- -- --
David Hope -- -- 311,300 -- $42,026 --
Kiranjit S. Sidhu -- -- 93,265 16,529 $10,625 0
</TABLE>
- ----------
(1) Values calculated using the closing market price of a share of the
Company's Common Stock on December 31, 1997 and the per share exercise
price of the individual's options.
Employment Agreements
John W. Stuart. On February 1, 1997, the Company entered into an
employment agreement with Mr. Stuart to employ him as its Chairman and Chief
Executive Officer until May 31, 2000. In accordance with this employment
agreement, Mr. Stuart receives an annual salary of $250,000 and may receive
annual salary increases of up to 10% of his base salary amount at the discretion
of the Compensation Committee of the Board of Directors. Mr. Stuart will not be
eligible to receive any bonuses during the initial term of his employment
agreement. Mr. Stuart is provided with family health insurance and a $1,500
monthly automobile allowance. The Company has the right to terminate Mr.
Stuart's employment at any time, without cause, provided that the Company pays
Mr. Stuart a lump sum payment equal to one year's base salary, car allowance and
insurance allowance.
David Hope. On February 1, 1997, the Company entered into an amended
employment agreement with Mr. Hope to employ him as the President and Chief
Operating Officer of the Company until May 31, 2000. In accordance with this
employment agreement, Mr. Hope receives an annual salary of $220,000 which is
subject to potential annual increases of up to 10% of his base salary amount
contingent upon meeting reasonable financial performance goals as determined
between Mr. Hope and the Compensation Committee of the Board of Directors. For
the years ended December 31, 1998 and 1999, Mr. Hope shall be entitled to
receive a bonus equal to 2% of the Company's audited
5
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pre-tax earnings, after deduction for non-recurring charges such as original
issue discount, compensation and interest expense charges for each such year,
provided that the Company achieves certain designated financial goals for the
respective year. See "-- Executive Bonus Plan." Mr. Hope is currently provided
with family health insurance and a $500 monthly automobile allowance. The
Company shall have the right to terminate Mr. Hope's employment agreement at any
time, without cause, provided that the Company pays Mr. Hope a lump sum payment
on the date of such termination equal to the greater of (i) his base salary, car
allowance and insurance allowance due from the date of termination up until
April 1999, plus any accrued bonus up until his date of termination and (ii) one
year's base salary, car allowance and insurance allowance, plus any accrued
bonus up until the date of termination. In addition, upon termination of Mr.
Hope's employment, without cause, any non-vested options held by Mr. Hope shall
immediately vest.
Kiranjit S. Sidhu. On February 1, 1997, the Company entered into an
amended employment agreement with Mr. Sidhu to employ him as its Senior Vice
President, Chief Financial Officer and Treasurer. Mr. Sidhu's employment
contract, which expires on May 31, 2000, provides for an annual salary of
$165,000 and eligibility for annual salary increases of up to 10% of his base
salary amount at the discretion of the Compensation Committee of the Board of
Directors. Mr. Sidhu is also eligible to receive a bonus under the Executive
Bonus Plan, at the discretion of the Board of Directors; and, in addition to his
salary, he receives family health insurance and a $500 monthly automobile
allowance. In the event his employment is terminated, without cause, Mr. Sidhu
will be entitled to a lump sum payment equal to one year's base salary, car
allowance and insurance allowance and the vesting of all of his stock options.
In connection with each of their respective employment agreements, each
of Messrs. Stuart, Hope and Sidhu also entered into a Confidentiality and
Non-Compete Agreement with the Company, which, in addition to the obligations of
confidentiality imposed upon each, provides that in the event of the termination
of an employment agreement for any reason, the Company shall have the option to
pay the respective employee at the date of termination 50% of such employee's
base salary for five years (in the case of Mr. Stuart) and two years (in the
case of Messrs. Hope and Sidhu) in consideration for such employee's covenant
not to compete with the Company during such five-year and two-year periods,
respectively. In the case of Mr. Stuart, such non-compete relates to any
business associated with the live entertainment industry and, in the case of
each of Messrs. Hope and Sidhu, such non-compete relates to any business
associated with the theatrical segment of the live entertainment industry.
1996 Stock Option Plan
The Option Plan was approved by the Board of Directors and the
stockholders on August 7, 1996. Pursuant to an amendment to the Option Plan, the
maximum number of shares of Common Stock available for issuance upon exercise of
options granted and available for grant under the Option Plan is 785,000 shares.
The Option Plan is designed to further the interests of the Company by
strengthening the desire of employees to continue their employment with the
Company and by securing other benefits for the Company.
Under the Option Plan, a committee (the "Committee") has been appointed
by the Board of Directors to administer the Option Plan and is authorized, in
its discretion, to grant options thereunder to all eligible employees of the
Company, including certain officers and directors of the Company as well as to
others providing services to the Company. The Option Plan provides for the
granting of both (i) "incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended, which are intended to qualify for
special federal income tax treatment ("ISOs") to employees (including officers
and employee directors) and (ii) "non-qualified stock options" ("NQSOs") to
employees (including officers and employee directors) and consultants. Options
can be granted under the Option Plan on such terms and at such prices as
determined by the Committee, except that in the case of ISOs, the per share
exercise price of such options cannot be less than the fair market value of the
Common Stock on the date of grant. In the case of an ISO granted to a 10%
stockholder (a "10% Stockholder"), the per share exercise price cannot be less
than 110% of such fair market value. To the extent that the grant of an option
results in the aggregate fair market value of the shares with respect to which
incentive stock options are exercisable by a grantee for the first time in any
calendar year exceed $100,000, such option will be treated under the Option Plan
as an NQSO.
6
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Options granted under the Option Plan will become exercisable after the
vesting period or periods specified in each option agreement. Except as
otherwise determined by the Committee, options become exercisable as to
one-third of the shares subject to the option on each of the first, second and
third anniversaries of the date of grant of the option. Options are not
exercisable, however, after the expiration of ten years from the date of grant
(or five years from such date in the case of an ISO granted to a 10%
Stockholder) and are not transferable other than by will or by the laws of
descent and distribution. Except as the Committee may determine with respect to
NQSOs, if the holder of an option granted under the Option Plan ceases to be an
employee, options granted to such holder shall terminate three months (12 months
if the termination is a result of the death or disability of the employee) from
the date of termination of employment and shall be exercisable as to only those
options exercisable as of the date of termination.
As of April 26, 1998, options to purchase 637,203 shares have been
granted under the Option Plan, including options to purchase 311,300, 109,794,
26,000 and 13,224 shares granted to Messrs. Hope, Sidhu, Foster and Grobl,
respectively, and options to purchase an aggregate of 80,000 shares granted, as
of April 26, 1998, to non-employee directors of the Company.
Executive Bonus Plan
In March 1997, the Company implemented a three-year Executive Bonus
Plan, which is administered by the Compensation Committee. Under the Executive
Bonus Plan, an annual bonus pool of up to 5% of the Company's audited pre-tax
earnings, after non-recurring charges such as original issue discount,
compensation and interest expense charges and excluding extraordinary items
("Pre-Tax Earnings"), may be established for distribution at the discretion of
the Company's Board of Directors, to the Company's executive officers (other
than Mr. Stuart, who is not eligible for bonuses under the plan) in 1999 and
2000, provided that the Company achieves at least minimum Pre-Tax Earnings for
the respective preceding fiscal year as follows:
Year Minimum Pre-Tax Earnings
---- ------------------------
1998 $5,000,000
1999 $8,700,000
The terms of the Executive Bonus Plan, including the minimum Pre-Tax
Earnings requirements set forth above, were determined by negotiations between
the Company and the underwriter of the Company's initial public offering, and
should not be construed to imply or predict any future earnings of the Company.
Compensation of Directors
Directors of the Company currently are not paid a fee for their
services, but are reimbursed for all reasonable expenses incurred in attending
Board meetings. In addition, each non-employee director will receive options
under the Option Plan to purchase an aggregate of 10,000 shares of Common Stock
each year that the director serves as such a director (each such year, a "Grant
Year"), partially contingent upon the director's attendance at the Company's
four scheduled Board of Directors meetings during the Grant Year. One-quarter of
the annual option grant will vest as of each of the Grant Year's first three
scheduled Board of Director meetings and the remainder of such option grant will
vest as of the fourth scheduled meeting; provided, in the latter case, that the
director has attended all four of that Grant Year's scheduled Board meetings.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of April 26, 1998
(except as otherwise noted) regarding the ownership of Common Stock (i) by each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding Common Stock, (ii) by each director of the Company, (iii) by
each executive officer of
7
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the Company named in the Summary Compensation Table included elsewhere in this
proxy statement and (iv) by all current executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address (1) Beneficially Owned (2) Class(2)
- --------------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
John W. Stuart (3)....................................... 3,982,760 55.4%
David Hope (4)........................................... 328,550 4.4%
Neil H. Foster (5)....................................... 26,000 *
Kiranjit S. Sidhu (6).................................... 143,922 2.0%
James L. Nederlander (7)................................. 10,000 *
Mark Tratos (8).......................................... 10,000 *
Jules Haimovitz (9)...................................... 10,000 *
Mark S. Karlan (10)...................................... 325,000 4.3%
Hanover Restaurants, Inc................................. 595,238 8.3%
Imperial Credit Industries, Inc (11)..................... 575,000 7.4%
All executive officers and directors as a group
(9 persons) (12)....................................... 4,836,232 60.5%
</TABLE>
- ---------------------------
*Less than one percent
(1) Unless otherwise indicated, the address for each named individual or group
is in care of the Company at the Company's address.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws where applicable. In accordance with the rules of the
Securities and Exchange Commission, a person is deemed to be the beneficial
owner of Common Stock that can be acquired by such person within 60 days
from April 26, 1998 upon the exercise of options or warrants. Each
beneficial owner's percentage ownership is determined by assuming that
options and warrants that are held by such person (but not those held by
any other person) and which are exercisable within 60 days of April 26,
1998 have been exercised. Percentages herein assume a base of 7,190,738
shares of Common Stock outstanding as of April 26, 1998.
(3) Includes 382,790 shares of Common Stock issuable by Mr. Stuart to third
parties upon the exercise of options granted by him to such persons.
(4) Includes (i) 311,300 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options and (ii) 8,750 shares of Common Stock
issuable upon the exercise of immediately exercisable warrants.
(5) Represents 26,000 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(6) Includes (i) 93,265 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options and (ii) 5,625 shares of Common Stock
issuable upon the exercise of immediately exercisable warrants. Does not
include 16,529 shares of Common Stock issuable upon exercise of stock
options that are not currently exercisable.
(7) Represents 10,000 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options.
(8) Represents 10,000 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options. Does not include 10,000 shares of
Common Stock issuable upon the exercise of stock options that are not
currently exercisable.
(9) Represents 10,000 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options. Does not include 20,000 shares of
Common Stock issuable upon the exercise of stock options that are not
currently exercisable.
(10) Represents 325,000 shares of Common Stock issuable upon the exercise of an
immediately exercisable warrant granted to Imperial Credit Commercial
Mortgage Investment Corp. ("ICCMIC"). Mr. Karlan is the President, Chief
Executive Officer, Treasurer and a Director of ICCMIC. See footnote 11
below. Does not include 10,000 shares of Common Stock issuable upon the
exercise of stock options that are not currently exercisable.
8
<PAGE>
(11) Includes 325,000 shares of Common Stock issuable upon the exercise of an
immediately exercisable warrant granted to ICCMIC. ICCMIC is managed by
Imperial Credit Commercial Asset Management Corporation, which is a wholly
owned subsidiary of Imperial Credit Industries, Inc. Imperial Credit
Industries, Inc. also beneficially owns approximately 8.9% of the
outstanding common stock of ICCMIC. Also includes 250,000 shares of Common
Stock issuable upon the exercise of an immediately exercisable warrant
granted to Imperial Capital Group, LLC (the "LLC"). Imperial Credit
Industries, Inc. has a 60% interest in the LLC. Imperial Credit Industries,
Inc. disclaims the beneficial ownership of the shares of Common Stock held
by the LLC. All information provided in this footnote 11 was derived from a
Schedule 13G filed by Imperial Credit Industries, Inc. with the Securities
and Exchange Commission on April 3, 1998.
(12) Includes (i) 464,973 shares of Common Stock issuable upon the exercise of
immediately exercisable stock options and (ii) 339,375 shares of Common
Stock issuable upon the exercise of immediately exercisable warrants. Does
not include 65,345 shares of Common Stock issuable upon the exercise of
stock options, including 40,000 shares of Common Stock subject to options
granted to non-employee directors of the Company, that are not currently
exercisable.
ITEM 12. Certain Relationships and Related Transactions
Certain Relationships and Related Transactions Involving Executive Officers and
Directors
As of December 31, 1996, Mr. Stuart owed the Company a total of
$1,637,413 principal amount under an 8% promissory note, plus accrued interest
thereon of $143,011. On, and as of such date, the Company forgave all $1,780,424
(the "Original Stuart Debt Forgiveness"). Between December 31, 1996 and August
13, 1997, the Company advanced an additional $222,000 (including principal and
interest) to Mr. Stuart, all of which amount was forgiven by the Company on
August 13, 1997. As of December 31, 1997, Mr. Stuart owed the Company a total of
$100,000 principal amount under an 8% promissory note due in December 1998, plus
accrued interest thereon of $1,041.
In February 1997, Mr. Stuart granted to Senna Venture Capital Holdings,
Inc., an affiliate of DYDX Legends Group L.P. ("DYDX" and a lender to the
Company), an option to purchase 142,292 of his shares of Common Stock at an
exercise price of $5.00 per share, in consideration for (i) DYDX waiving a
technical default under a certain loan agreement entered into between DYDX and
the Company and (ii) DYDX's agreement in connection with such waiver to allow
the Original Stuart Debt Forgiveness. Such option is exercisable for a period of
three years commencing as of February 9, 1998.
Mr. Stuart, in addition to being the Chairman and Chief Executive
Officer of the Company, is also the President and sole owner of LVHE, a Nevada
subchapter S corporation, which owns 40% of, and is a member of R.B.L.S., a
Nevada limited liability company. R.B.L.S., in turn, owns a 99% interest in
R.B.L.S. Partnership, which operates a Legends production at the Royal Hawaiian
Shopping Center in Honolulu, Hawaii. Mr. Stuart has a Management Agreement with
R.B.L.S., pursuant to which R.B.L.S. pays him a monthly management consulting
fee of $3,000 per week, provided Mr. Stuart or an approved representative makes
at least one trip to Hawaii to evaluate the production every two months. In
addition, according to the operating agreement of R.B.L.S., all members are to
share ratably in the profits or losses of R.B.L.S. As such, LVHE is entitled to
receive a 40% membership interest in the profits of R.B.L.S. However, as a
result of a dispute between LVHE and R.B.L.S. as to which of the two entities is
responsible for certain litigation related liabilities (the "Disputed
Liabilities"), R.B.L.S. is currently withholding membership profit distributions
from LVHE. The Disputed Liabilities relate to lawsuits which are based on events
that took place prior to the formation of R.B.L.S. and R.B.L.S. Partnership when
the Legends show in Hawaii was owned by LVHE. LVHE and R.B.L.S. dispute whether
these lawsuits were retained by LVHE or assumed by R.B.L.S. when it acquired the
Hawaiian Legends show from LVHE. LVHE has been informed by R.B.L.S. that
R.B.L.S. is funding the defense of these suits with LVHE's membership profits.
LVHE and R.B.L.S. also dispute which of them would ultimately be responsible for
any settlement payments or judgments if unsuccessful.
In February 1997, the Company agreed, pursuant to a duly authorized
board resolution, that the services provided by Mr. Stuart to R.B.L.S. and/or
LVHE will not place him in a conflict of interest with his employment contract
with the Company (which commenced as of February 1, 1997) on the condition that
all monies received by Mr. Stuart, either directly from R.B.L.S. or through
LVHE, are immediately paid to the Company as producer fees earned
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by the Company for providing the services of Mr. Stuart. Simultaneously with
such board resolution, Mr. Stuart entered into the Stuart LVHE Agreement with
the Company pursuant to which he has agreed that, commencing as of February 25,
1997, he will pay any monies received by him from R.B.L.S., or through LVHE from
R.B.L.S., to the Company. The Company will book any such monies received from
Mr. Stuart, including both his R.B.L.S. membership profit and his management
consulting fees, as revenues in the form of producer's fees (in the same manner
that other such services are booked by the Company). As part of the Stuart LVHE
Agreement, Mr. Stuart has also agreed (i) to indemnify the Company against any
of the actions or liabilities of, or arising in connection with, LVHE, R.B.L.S.,
R.B.L.S. Partnership or the other members of R.B.L.S., including their
respective companies, which indemnity has been secured with 200,000 of his
shares of Common Stock, and (ii) to contribute all of the capital stock of LVHE
(the "LVHE Stock"), as well as his rights under the Management Agreement, to the
Company whenever the Company deems such contribution to be permissible under the
terms of the R.B.L.S. operating agreement (such a contribution may require the
approval of the other members of R.B.L.S.; however, LVHE is currently in
disagreement with such members vis-a-vis the Disputed Liabilities), which
contribution pledge has been secured with an additional 200,000 of Mr. Stuart's
shares of Common Stock.
The Company leases from Mr. Stuart seven condominium units in Atlantic
City, New Jersey for use by the Company's performers. The current lease term
expires on June 30, 1998. The total lease payment to Mr. Stuart from the Company
is currently $7,833 per month, which amount the Company believes approximates
the fair market value for the use thereof. In addition, commencing as of January
1, 1997, the Company is also paying, directly, the association dues, insurance,
taxes, maintenance and utilities on such apartments. The Company paid aggregate
rent to Mr. Stuart for such apartments of $94,000 for each of the years ended
December 31, 1996 and 1997.
Pursuant to the terms of the employment agreement between the Company
and Mr. Sidhu, on April 13, 1998, the Company advanced to Mr. Sidhu $63,213 (the
"Tax Loan") in order to satisfy Mr. Sidhu's income tax liability incurred in
connection with the grant from the Company to Mr. Sidhu of 40,532 shares of
Common Stock. Mr. Sidhu executed a promissory note in favor of the Company in
connection with the Tax Loan. The promissory note provides for interest on the
Tax Loan to accrue at 8% per annum, is secured by 40,532 shares of Common Stock
owned by Mr. Sidhu and becomes due on April 12, 1999.
On March 13, 1998, several subsidiaries of the Company (the "Single
Purpose Subsidiaries") entered into a loan agreement with Imperial Credit
Commercial Mortgage Investment Corp. ("ICCMIC"). Pursuant to the loan agreement,
the Single Purpose Subsidiaries borrowed an aggregate of $12.5 million from
ICCMIC (the "ICCMIC Loan"). The Company, as the ultimate parent of the Single
Purpose Subsidiaries, has guaranteed the full repayment of the ICCMIC Loan. The
ICCMIC Loan accrues interest at a variable rate (currently 10.27%) and becomes
due in March 2008. In connection with the ICCMIC Loan, (i) ICCMIC agreed to
provide the Company with a total credit facility of up to $20 million ($12.5
million of which was drawn down on March 13, 1998) and (ii) the Company granted
to ICCMIC and a related entity (see footnote 11 to the Item 11 above) warrants
to purchase an aggregate of 575,000 shares of Common Stock at an exercise price
of $4.44. Mr. Karlan, a director of the Company, is the President, Chief
Executive Officer and a Director of ICCMIC.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ON STAGE ENTERTAINMENT, INC.
(Registrant)
Dated: April 29, 1998 By: /s/ John W. Stuart
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John W. Stuart
Chairman and Chief Executive Officer
