<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER 0-24984
NEWSTAR MEDIA INC.
(Exact Name of Small Business Issuer 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
(Address of Principal Executive Offices)
(310) 786-1600
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
----------------
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the numbers of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 25,565,658 as of August 8,
1999.
Transitional Small Business Disclosure Format (Check one):
Yes No X
--- ---
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NEWSTAR MEDIA INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1999
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,109,000
Accounts receivable, net of allowances of $1,267,000 2,406,000
Inventory 2,994,000
Film costs 186,000
Due from related party 49,000
Prepaid expenses and other assets 618,000
-----------------
Total current assets 7,362,000
NON-CURRENT ASSETS
Production masters, net 2,941,000
Film costs, net 4,227,000
Property and equipment, net 686,000
Goodwill and other assets 5,632,000
-----------------
Total non-current assets 13,486,000
-----------------
Total assets $ 20,848,000
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,243,000
Notes payable 16,000
Advances and deferred income 276,000
Accrued dividends 203,000
-----------------
Total current liabilities 4,738,000
NON-CURRENT LIABILITIES
Note payable 7,511,000
Accrued liabilities 511,000
-----------------
Total non-current liabilities 8,022,000
-----------------
Total liabilities 12,760,000
-----------------
SHAREHOLDERS' EQUITY
Preferred stock $.01 par value; 2,000,000 shares authorized and
220,033 shares issued and outstanding, liquidation preference $6,930,000 2,000
Common stock $.01 par value; 50,000,000 shares authorized and
21,528,017 shares issued and outstanding 215,000
Unearned compensation (171,000)
Additional paid-in capital 42,542,000
Accumulated deficit (34,500,000)
-----------------
Total shareholders' equity 8,088,000
-----------------
Total liabilities and shareholders' equity $ 20,848,000
=================
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
<TABLE>
NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Quarter Ended June 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues
Publishing, net $ 1,215,000 $ 1,966,000
Film 266,000 5,654,000
------------------ ------------------
1,481,000 7,620,000
Cost of sales
Publishing 582,000 1,318,000
Film 321,000 3,910,000
------------------ ------------------
903,000 5,228,000
------------------ ------------------
Gross profit 578,000 2,392,000
Selling, general and administrative expenses 2,508,000 2,734,000
------------------ ------------------
Loss from operations (1,930,000) (342,000)
Interest expense, net (203,000) (155,000)
------------------ ------------------
Loss before income taxes (2,133,000) (497,000)
Income tax expense -- (2,000)
------------------ ------------------
Net loss $ (2,133,000) $ (499,000)
================== ==================
Basic and diluted loss attributable to common
shareholders $ (2,235,000) $ (606,000)
================== ==================
Basic and diluted loss per common share $ (.12) $ (.09)
================== ==================
Weighted average number of common
shares outstanding 19,253,000 6,664,000
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues
Publishing, net $ 2,513,000 $ 3,515,000
Film 391,000 6,798,000
------------------ ------------------
2,904,000 10,313,000
Cost of sales
Publishing 1,555,000 2,504,000
Film 426,000 4,854,000
------------------ ------------------
1,981,000 7,358,000
------------------ ------------------
Gross profit 923,000 2,955,000
Selling, general and administrative expenses 4,872,000 4,913,000
------------------ ------------------
Loss from operations (3,949,000) (1,958,000)
Gain on sale of long-term investment 594,000 --
Interest expense, net (401,000) (302,000)
------------------ ------------------
Loss before income taxes (3,756,000) (2,260,000)
Income tax expense (2,000) (2,000)
------------------ ------------------
Net loss $ (3,758,000) $ (2,262,000)
================== ==================
Basic and diluted loss attributable to common
shareholders $ (3,971,000) $ (2,475,000)
================== ==================
Basic and diluted loss per common share $ (.22) $ (.37)
================== ==================
Weighted average number of common
shares outstanding 18,291,000 6,669,000
================== ==================
</TABLE>
4
<PAGE>
<TABLE>
NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended June 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,758,000) $ (2,262,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 360,000 269,000
Amortization of goodwill 119,000 119,000
Amortization of production masters 464,000 794,000
Amortization of film costs 410,000 4,022,000
Provision for doubtful accounts 71,000 --
Gain on sale of long-term investment (594,000) --
Unearned Compensation 83,000 83,000
Changes in operating assets and liabilities:
Accounts receivable 5,000 (2,015,000)
Inventory 94,000 285,000
Prepaid expenses and other assets 47,000 (228,000)
Expenditures for production masters (1,036,000) (705,000)
Film cost additions (179,000) (8,511,000)
Accounts payable and accrued expenses (531,000) 816,000
Advances and deferred revenue 16,000 1,722,000
Other 44,000 19,000
------------------ ------------------
Net cash used in operating activities (4,385,000) (5,592,000)
------------------ ------------------
INVESTING ACTIVITIES
Proceeds from sale of long-term investment, net 613,000 --
Purchase of Audio Literature (200,000) --
Purchase of property and equipment (66,000) (99,000)
Proceeds from sale of property and equipment 83,000 --
------------------ ------------------
Net cash provided by (used in) investing activities 430,000 (99,000)
------------------ ------------------
FINANCING ACTIVITIES
Proceeds of bank borrowings 1,200,000 5,753,000
Repayments of bank borrowings (1,134,000) --
Proceeds from issuance of common stock 4,545,000 --
------------------ ------------------
Net cash provided by financing activities 4,611,000 5,753,000
------------------ ------------------
Net increase in cash and cash equivalents 656,000 62,000
Cash and cash equivalents at beginning of the period 453,000 302,000
------------------ ------------------
Cash and cash equivalents at end of the period $ 1,109,000 $ 364,000
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
NEWSTAR MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED)
<CAPTION>
Six Months Ended June 30,
---------------------------------------
1999 1998
---- ----
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 359,900 $ 113,000
NON-CASH TRANSACTIONS
Common stock issued as payment for consulting fees
to related party $ -- $ 300,000
Preferred stock dividends accrued $ 203,000 $ 213,000
Preferred stock dividends paid in common stock $ 10,000 $ --
Preferred stock issued as payment for amounts
payable to former officers of the Company $ 135,000 $ 54,000
ACQUISITION OF AMERICAN AUDIO LITERATURE, INC
Assets acquired $ 1,550,000 $ --
Liabilities incurred (300,000) $ --
Issuance of Common Stock (1,050,000) $ --
------------------ ------------------
Net cash paid $ 200,000 $ --
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
NEWSTAR MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements of NewStar Media Inc. (the
"Company") are unaudited and have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB and 10-KSB/A for the fiscal year ended December 31,
1998. The accompanying consolidated financial statements include all adjustments
(consisting only of normal recurring adjustments) which in the opinion of
management are necessary in order to make them not misleading. The results of
operations for the six months ended June 30, 1999 are not necessarily indicative
of results to be expected for the full year.
NewStar Media Inc. is a diversified entertainment company primarily engaged in
the publication of audio and printed books, the production of television
programming and the distribution of feature films and television product, both
domestically and internationally. The Company commenced business in 1985 and
changed its name from Dove Entertainment, Inc. to NewStar Media Inc. in May
1998.
Through the NewStar Publishing division, including its new website
AudioUniverse.com, the Company produces and distributes audio books and
publishes printed books. Through Dove Four Point, Inc. and NewStar Television
Inc. (collectively "NewStar Television"), wholly owned subsidiaries of the
Company, the Company is engaged in the production and development of television
programming. NewStar Worldwide Inc. ("NewStar Worldwide"), a wholly owned
subsidiary of the Company, is engaged in the distribution of feature films and
television programming.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER COMMON SHARE
SFAS No. 128 replaces Accounting Principles Board Opinion ("APB") No. 15 and
simplifies the computation of earnings per share ("EPS") by replacing the
presentation of primary EPS with a presentation of basic EPS. Basic EPS includes
no dilution and is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution from securities that could share in
the earnings of the Company. Dilutive securities have been omitted from the
diluted calculation where they are anti-dilutive.
The net loss utilized in the calculation of basic loss per common share is
increased by the following:
1999 1998
---- ----
Quarter ended June 30,
Accrued dividends on Preferred Stock $ 101,000 $ 107,000
Six months ended June 30,
Accrued dividends on Preferred Stock $ 213,000 $ 213,000
STOCK-BASED COMPENSATION
The Company has a stock incentive plan (the "Plan") which authorizes the
granting of stock incentive awards ("Options") to qualified officers, employee
directors, key employees and third parties providing valuable services to the
Company. The Company accounts for the Plan in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation", which permits entities to recognize
as expense over the vesting period the fair value of all Options on the date of
grant or, alternately, allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and future years
as if the fair-value based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 in accounting
for its Plan, and accordingly, no compensation cost has been recognized.
7
<PAGE>
Had the Company determined compensation cost based on the fair value at the
grant date for its Options under SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
Six Months Ended June 30,
-------------------------------------
1999 1998
---- ----
Net loss attributable to
common shareholders
As reported $ (3,971,000) $ (2,475,000)
Pro forma $ (4,015,000) $ (2,475,000)
Net loss per share
As reported $ (.22) $ (.37)
Pro forma $ (.22) $ (.37)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates. Significant estimates include those related to ultimate revenues and
expenses related to film and television productions, the net realizability of
inventory and production masters and the allowance for returns on publishing
sales.
RECLASSIFICATION
Certain prior year accounts have been reclassified to conform to the current
year's presentation.
NOTE 3 - INCOME TAXES
Income taxes are computed in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company provides for
income taxes during interim reporting periods based upon an estimate of its
annual effective tax rate. This estimate includes all anticipated federal, state
and foreign income taxes.
SFAS No. 109 requires that a valuation allowance be recorded against tax assets
which are not likely to be realized. Due to the uncertainty of their ultimate
realization based upon past earnings performance and the expiration dates of
carryforwards, the Company has established a valuation allowance against these
tax assets except to the extent that they are realizable through carrybacks.
Realization of additional amounts is entirely dependent upon future earnings in
specific tax jurisdictions. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense. At June 30, 1999, the Company had net deferred tax
assets of approximately $12,493,000 against which a valuation allowance had been
fully recorded.
NOTE 4 - RELATED PARTY TRANSACTIONS
Pursuant to an employment termination agreement entered into in 1997
("Termination Agreement") with then principal shareholders and officers of the
Company ("Former Principals"), the Company paid such Former Principals $135,000
during the six months ended June 30, 1999 in the form of Series E Preferred
Stock for payments due by the Company for the period January through May, 1999.
The Termination Agreement provides for the Former Principals to receive combined
monthly payments (the "Payments") of approximately $27,000, and medical
insurance for 60 months from September 1997. In addition, they are entitled to
each receive a car allowance for 24 months from September 1997 and reimbursement
for certain medical and business expenses. The Company did not make Payments in
cash for June of 1999. The Former Principals are entitled to receive Series E
Preferred Stock in lieu of such cash Payments but have chosen not to accept the
Series E Preferred Stock.
8
<PAGE>
The Company has issued into escrow 1,500 shares of its Series E Preferred Stock,
convertible into shares of Common Stock to the extent set forth in the
Certificate of Determination for the Series E Preferred Stock. The Series E
Preferred Stock will be held in escrow and will be released to the Former
Principals only if the Company does not make a Payment in cash. If the Company
does not make a Payment in cash, the Series E Preferred Stock may be released to
the Former Principals in an amount equal to the portion of the Payments unpaid
divided by the stated value of the Series E Preferred Stock. The Former
Principals have registration rights pursuant to a registration rights agreement,
dated September 10, 1997, among the Company and the Former Principals with
respect to common stock into which Series E Preferred Stock received by them may
be converted.
During the six months ended June 30, 1999, the Company made certain payments and
entered into other transactions with the Former Principals and former directors
as more fully described in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998.
Media Equities International, LLC ("MEI") is a limited liability company, the
principals of which are Terrence A. Elkes, Kenneth F. Gorman, John T. Healy,
Ronald Lightstone and Bruce Maggin. Mr. Elkes is Chairman of the Board of the
Company, and Messrs. Gorman, Healy, Lightstone and Maggin are directors of the
Company. Messrs. Elkes, Gorman and Lightstone are also members of the Office of
the Chief Executive of the Company.
During 1999, the Company reorganized the management of the Company whereby all
operating officers report to the Office of the Chief Executive of which Mr. Elks
is Chairman and Chief Executive Officer and Messrs. Gorman and Lightstone are
Co-Vice Chairmen.
The Company accrued the following fees payable to MEI:
<TABLE>
<CAPTION>
Quarter ended June 30, 1999 1998
---- ----
<S> <C> <C>
Consulting fees pursuant to consulting agreement $ -- $ 75,000
Guarantee fees pursuant to guarantee of Chase Bank loan facility 12,500 7,000
---------------- ----------------
Total $ 12,500 $ 82,000
================ ================
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1999 1998
---- ----
<S> <C> <C>
Consulting fees pursuant to consulting agreement $ -- $ 150,000
Guarantee fees pursuant to guarantee of Chase Bank loan facility 25,000 13,000
---------------- ----------------
Total $ 25,000 $ 163,000
================ ================
</TABLE>
The Company issued the following shares of Common Stock at fair market value to
MEI in respect of consulting and guarantee fees:
Date of Issue Number of Shares Amount of Fees
------------- ---------------- --------------
January 2, 1998 240,000 $300,000
Pursuant to guarantee agreements dated November 4, 1997, each of the principals
of MEI had collectively guaranteed $366,000 and Messrs. Elkes, Gorman and
Lightstone had collectively guaranteed $287,000 against borrowings under the
Company's loan facility ("Chase Loan") with The Chase Manhattan Bank ("Chase
Bank") to the extent such borrowings exceed the borrowing base as defined in the
Chase Loan ("Borrowing Base"). At June 30, 1999, utilization of the Chase Loan
exceeded the Borrowing Base by $653,000. In order to secure the repayment of any
amounts the MEI principals may be required to pay to Chase Bank under the
guarantees, MEI has been granted a security interest in substantially all of the
assets of the Company. Such security interest is junior to the security interest
of Chase Bank which secures the Company's obligations under the Chase Loan.
9
<PAGE>
During the third quarter of 1999, in connection with obtaining certain
amendments and waivers to the Chase Loan, the Company reached an agreement with
MEI for a modification of the guarantee agreement to provide for a revised
guarantee of $2,000,000. In consideration of the modification of the guarantee
agreement, the Company has agreed to enter into an agreement to extend the
warrants currently held by MEI for one year and to amend the terms thereof to
permit a "cashless exercise" of such warrants.
During the quarter ended June 30, 1999, MEI instituted an arbitration proceeding
against the Former Principals. The Company's in-house legal staff provided legal
services for MEI in connection with such proceedings.
The Company entered into a Publishing Agreement with Affinity Communications
Corp. ("Affinity") pursuant to which the Company published "The Libido
Breakthrough: A Doctor's Guide to Restoring Sexual Vigor and Peak Health" by
Stuart W. Fine, M.D. and Brenda Adderly, M.H.A. At the time of the agreement,
Peter Engel, the Company's President of the publishing division, controlled and
maintained a significant ownership interest in Affinity. In addition, Mr. Engel
is married to Ms. Adderly. The terms of the publishing agreement are similar to
those contained in publishing agreements the Company enters into with unrelated
parties, except as follows: Affinity entered into and agreement with Rexall
Sundown pursuant to which Rexall was to purchase 33,000 copies of the book from
Affinity. The Company agreed that Affinity would purchase such 33,000 copies
from the Company at cost plus $25,000.
NOTE 5 - NOTES PAYABLE
Notes payable at June 30, 1999 consist of the following:
Chase Manhattan Bank revolving credit loan $ 7,500,000
Other 27,000
-----------------
Total notes payable $ 7,527,000
=================
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes. In May 1998, the Chase Loan was increased to $10,000,000 with the
other terms of the original agreement remaining substantially the same. The
Chase Loan is secured by substantially all of the Company's assets. The Chase
Loan runs for three years until November 4, 2000. The Chase Loan establishes a
"Borrowing Base" comprised of: (1) 35% of an independent valuation of the
Company's audio library, (2) 85% of the Company's eligible receivables and (3)
30% of the Company's finished goods audio and book inventory. At any time, the
Company may borrow up to the Borrowing Base. In addition, the Company may borrow
or have letters of credit issued for a further $4,000,000 provided the aggregate
amount borrowed does not exceed $10,000,000, and with the consent and guarantee
of MEI, a significant shareholder of the Company. The Chase Loan provides for
interest at the bank prime rate (8% at June 30, 1999) plus 2% per annum or the
bank's LIBOR rate (5.94% rate at June 30, 1999) plus 3% per annum, at the option
of the Company. Both rates are applicable to Company draw-downs on the Chase
Loan at June 30, 1999. In addition, unused commitment fees are payable at 1/2%
per annum. The Chase Loan contains various covenants to which the Company must
adhere including limitations on additional indebtedness, investments,
acquisitions, capital expenditures and sale of assets, restrictions on the
payment of dividends and distributions to shareholders, and various financial
compliance tests.
The Company was not in compliance with certain of the financial compliance tests
at December 31, 1998, March 31, 1999 and June 30, 1999 and has requested waivers
from Chase Bank. As of August 16, 1999, the Company received such waivers and
the Company and Chase Bank have entered into amendments and waivers to the Chase
Loan. At June 30, 1999, the Company had borrowed $7,500,000 against the facility
and had $2,500,000 of available funds for borrowing. 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
principals of MEI 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. In connection with the drafting of certain amendments and waivers to
the Chase Loan, the Company has reached agreement with MEI for an extension and
modification of the guarantee agreement to provide for a revised guarantee of
$2,000,000.
10
<PAGE>
In connection with the granting of certain waivers and amendments, Chase Bank
had required that the Company raise a minimum of $4.1 million of new equity. As
of June 30, 1999, the Company has received $4,545,000 in new equity through
several private placements.
NOTE 6 - AUDIO LITERATURE ACQUISITION
On June 1, 1999, the Company entered into an Asset Purchase Agreement with
American Audio Literature, Inc. ("Audio Literature") whereby the Company
purchased certain assets of Audio Literature including all of their inventory,
production masters, prepaid expenses, sales and customer data, interests in
various contracts, the "Audio Literature" corporate name and certain other
intangible and intellectual properties. The purchase price of such assets
amounted to $1,550,000 and is comprised of 1) $200,000 in cash paid June 1,
1999, 2) $300,000 in cash subject to certain adjustments and payable June 1,
2000, and 3) 300,000 shares of Common Stock ("Closing Shares") issued June 3,
1999 and valued by the Company and Audio Literature for purposes of the
transaction at $3.50 per share. If the Company's common stock does not reach
$3.50 per share on at least one day during the period from June 1, 1999 through
December 31, 2000, the Company will be required to issue additional shares of
common stock to Audio Literature in a number equal to $3.50 minus the average of
the closing prices of the common stock for the ninety consecutive trading days
preceding and including December 31, 2000 ("Reissue Price") divided by the
Reissue Price and multiplied by the number of Closing Shares still held by Audio
Literature on December 31, 2000. In no event will the Reissue Price be less than
$0.50 per share.
The Company has accounted for the assets purchased at fair market value and no
goodwill was recorded in connection with the transaction. Included in the fair
market value of the assets recorded are production masters of $1,110,000 which
are being amortized over a five-year period, ranging form 10% to 30% per year,
consistent with the estimated timing of future revenues to be earned.
Management's estimate of the fair market value of the production masters is
subject to adjustment, following the completion of an in-process independent
library valuation. Additionally, inventory and prepaid assets of $327,000 were
recorded, and $113,000 was capitalized in connection with the estimated value of
Audio Literature's sales and customer data which is being amortized on
straight-line basis over five years.
NOTE 7 - CAPITAL ACTIVITIES
COMMON STOCK
During the six months ended June 30, 1999, the Company issued the following
shares of Common Stock:
Number of Shares Consideration
---------------- -------------
18,089 Preferred stock dividend, $10,000.
300,000 Acquisition of Audio Literature
140,280 Shares issued to former principals in connection
with conversion of 189 shares of Series E
Preferred Stock.
As of June 30, 1999, the Company issued 3,768,448 shares of common stock in
exchange for $4,545,000 through several private placements.
During the six months ended June 30, 1999 the Company issued 135 shares of
Series E Preferred Stock pursuant to the Termination Agreement.
STOCK OPTIONS AND WARRANTS
On January 6, 1998, the Board approved the issuance of 601,500 options under the
Plan to employees, such options being issued in July 1998.
11
<PAGE>
Options outstanding under the Plan at June 30, 1999 were as follows:
Weighted
Average
Number of Exercise Exercise
Shares Price Price
-------- -------- --------
573,500 $1.50 - $6.00 $1.71
At June 30, 1999, options to acquire 364,163 shares of Common Stock under the
Plan were exercisable.
Warrants outstanding at June 30, 1999 were as follows:
Number of Weighted
Equivalent Common Average
Shares Exercise Price Exercise Price
----------------- -------------- --------------
4,664,013 $2.00 - $12.00 $5.05
At June 30, 1999 all warrants to acquire shares of Common Stock were
exercisable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes to the
Consolidated Financial Statements included elsewhere in this report.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including those utilizing the phrases "will",
"expects", "intends", "estimates", "contemplates", and similar phrases, are
"forward-looking" statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended), including statements regarding, among other items, (i)
the Company's growth strategy, (ii) the Company's intention to acquire or
develop additional audio book, printed book and television product, (iii) the
Company's intention to enter or broaden distribution markets, and (iv) the
Company's ability to successfully implement its business strategy. Certain, but
not necessarily all, of such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or be discussions of strategy that involve risks and
uncertainties. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
and achievements of the Company and its subsidiaries to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to,
the following: uncertainty as to future operating results; growth and
acquisition risks; certain risks relating to the entertainment industry;
dependence on a limited number of projects; possible need for additional
financing; potential for liability claims; dependence on certain outlets for
publishing product; competition and legal proceedings and claims. Other factors
which may materially affect actual results include, among others, the following:
general economic and business conditions, industry capacity, changes in
political, social and economic conditions and various other factors beyond the
Company's control. The Company does not undertake and specifically declines any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events. See the relevant discussions elsewhere herein, in the Company's
registration statement on Form S-3 (Registration No. 333-82553) and in the
Company's periodic reports and other documents filed with the Securities and
Exchange Commission for further discussions of these and other risks and
uncertainties applicable to the Company and its business.
12
<PAGE>
OVERVIEW
The Company commenced business in 1985 as one of the pioneers of the audio book
industry and has become one of the leading independent producers (i.e.,
unaffiliated with any single book publisher) of audio books in the United
States. The Company produces and distributes approximately 100 to 120 new titles
annually and has built a library of approximately 1,700 titles (including Audio
Literature titles) currently offered for sale. Additionally, the Company is
engaged in the production and development of television programming. Other
activities of the Company include a limited printed book publishing program and
the distribution of feature films and television programming.
Revenues for the quarter ended June 30, 1999 were $1,481,000 compared with
$7,620,000 for the same period in 1998. Net loss for the quarter was $2,133,000
compared to a net loss of $499,000 for the same period in 1998.
Revenues for the six months ended June 30, 1999 were $2,904,000 compared with
$10,313,000 for the same period last year. The Company incurred a net loss of
$3,758,000 for the six months compared to a net loss of $2,262,000 in 1998.
The decrease in revenues for the quarter and six months ended June 30, 1999 was
primarily a result of reduced television revenues due to timing of the delivery
of television motion pictures and a reduced level of audio books released in the
current period. In the second quarter of 1998, the Company delivered the
television motion picture "Futuresport" to ABC Television. The increase in loss
from operations for the quarter was primarily due to such reduced revenues.
These items were offset in part by the sale of the Company's long-term
investment in the Empire Studios for the six months ended June 30, 1999 and
better margins in the publishing business.
During the second quarter of 1999, the Company's publishing division launched
its new website AudioUniverse.com in order to position itself to capitalize on
the growth of e-commerce. AudioUniverse offers approximately 15,000 audio books
for sale (including the Company's 1,700 titles) with sound samples for more than
1,000 titles.
The demand for audio books is seasonal, with the majority of shipments taking
place in the third and fourth quarters of the year. The Company believes that
demand for audio books will remain seasonal, and this may adversely affect
results of operations for the first and second quarters. Because a significant
portion of the Company's expenses are relatively fixed, below-expectation sales
in any quarter could adversely affect operating results for that quarter.
Substantially all of the Company's sales of audio and printed book products are
and will continue to be subject to potential returns by distributors and
retailers if not sold to the public. Although the Company makes allowances and
reserves for returned product that it believes are adequate, significant
increases in return rates can materially and adversely impact the Company's
financial condition or results of operations.
The Company has a number of television concepts under development including
several television motion pictures and a reality series. While the overall
television market continues to expand with the growth of new networks and cable
channels, increasingly, networks are striving to acquire full ownership rights
to new product as distinct from the traditional license basis. Consequently, in
order to retain the higher profit margin associated with traditional license
arrangements, the Company's focus in the development of television product is to
link high-profile event type projects with high-profile talent that will be
attractive to networks on a license basis.
>From time to time, the Company may have several television projects in
development and generally seeks to limit its financial risk in the production of
television motion pictures and mini-series by pre-sales and licensing to third
parties. The production of television programming has been sporadic over the
last several years and significant variances in operating results from
year-to-year and quarter-to-quarter can be expected for television programming
revenues due to the variable demand for content from broadcast and cable
networks.
In August 1999, production commenced on both "Quadroon Ball," a movie for the
Lifetime cable channel, starring Vanessa L. Williams and "Random Acts of
Comedy," a daily half-hour program for the Fox Family Channel, starring David
Alan Grier.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth divisional revenues and operating expenses as a
percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Publishing 82 % 26 % 87 % 34 %
Television and film 18 74 13 66
----------- ---------- ----------- ----------
Total 100 % 100 % 100 % 100 %
----------- ---------- ----------- ----------
OPERATING EXPENSES
Publishing 39 % 17 % 53 % 24 %
Television and film 22 51 15 47
Selling, general & administrative 169 36 168 48
----------- ---------- ----------- ----------
Total 230 % 104 % 236 % 119 %
----------- ---------- ----------- ----------
</TABLE>
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
- -------------------------------------------------------------------
Publishing
- ----------
REVENUES. Net publishing revenues for the quarter ended June 30, 1999 decreased
$751,000 to $1,215,000 compared with $1,966,000 for the quarter ended June 30,
1998 with the decrease being primarily attributable to a lower volume of new
titles published. Leading audio book publications during the current quarter
included "Cuba" by Stephen Coonts, "High Exposure" by David Breashears and
"Front Row at the White House" by Helen Thomas.
COST OF SALES. Cost of sales for the quarter ended June 30, 1999 decreased
$736,000 to $582,000 from $1,318,000 for the quarter ended June 30, 1998. The
decrease was attributable to a decrease in the number of audio books published,
lower production and manufacturing costs and a change in the fourth quarter of
1998 in the estimate of percentages used to amortize capitalized production
costs. As a result, cost of sales as a percentage of net publishing revenues was
48% in the quarter ended June 30, 1999 compared to the 67% for the quarter ended
June 30, 1998.
Film and Television
- -------------------
REVENUES. Film and television revenues for the quarter ended June 30, 1999
decreased $5,388,000 to $266,000 from $5,654,000 for the quarter ended June 30,
1998. The decrease was primarily due to the absence in the second quarter of
1999 of the delivery of programming comparable to "Futuresport" which was
delivered in the second quarter last year.
COST OF SALES. Film and television amortization for the quarter ended June 30,
1999 decreased $3,589,000 to $321,000 from $3,910,000 for the quarter ended June
30, 1998. The decrease was attributable to the decline in film and television
revenues mentioned previously. Cost of sales as a percentage of net film and
television revenues was 121% and 69% for the quarters ended June 30, 1999 and
1998, respectively. The 1999 margin also reflects a film inventory valuation
adjustment.
General
- -------
GROSS PROFIT. The Company experienced a gross profit of $578,000 for the quarter
ended June 30, 1999 compared to $2,392,000 for the quarter ended June 30, 1998,
resulting from the matters previously discussed regarding publishing and film
revenues and cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A"). SG&A includes costs associated
with selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs, professional fees,
travel and entertainment. SG&A declined to $2,508,000 for the quarter ended June
30, 1999 from $2,734,000 for the quarter ended June 30, 1998.
14
<PAGE>
NET INTEREST EXPENSE. Net interest expense for the quarter ended June 30, 1999
was $203,000 compared with $155,000 for the quarter ended June 30, 1998. The
increase in net interest expense is primarily the result of increased
utilization of the Chase Loan facility.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
- -------------------------------------------------------------------------
Publishing
- ----------
REVENUES. Net publishing revenues for the six months ended June 30, 1999
decreased $1,002,000 to $2,513,000 compared with $3,515,000 for the quarter
ended June 30, 1998 with the decrease being primarily attributable to a lower
volume of new titles published. Leading audio book publications during the
current quarter included "Cuba" by Stephen Coonts, "High Exposure" by David
Breashears and "Front Row at the White House" by Helen Thomas.
COST OF SALES. Cost of sales for the six months ended June 30, 1999 decreased
$949,000 to $1,555,000 from $2,504,000 for the six months ended June 30, 1998.
The decrease was attributable to a decrease in the number of audio books
published, lower production and manufacturing costs and a change in the fourth
quarter of 1998 in the estimate of percentages used to amortize capitalized
production costs. As a result, cost of sales as a percentage of net publishing
revenues was 62% for the six months ended June 30, 1999 compared to the 71% for
the six months ended June 30, 1998 reflect cost savings in packaging and
production.
Film and Television
- -------------------
REVENUES. Film and television revenues for the six months ended June 30, 1999
decreased $6,407,000 to $391,000 from $6,798,000 for the six months ended June
30, 1998. The decrease was primarily due to the absence in the first half of
1999 of the delivery of newly produced programming as compared to the same
period last year.
COST OF SALES. Film and television amortization for the six months ended June
30, 1999 decreased $4,428,000 to $426,000 from $4,854,000 for the quarter ended
June 30, 1998. The decrease was attributable to the decline in film and
television revenues mentioned previously. Cost of sales as a percentage of net
film and television revenues increased to 109% from 71% for the six months ended
June 30 1998 as a result of a film inventory valuation adjustment.
General
- -------
GROSS PROFIT. The Company experienced a gross profit of $923,000 for the first
half year ended June 30, 1999 compared to $2,955,000 for the same period in
1998, resulting from the matters previously discussed regarding publishing and
film revenues and cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A includes costs associated with
selling, marketing and promoting the Company's products, as well as general
corporate expenses including salaries, occupancy costs, professional fees,
travel and entertainment. SG&A decreased to $4,872,000 for the six months ended
June 30, 1999 from $4,913,000 for the six months ended June 30, 1998.
NET INTEREST EXPENSE. Net interest expense for the period ended June 30, 1999
was $401,000 compared with $302,000 for the six months ended June 30, 1998. The
increase in net interest expense is primarily the result of increased
utilization of the Chase Loan facility.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On November 12, 1997, the Company entered into an agreement with Chase Bank
providing the Company with an $8,000,000 loan facility for working capital
purposes ("Chase Loan"). This facility was increased in July 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 Chase Loan
establishes a "Borrowing Base" comprising: (1) 35% of an independent valuation
of the Company's audio library, (2) 85% of the Company's eligible receivables
and (3) 30% of the Company's finished goods audio and book inventory. At any
time, the Company may borrow or have letters of credit issued up to the
Borrowing Base. In addition, the Company may borrow or have letters of credit
issued for a further $4,000,000 (provided the aggregate amount borrowed does not
exceed $10,000,000) with the consent and guarantee of the principals of MEI. The
15
<PAGE>
Chase Loan provides for interest at the bank prime rate plus 2% per annum or the
bank's LIBOR rate plus 3% per annum, at the option of the Company. In addition,
unused commitment fees are payable at 1/2% per annum. The Chase Loan contains
various covenants to which the Company must adhere including limitations on
additional indebtedness, investments, acquisitions, capital expenditures and
sale of assets, restrictions on the payment of dividends and distributions to
shareholders, and various financial compliance tests.
The Company was not in compliance with certain of the financial compliance tests
at December 31, 1998, March 31, 1999 and June 30, 1999 and has requested waivers
from Chase Bank. As of August 16, 1999, the Company received such waivers and
the Company and Chase Bank have entered into amendments and waivers to the Chase
Loan. At June 30, 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 principals of MEI 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. In connection with
entering into certain amendments and waivers to the Chase Loan, the Company
reached agreement with MEI for an extension and modification of the guarantee
agreement to provide for a revised guarantee of $2,000,000.
The Company has experienced significant negative cash flows from operations,
including $10,659,000 for the year ended December 31, 1998 and $4,385,000 for
the six months ended June 30, 1999 - see "Financial Statements of the Company -
Consolidated Statements of Cash Flows". 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, including the
expansion of 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 sufficient amounts, the Company's
operations may be significantly curtailed.
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.
Between April 1, 1999 and June 30, 1999, the Company issued 3,768,448 shares of
common stock in exchange for $4,545,000 through several private placements.
As of August 12, 1999 the Company's unused sources of funds consisted primarily
of approximately $2,134,000 available under the Chase Loan facility.
16
<PAGE>
YEAR 2000
Some of the Company's financial business systems or those of its vendors or
customers may have been written using two digits rather than four, to define the
applicable year. As a result, those systems may have date-sensitive software
that recognizes a date "00" as the year 1900 rather than 2000. If not modified
or updated, this could cause system failure or miscalculations, potentially
resulting in the temporary disruption of operations due to the inability to
process certain transactions.
The Company has contracted with Mercedes Distribution to provide a full
distribution service for its publishing operations. This distribution service
includes complete computer systems needs for distribution of the Company's
publishing operations together with information systems pertaining thereto. If
Mercedes were to experience year 2000 problems, the Company could experience
significant deterioration of operating efficiency. Mercedes Distribution has
represented to the Company that such systems are year 2000 compliant.
The Company utilizes MAS 90, a widely available package system for its financial
systems. The vendor of MAS 90 has represented to the Company that MAS 90 is year
2000 compliant.
The Company has initiated communications with significant suppliers and
customers to determine the extent that they may be vulnerable to their own year
2000 issues. Based on the representations of suppliers and customers contacted,
management does not believe the Company's continued operation is at risk due to
key business partners not addressing the year 2000 issue.
The Company does not believe that year 2000 problems that may be experienced by
its customers, suppliers and vendors (other than the Company's audiobook
distribution companies) would result in a significant deterioration of operating
efficiency. However, until the Company has completed its evaluation of the year
2000 issue, no assurance can be given that the Company will avoid deterioration
of operating efficiency or programming costs because of year 2000 problems.
The Company estimates the incremental costs associated with addressing and
fixing potential year 2000 problems to be no more than $25,000.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion in this Item 1 should be read in conjunction with the Company's
Annual Report on Form 10-KSB and 10-KSB/A for the year ended December 31, 1998
and the Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999, which contain descriptions of pending legal proceedings to which the
Company is a party.
On July 15, 1999, the Court of Appeal of the State of California Second
Appellate District Division 3 issued its opinion on plaintiff's appeal from
judgment in the matter Alexandria Datig v. Dove Books, Inc., etc., et al, which
opinion was modified on August 13, 1999. The appeals court reversed the judgment
and remanded the proceedings to the trial court. While the Company believes that
it has good and meritorious defenses to the claims in the action at the trial
court level, there is no assurance that the Company will prevail in the action.
On June 1, 1999, a complaint entitled Michael Viner and Deborah Raffin v.
NewStar Media Inc. (BC 211240) was filed in Los Angeles Superior Court. Mr.
Viner and Ms. Raffin are former officers and directors of the Company. The
plaintiffs allege violation of the Lanham Act, statutory and common law unfair
competition and false advertising, and seek damages in an amount according to
proof, punitive damages, and preliminary and permanent injunctive relief. On
August 4, 1999 the Company removed the action to the United Stated District
Court for the Central District of California Western Division (case No. 99-07970
CBM (SHx)). While the Company believes that it has good and meritorious defenses
to the claims in the action, there is no assurance that the Company will prevail
in the action.
17
<PAGE>
In addition to the above claims and the claims identified in the Company's
Annual Report on Form 10-KSB and 10-KSB/A for the year ended December 31, 1998
and the Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1999, the Company is a party to various other routine legal proceedings and
claims incidental to its business.
There can be no assurance that the ultimate outcome of these matters will be
resolved in favor of the Company. In addition, even if the ultimate outcome is
resolved in favor of the Company, involvement in any litigation or claims could
entail considerable cost to the Company and the diversion of the attention of
management, either of which could have a material adverse effect on the business
of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company amended its Articles of Incorporation, which amendment increased the
number of shares of the Company's authorized common stock from 20,000,000 shares
to 50,000,000 shares. See Item 4 below.
Pursuant to a Stock Purchase Agreement, dated as of April 1, 1999, between the
Company and Ronald Lightstone, Mr. Lightstone purchased from the Company 30,000
shares of common stock of the Company on April 6, 1999 for $19,125 (or $0.6375
per share).
Pursuant to a Stock Purchase Agreement, dated as of May 4, 1999, between the
Company and Gorman Limited Partnership ("GLP"), GLP purchased from the Company
416,667 shares of common stock of the Company on May 24, 1999 for $500,000 (or
$1.20 per share).
Pursuant to a Stock Purchase Agreement, dated as of May 4, 1999, between the
Company and Elkes Limited Partnership ("ELP"), ELP purchased from the Company
416,667 shares of common stock of the Company on May 25, 1999 for $500,000 (or
$1.20 per share).
Pursuant to a Stock Purchase Agreement, dated as of April 1, 1999, between the
Company and GLP, GLP purchased from the Company (i) 531,561 shares of common
stock of the Company on May 13, 1999 for $675,085 (or $1.27 per share), (ii)
136,219 shares of common stock of the Company on May 17, 1999 for $173,000 (or
$1.27 per share), (iii) 157,200 shares of common stock of the Company on June 1,
1999 for $199,644 (or $1.27 per share), (iv) 50,400 shares of common stock of
the Company on June 3, 1999 for $64,008 (or $1.27 per share), (v) 333,334 shares
of common stock of the Company on May 21, 1999 for $400,000 (or $1.27 per
share), (vi) 16,667 shares of common stock of the Company on June 4, 1999 for
$20,000 (or $1.20 per share) (vii) 46,400 shares of common stock of the Company
on June 3, 1999 for $55,680 (or $1.20 per share).
Pursuant to a Stock Purchase Agreement, dated as of April 1, 1999, between the
Company and ELP, ELP purchased from the Company (i) 300,000 shares of common
stock of the Company on April 22, 1999 for $393,733 (or $1.31 per share) and
(ii) 1,000,000 shares of common stock of the Company on May 6, 1999 for
$1,200,000 (or $1.20 per share).
Pursuant to a Stock Purchase Agreement, dated as of May 19, 1999, between the
Company and Peter Engel, Mr. Engel purchased from the Company 250,000 shares of
common stock of the Company for $300,000 (or $1.20 per share).
On May 24, 1999 the Company issued and sold 83,833 shares of common stock of the
Company for $100,000 (or $1.20 per share) in a private placement.
On July 6, 1999 the Company issued 37,641 shares of common stock of the Company
to Steinberg, Nutter & Brent in satisfaction of amounts owed by the Company to
that firm.
All of the shares were issued in reliance on Section 4(2) of the Securities Act
of 1933 as amended.
On June 3, 1999 the Company issued and delivered 300,000 shares of common stock
of the Company to American Audio Literature as partial payment for all of the
assets of American Audio Literature. The shares were issued in reliance on
Regulation D promulgated under the Securities Act of 1933.
18
<PAGE>
During the period April 1, 1999 to June 30, 1999, 54 shares of the Company's
Series E Preferred Stock were released from escrow in lieu of payments to
certain former officers for the Company. During the period April 1, 1999 to June
30, 1999, 140,280 shares of common stock of the Company were issued upon
conversion of 189 shares of Series E Preferred Stock held by such officers.
The Amended and Restated Credit, Security, Guaranty and Pledge Agreement, dated
as of November 4, 1997, as amended and restated as of August 16, 1999, among the
Company, the guarantors named therein and The Chase Manhattan Bank provides that
the Company is prohibited from declaring cash dividends on its common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See the discussion in Note 5 of the Notes to Consolidated Financial Statements
in Item 1 of Part I herein which discussion is incorporated by reference in this
Item 3 of Part II.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 increased the
number of shares of the Company's authorized Common Stock from 20,000,000 shares
to 50,000,000 shares (the "Amendment"). In accordance with the California
General Corporation Law and the By-Laws of the Company, on April 1, 1999, Media
Equities International, LLC ("MEI"), ELP, GLP and Mr. 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. 10,419,435 common shares, 4,000 Series B Preferred Stock shares,
1,920 Series C Preferred Stock Shares, and 214,113 Series D Preferred Stock
Shares were voted in favor of the Amendment.
On April 21, 1999, the Board of Directors of the Company approved a private
placement and issuance of shares of common stock of the Company to raise
additional equity capital for the Company (the "Equity Investment"). In
accordance with the California General Corporation Law and the By-Laws of the
Company, on April 1, 1999, MEI, ELP, GLP and Mr. Lightstone, who then held, in
the aggregate, approximately 66% of the outstanding voting power of the Company,
approved the Equity Investment by written consent in lieu of a meeting of
shareholders. 10,419,435 common shares, 4,000 Series B Preferred Stock shares,
1,920 Series C Preferred Stock Shares, and 214,113 Series D Preferred Stock
Shares were voted in favor of the Equity Investment.
The Equity Investment provided the Company with approximately $4.5 million of
additional equity capital through the sale of approximately 3.7 million shares
of Common Stock to persons previously unaffiliated with the Company, and certain
of the Company's officers and other holders of common stock of the Company.
Pursuant to Section 14(c) of the Securities and Exchange Act of 1934, in
connection with the approval of the Amendment and the Equity Investment by
written consent of the shareholders in lieu of a meeting of shareholders, the
Company filed a Schedule 14C Information Statement with the Securities and
Exchange Commission on June 8, 1999 and mailed the Information Statement on or
about June 8, 1999 to all holders of the Company's common stock and preferred
stock.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
10.1 Stock Purchase Agreement dated as of April 1, 1999, between NewStar
Media Inc. and Ronald Lightstone
10.2 Stock Purchase Agreement dated as of April 1, 1999, between NewStar
Media Inc. and Gorman Limited Partnership
10.3 Stock Purchase Agreement dated as of April 1, 1999, between NewStar
Media Inc. and Elkes Limited Partnership
10.4 Stock Purchase Agreement dated as of May 4, 1999, between NewStar Media
Inc. and Gorman Limited Partnership
10.5 Stock Purchase Agreement dated as of May 4, 1999, between NewStar Media
Inc. and Elkes Limited Partnership
10.6 Stock Purchase Agreement dated as of May 19, 1999, between NewStar
Media Inc. and Peter Engel
10.7 Registration Rights Agreement dated as of May 17, 1999 between NewStar
Media Inc. and Peter Engel
27 Financial Data Schedule
(B) Reports on Form 8-K:
A report on Form 8-K (dated May 17, 1999) was filed on May 27, 1999
reporting under Item 5 (i) the appointment of Terrence A. Elkes as
Chairman of the Company and Ronald Lightstone and Kenneth F. Gorman as
Co-Vice Chairmen and the appointment of the new senior management team of
the publishing division of the Company and (ii) the sale of approximately
3.5 million shares of common stock of the Company for approximately $4.2
million.
20
<PAGE>
SIGNATURES
In accordance with 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.
Date: August 23, 1999 NEWSTAR MEDIA INC.
By /s/ Terrence A. Elkes
-------------------------------
Terrence A. Elkes
Chairman and Chief Executive
Officer
Date: August 23, 1999 By /s/ John T. Brady
------------------------------
John T. Brady
Chief Financial Officer
21
<PAGE>
NEWSTAR MEDIA INC.
INDEX TO EXHIBITS
Exhibit
Number
------------
10.1 Stock Purchase Agreement dated as of April 1, 1999, between
NewStar Media Inc. and Ronald Lightstone
10.2 Stock Purchase Agreement dated as of April 1, 1999, between
NewStar Media Inc. and Gorman Limited Partnership
10.3 Stock Purchase Agreement dated as of April 1, 1999, between
NewStar Media Inc. and Elkes Limited Partnership
10.4 Stock Purchase Agreement dated as of May 4, 1999, between NewStar
Media Inc. and Gorman Limited Partnership
10.5 Stock Purchase Agreement dated as of May 4, 1999, between NewStar
Media Inc. and Elkes Limited Partnership
10.6 Stock Purchase Agreement dated as of May 19, 1999, between NewStar
Media Inc. and Peter Engel
10.7 Registration Rights Agreement dated as of May 17, 1999 between
NewStar Media Inc. and Peter Engel
27 Financial Data Schedule
22
<PAGE>
Exhibit 10.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of April 1, 1999,
among NewStar Media Inc., a California corporation (the "COMPANY") and Ronald
Lightstone ("Lightstone").
WITNESSETH:
WHEREAS, the Company may from time to desire to issue and sell to
purchasers shares of Common Stock of the Company, par value $0.1 per share
("Common Stock");
WHEREAS, such purchasers may desire to purchase registered shares of
Common Stock;
WHEREAS, Lightstone owns shares of Common Stock covered by an effective
registration statement ("Registered Shares");
WHEREAS, in order to assist the Company in obtaining financing,
Lightstone has agreed with the Company that from time to time Lightstone will
sell Registered Shares to purchasers identified by the Company at such prices
and in such amounts as may be approved by the Company; provided that Lightstone
shall simultaneously purchase from the Company, and the Company shall issue and
sell to Lightstone, an equal number of shares of Common Stock at the same price
that Lightstone sold Registered Shares; provided further, that Lightstone shall
not be obligated or required to sell Registered Shares hereunder;
WHEREAS, the Board of Directors of the Company has approved the
purchase of Common Stock by Lightstone as contemplated in this Agreement and has
approved and authorized such transactions as exempt transactions under Rule
16b-3(d) promulgated under Section 16 of the Securities and Exchange Act of
1938.
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
1
<PAGE>
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES. During the period commencing on the date
hereof and ending June 15, 1999, the Company shall have the right to request
that Lightstone sell from time to time up to 2,000,000 Registered Shares to one
or more purchasers for such prices and in such amounts and at such times as the
Company may determine. If Lightstone agrees to sell Registered Shares to the
purchasers at the time and for the price determined by the Company (a
"Transaction"), Lightstone shall purchase from the Company, and the Company
shall sell and issue to Lightstone, the Replacement Shares (as defined below)
for a purchase price equal to the Replacement Price (as defined below). For any
Transaction, the "Replacement Shares" shall be that number of shares of Common
Stock equal to the number of Registered Shares sold in the Transaction, and the
"Replacement Price" shall be the price that Lightstone received for the
Registered Shares from the purchaser of such Registered Shares in the
Transaction.
1.2 PURCHASE OF REPLACEMENT SHARES; DELIVERY. Immediately upon sale of
Registered Shares by Lightstone hereunder, Lightstone shall pay the Replacement
Price for the Replacement Shares to the Company. Upon amendment of the Company's
articles of incorporation to increase the authorized number of shares, and
shareholder approval of the transactions contemplated herein in accordance with
Regulation 14C of the Securities and Exchange Act of 1934, the Company shall
issue and deliver to Lightstone a certificate or certificates, registered in the
name of Ronald Lightstone, representing the Replacement Shares.
1.3 NATURE OF TRANSACTION. It is the intent of the parties hereto that
the transactions contemplated in this Agreement are solely to assist the Company
in raising equity financing from persons other than Lightstone, and that
Lightstone will derive no economic benefit from any of the transactions
contemplated in this Agreement. It is not intended that Lightstone receive an
economic benefit upon the consummation of the transactions contemplated in this
Agreement. The parties hereto acknowledge that Lightstone may suffer an economic
detriment because, upon consummation of the transactions, Lightstone will own
the same number of shares of Common Stock as he did before the transaction, but
such shares will be unregistered, and accordingly may have a value less that the
registered shares owned by Lightstone prior to the transaction.
2
<PAGE>
1.4 TAXES. If Lightstone is required by law to make any payment on
account of any Federal or state income taxes due the sale and/or purchase of
Common Stock pursuant to this Agreement, the Company shall pay to Lightstone all
such amounts before the date on which penalties attach thereto, and such sum
payable by the Company shall be increased to the extent necessary to ensure
that, after the making of any payment of taxes on amounts to be received by
Lightstone from the Company under this Section 1.4, Lightstone receives a sum
equal to what it would have received had no taxes been payable by Lightstone on
account of any sales and/or purchases hereunder.
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Lightstone the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Replacement Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Replacement Shares when sold, issued and
delivered, against the full payment of the Replacement Price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Replacement Shares are not subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Replacement Shares for sale to, or solicited
offers to buy from, or otherwise approached or negotiated with, any individual
or entity in connection with the sale of such securities other than a limited
number of investors, including Lightstone. Assuming the accuracy of Lightstone's
representations contained in Section 3 of this Agreement, the offer, issuance
and delivery of the Replacement Shares to Lightstone are exempt from
registration under the Securities Act of 1933, as amended (the "1933 ACT").
3
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Lightstone represents and warrants to the Company the following:
3.1. AUTHORIZATION. Lightstone has all requisite power and authority to
execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Lightstone have
been duly authorized by all requisite corporate action, and this Agreement when
executed and delivered by Lightstone will constitute its valid and binding
obligation, enforceable against Lightstone in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Replacement Shares are being acquired
by Lightstone for its own account, not as a nominee or agent, for investment and
not with a view to resale or distribution within the meaning of the 1933 Act,
and the rules and regulations thereunder, and Lightstone will not distribute the
Replacement Shares in violation or contravention of the 1933 Act. Lightstone is
not aware of any facts or circumstances that contradict the representation in
the first sentence of Section 2.4.
3.3. RESTRICTIONS ON TRANSFER. Lightstone acknowledges that (a) the
Replacement Shares will not be registered under the 1933 Act at the time of
delivery of such shares to Lightstone, (b) the Replacement Shares will not be
transferable unless so registered or unless an exception for such registration
is applicable and (c) certificates representing the Replacement Shares will bear
a legend substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
4
<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) Lightstone represents and warrants to the Company, that
Lightstone and if Lightstone is a limited liability company each member of
Lightstone (i) is an "accredited investor" as defined in the 1933 Act and is
financially able to purchase the Replacement Shares, (ii) is fully capable of
understanding the type of investment being made pursuant to this Agreement, and
the risks involved in connection therewith, (iii) believes that the nature of
the Replacement Shares is consistent with their overall investment programs and
financial position, (iv) recognizes that there are substantial risks involved in
their purchase of the Replacement Shares, (v) is capable of bearing the economic
risk of its investment for an indefinite period of time and can afford a
complete loss of its investment, (vi) has adequate means of providing for their
current liquidity needs, (vii) has no need for liquidity of their investment,
(viii) is not expecting any short term income from their investment and (ix) has
no reason to anticipate any change in personal circumstances, financial or
otherwise, which may cause or require any sale of the Replacement Shares.
(b) Lightstone acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Replacement Shares and (ii) business and financial conditions of
the Company; and Lightstone has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Replacement Shares, as
it has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement including any Appendices,
Schedules or Exhibits hereto, contains the entire agreement and understanding
among the parties with respect to the subject matter hereof and shall not be
modified or affected by any offer, proposal, statement or representation, oral
or written, made by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall specifically
include, incorporate and refer to the Appendices, Schedules and Exhibits
attached hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or assurances
(express or implied) other than those expressly set forth or provided for herein
and in the other documents referred to herein. This Agreement may not be
modified or amended orally, but only by a writing signed by the parties.
5
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<SIGNATURES ON NEXT PAGE>
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
THE COMPANY:
NEWSTAR MEDIA INC.
By: /S/ROBERT MURRAY
-------------------------------
Name: Robert Murray
Title: Vice President & General
Counsel
THE PURCHASER:
/S/ RONALD LIGHTSTONE
-------------------------------
Ronald Lightstone
<PAGE>
Exhibit 10.2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of April 1, 1999,
among NewStar Media Inc., a California corporation (the "COMPANY") and Gorman
Limited Partnership ("GLP").
WITNESSETH:
WHEREAS, the Company may from time to desire to issue and sell to
purchasers shares of Common Stock of the Company, par value $0.1 per share
("Common Stock");
WHEREAS, such purchasers may desire to purchase registered shares of
Common Stock;
WHEREAS, GLP owns shares of Common Stock covered by an effective
registration statement ("Registered Shares");
WHEREAS, in order to assist the Company in obtaining financing, GLP has
agreed with the Company that from time to time GLP will sell Registered Shares
to purchasers identified by the Company at such prices and in such amounts as
may be approved by the Company; provided that GLP shall simultaneously purchase
from the Company, and the Company shall issue and sell to GLP, an equal number
of shares of Common Stock at the same price that GLP sold Registered Shares;
provided further, that GLP shall not be obligated or required to sell Registered
Shares hereunder;
WHEREAS, the Board of Directors of the Company has approved the
purchase of Common Stock by GLP as contemplated in this Agreement and has
approved and authorized such transactions as exempt transactions under Rule
16b-3(d) promulgated under Section 16 of the Securities and Exchange Act of
1938.
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1
<PAGE>
1.1. SALE OF THE SECURITIES. During the period commencing on the date
hereof and ending June 15, 1999, the Company shall have the right to request
that GLP sell from time to time up to 2,000,000 Registered Shares to one or more
purchasers for such prices and in such amounts and at such times as the Company
may determine. If GLP agrees to sell Registered Shares to the purchasers at the
time and for the price determined by the Company (a "Transaction"), GLP shall
purchase from the Company, and the Company shall sell and issue to GLP, the
Replacement Shares (as defined below) for a purchase price equal to the
Replacement Price (as defined below). For any Transaction, the "Replacement
Shares" shall be that number of shares of Common Stock equal to the number of
Registered Shares sold in the Transaction, and the "Replacement Price" shall be
the price that GLP received for the Registered Shares from the purchaser of such
Registered Shares in the Transaction.
1.2 PURCHASE OF REPLACEMENT SHARES; DELIVERY. Immediately upon sale of
Registered Shares by GLP hereunder, GLP shall pay the Replacement Price for the
Replacement Shares to the Company. Upon amendment of the Company's articles of
incorporation to increase the authorized number of shares, and shareholder
approval of the transactions contemplated herein in accordance with Regulation
14C of the Securities and Exchange Act of 1934, the Company shall issue and
deliver to GLP a certificate or certificates, registered in GLP's name,
representing the Replacement Shares.
1.3 NATURE OF TRANSACTION. It is the intent of the parties hereto that
the transactions contemplated in this Agreement are solely to assist the Company
in raising equity financing from persons other than GLP, and that GLP will
derive no economic benefit from any of the transactions contemplated in this
Agreement. It is not intended that GLP receive an economic benefit upon the
consummation of the transactions contemplated in this Agreement. The parties
hereto acknowledge that GLP may suffer an economic detriment because, upon
consummation of the transactions, GLP will own the same number of shares of
Common Stock as it did before the transaction, but such shares will be
unregistered, and accordingly may have a value less that the registered shares
owned by GLP prior to the transaction.
1.4 TAXES. If GLP is required by law to make any payment on account of
any Federal or state income taxes due the sale and/or purchase of Common Stock
pursuant to this Agreement, the Company shall pay to GLP all such amounts before
the date on which penalties attach thereto, and such sum payable by the Company
shall be increased to the extent necessary to ensure that, after the making of
any payment of taxes on amounts to be received by GLP from the Company under
this Section 1.4, GLP receives a sum equal to what it would have received had no
taxes been payable by GLP on account of any sales and/or purchases hereunder.
2
<PAGE>
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to GLP the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Replacement Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Replacement Shares when sold, issued and
delivered, against the full payment of the Replacement Price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Replacement Shares are not subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Replacement Shares for sale to, or solicited
offers to buy from, or otherwise approached or negotiated with, any individual
or entity in connection with the sale of such securities other than a limited
number of investors, including GLP. Assuming the accuracy of GLP's
representations contained in Section 3 of this Agreement, the offer, issuance
and delivery of the Replacement Shares to GLP are exempt from registration under
the Securities Act of 1933, as amended (the "1933 ACT").
3
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
GLP represents and warrants to the Company the following:
3.1. AUTHORIZATION. GLP has all requisite power and authority to
execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by GLP have been duly
authorized by all requisite corporate action, and this Agreement when executed
and delivered by GLP will constitute its valid and binding obligation,
enforceable against GLP in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and
general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Replacement Shares are being acquired
by GLP for its own account, not as a nominee or agent, for investment and not
with a view to resale or distribution within the meaning of the 1933 Act, and
the rules and regulations thereunder, and GLP will not distribute the
Replacement Shares in violation or contravention of the 1933 Act. GLP is not
aware of any facts or circumstances that contradict the representation in the
first sentence of Section 2.4.
3.3. RESTRICTIONS ON TRANSFER. GLP acknowledges that (a) the
Replacement Shares will not be registered under the 1933 Act at the time of
delivery of such shares to GLP, (b) the Replacement Shares will not be
transferable unless so registered or unless an exception for such registration
is applicable and (c) certificates representing the Replacement Shares will bear
a legend substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
4
<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) GLP represents and warrants to the Company, that GLP and if
GLP is a limited liability company each member of GLP (i) is an "accredited
investor" as defined in the 1933 Act and is financially able to purchase the
Replacement Shares, (ii) is fully capable of understanding the type of
investment being made pursuant to this Agreement, and the risks involved in
connection therewith, (iii) believes that the nature of the Replacement Shares
is consistent with their overall investment programs and financial position,
(iv) recognizes that there are substantial risks involved in their purchase of
the Replacement Shares, (v) is capable of bearing the economic risk of its
investment for an indefinite period of time and can afford a complete loss of
its investment, (vi) has adequate means of providing for their current liquidity
needs, (vii) has no need for liquidity of their investment, (viii) is not
expecting any short term income from their investment and (ix) has no reason to
anticipate any change in personal circumstances, financial or otherwise, which
may cause or require any sale of the Replacement Shares.
(b) GLP acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Replacement Shares and (ii) business and financial conditions of
the Company; and GLP has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Replacement Shares, as
it has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement including any Appendices,
Schedules or Exhibits hereto, contains the entire agreement and understanding
among the parties with respect to the subject matter hereof and shall not be
modified or affected by any offer, proposal, statement or representation, oral
or written, made by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall specifically
include, incorporate and refer to the Appendices, Schedules and Exhibits
attached hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or assurances
(express or implied) other than those expressly set forth or provided for herein
and in the other documents referred to herein. This Agreement may not be
modified or amended orally, but only by a writing signed by the parties.
5
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<Signatures on Next Page>
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
The Company:
NEWSTAR MEDIA INC.
By:/s/ROBERT MURRAY
----------------------------------
Name: Robert Murray
Title: Vice President & General
Counsel
The Purchaser:
GORMAN LIMITED PARTNERSHIP
By:/s/ Kenneth F. Gorman
----------------------------------
Kenneth F. Gorman
Managing General Partner
<PAGE>
Exhibit 10.3
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of April 1, 1999,
among NewStar Media Inc., a California corporation (the "COMPANY") and Elkes
Limited Partnership ("ELP").
WITNESSETH:
WHEREAS, the Company may from time to desire to issue and sell to
purchasers shares of Common Stock of the Company, par value $0.1 per share
("Common Stock");
WHEREAS, such purchasers may desire to purchase registered shares of
Common Stock;
WHEREAS, ELP owns shares of Common Stock covered by an effective
registration statement ("Registered Shares");
WHEREAS, in order to assist the Company in obtaining financing, ELP has
agreed with the Company that from time to time ELP will sell Registered Shares
to purchasers identified by the Company at such prices and in such amounts as
may be approved by the Company; provided that ELP shall simultaneously purchase
from the Company, and the Company shall issue and sell to ELP, an equal number
of shares of Common Stock at the same price that ELP sold Registered Shares;
provided further, that ELP shall not be obligated or required to sell Registered
Shares hereunder;
WHEREAS, the Board of Directors of the Company has approved the
purchase of Common Stock by ELP as contemplated in this Agreement and has
approved and authorized such transactions as exempt transactions under Rule
16b-3(d) promulgated under Section 16 of the Securities and Exchange Act of
1938.
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1
<PAGE>
1.1. SALE OF THE SECURITIES. During the period commencing on the date
hereof and ending June 15, 1999, the Company shall have the right to request
that ELP sell from time to time up to 2,000,000 Registered Shares to one or more
purchasers for such prices and in such amounts and at such times as the Company
may determine. If ELP agrees to sell Registered Shares to the purchasers at the
time and for the price determined by the Company (a "Transaction"), ELP shall
purchase from the Company, and the Company shall sell and issue to ELP, the
Replacement Shares (as defined below) for a purchase price equal to the
Replacement Price (as defined below). For any Transaction, the "Replacement
Shares" shall be that number of shares of Common Stock equal to the number of
Registered Shares sold in the Transaction, and the "Replacement Price" shall be
the price that ELP received for the Registered Shares from the purchaser of such
Registered Shares in the Transaction.
1.2 PURCHASE OF REPLACEMENT SHARES; DELIVERY. Immediately upon sale of
Registered Shares by ELP hereunder, ELP shall pay the Replacement Price for the
Replacement Shares to the Company. Upon amendment of the Company's articles of
incorporation to increase the authorized number of shares, and shareholder
approval of the transactions contemplated herein in accordance with Regulation
14C of the Securities and Exchange Act of 1934, the Company shall issue and
deliver to ELP a certificate or certificates, registered in ELP's name,
representing the Replacement Shares.
1.3 NATURE OF TRANSACTION. It is the intent of the parties hereto that
the transactions contemplated in this Agreement are solely to assist the Company
in raising equity financing from persons other than ELP, and that ELP will
derive no economic benefit from any of the transactions contemplated in this
Agreement. It is not intended that ELP receive an economic benefit upon the
consummation of the transactions contemplated in this Agreement. The parties
hereto acknowledge that ELP may suffer an economic detriment because, upon
consummation of the transactions, ELP will own the same number of shares of
Common Stock as it did before the transaction, but such shares will be
unregistered, and accordingly may have a value less that the registered shares
owned by ELP prior to the transaction.
1.4 TAXES. If ELP is required by law to make any payment on account of
any Federal or state income taxes due the sale and/or purchase of Common Stock
pursuant to this Agreement, the Company shall pay to ELP all such amounts before
the date on which penalties attach thereto, and such sum payable by the Company
shall be increased to the extent necessary to ensure that, after the making of
any payment of taxes on amounts to be received by ELP from the Company under
this Section 1.4, ELP receives a sum equal to what it would have received had no
taxes been payable by ELP on account of any sales and/or purchases hereunder.
2
<PAGE>
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to ELP the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Replacement Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Replacement Shares when sold, issued and
delivered, against the full payment of the Replacement Price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Replacement Shares are not subject to any preemptive rights of stockholders
of the Company or to any right of first refusal or other similar right in favor
of any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Replacement Shares for sale to, or solicited
offers to buy from, or otherwise approached or negotiated with, any individual
or entity in connection with the sale of such securities other than a limited
number of investors, including ELP. Assuming the accuracy of ELP's
representations contained in Section 3 of this Agreement, the offer, issuance
and delivery of the Replacement Shares to ELP are exempt from registration under
the Securities Act of 1933, as amended (the "1933 ACT").
3
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
ELP represents and warrants to the Company the following:
3.1. AUTHORIZATION. ELP has all requisite power and authority to
execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by ELP have been duly
authorized by all requisite corporate action, and this Agreement when executed
and delivered by ELP will constitute its valid and binding obligation,
enforceable against ELP in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally and
general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Replacement Shares are being acquired
by ELP for its own account, not as a nominee or agent, for investment and not
with a view to resale or distribution within the meaning of the 1933 Act, and
the rules and regulations thereunder, and ELP will not distribute the
Replacement Shares in violation or contravention of the 1933 Act. ELP is not
aware of any facts or circumstances that contradict the representation in the
first sentence of Section 2.4.
3.3. RESTRICTIONS ON TRANSFER. ELP acknowledges that (a) the
Replacement Shares will not be registered under the 1933 Act at the time of
delivery of such shares to ELP, (b) the Replacement Shares will not be
transferable unless so registered or unless an exception for such registration
is applicable and (c) certificates representing the Replacement Shares will bear
a legend substantially in the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
4
<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) ELP represents and warrants to the Company, that ELP and if
ELP is a limited liability company each member of ELP (i) is an "accredited
investor" as defined in the 1933 Act and is financially able to purchase the
Replacement Shares, (ii) is fully capable of understanding the type of
investment being made pursuant to this Agreement, and the risks involved in
connection therewith, (iii) believes that the nature of the Replacement Shares
is consistent with their overall investment programs and financial position,
(iv) recognizes that there are substantial risks involved in their purchase of
the Replacement Shares, (v) is capable of bearing the economic risk of its
investment for an indefinite period of time and can afford a complete loss of
its investment, (vi) has adequate means of providing for their current liquidity
needs, (vii) has no need for liquidity of their investment, (viii) is not
expecting any short term income from their investment and (ix) has no reason to
anticipate any change in personal circumstances, financial or otherwise, which
may cause or require any sale of the Replacement Shares.
(b) ELP acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Replacement Shares and (ii) business and financial conditions of
the Company; and ELP has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Replacement Shares, as
it has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement including any Appendices,
Schedules or Exhibits hereto, contains the entire agreement and understanding
among the parties with respect to the subject matter hereof and shall not be
modified or affected by any offer, proposal, statement or representation, oral
or written, made by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall specifically
include, incorporate and refer to the Appendices, Schedules and Exhibits
attached hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or assurances
(express or implied) other than those expressly set forth or provided for herein
and in the other documents referred to herein. This Agreement may not be
modified or amended orally, but only by a writing signed by the parties.
5
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<Signatures on Next Page>
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
The Company:
NEWSTAR MEDIA INC.
By: /s/ ROBERT MURRAY
---------------------------------
Name: Robert Murray
Title: Vice President and General
Counsel
The Purchaser:
ELKES LIMITED PARTNERSHIP
By: /s/ TERRENCE A. ELKES
---------------------------------
Terrence A. Elkes
Managing General Partner
<PAGE>
Exhibit 10.4
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of May 4, 1999,
among NewStar Media Inc., a California corporation (the "COMPANY"), and Gorman
Limited Partnership (the "PURCHASER").
WITNESSETH:
WHEREAS, the Company desires to sell, and the Purchaser desires to
purchase, subject to the terms and conditions of this Agreement, shares of the
Common Stock of the Company, par value $.01 per share (the "COMMON STOCK").
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES. Subject to the terms and conditions herein
set forth, the Company agrees to sell and issue to the Purchaser, and the
Purchaser agrees to purchase from the Company, 416,667 shares of Common Stock of
the Company for a purchase price per share equal to $1.20 (or an aggregate of
$500,000). The shares being purchased hereunder are hereinafter referred to as
the "PURCHASED SHARES". In connection with the purchase of the Purchased Shares,
the Purchaser shall have the right to assign all or a portion of its rights (but
not its obligation) to purchase the Purchased Shares from the Company under this
Agreement to one or more persons affiliated with the Purchaser, provided that
such person(s) submits to the Company a certificate setting forth the
representations in Section 3 below. Any such assignees shall be deemed a
"Purchaser" hereunder.
1.2. CLOSING. The closing of the issuance and sale of the Purchased
Shares to the Purchaser (the "CLOSING") shall take place at on or before May 11,
1999 (the "CLOSING DATE").
1.3 DELIVERY. At the Closing, the Company shall deliver to the
Purchaser a Registration Rights Agreement in form and substance satisfactory to
the Purchaser, duly executed by the Company, and the Purchaser shall pay the
purchase price for the Purchased Shares to the Company. Upon notice to the
Company's shareholders of the amendment of the Company's articles of
incorporation to increase the authorized number of shares, in accordance with
Regulation 14C of the Securities and Exchange Act of 1934, the Company shall
issue and deliver to the Purchaser a certificate or certificates, registered in
the name of the Purchaser, representing the Purchased Shares.
1
<PAGE>
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Purchased Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Purchased Shares when sold, issued and
delivered, against the full payment of the purchase price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Purchased Shares are not subject to any preemptive rights of stockholders of
the Company or to any right of first refusal or other similar right in favor of
any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Purchased Shares for sale to, or solicited offers
to buy from, or otherwise approached or negotiated with, any individual or
entity in connection with the sale of such securities other than a limited
number of investors, including the Purchaser. Assuming the accuracy of the
Purchaser's representations contained in Section 3 of this Agreement, the offer,
issuance and delivery of the Purchased Shares are exempt from registration under
the Securities Act of 1933, as amended (the "1933 ACT").
2
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company the following:
3.1. AUTHORIZATION. The Purchaser has all requisite power and authority
to execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Purchaser have
been duly authorized by all requisite corporate action, and this Agreement when
executed and delivered by the Purchaser will constitute its valid and binding
obligation, enforceable against the Purchaser in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Purchased Shares are being acquired
by the Purchaser for its own account, not as a nominee or agent, for investment
and not with a view to resale or distribution within the meaning of the 1933
Act, and the rules and regulations thereunder, and the Purchaser will not
distribute the Purchased Shares in violation or contravention of the 1933 Act;
provided that immediately upon the purchase of the Purchased Shares by the
Purchaser, the Purchaser intends to exchange the Purchased Shares, on a one for
one basis, for issued and outstanding shares of Common Stock of the Company that
are covered by an effective registration statement, with such persons as will
make to the Purchaser substantially the same representations and warranties as
contained in this Section 3. The Purchaser is not aware of any facts or
circumstances that contradict the representation in the first sentence of
Section 2.4.
3.3. RESTRICTIONS ON TRANSFER. The Purchaser acknowledges that (a) the
Purchased Shares are not registered under the 1933 Act as of the Closing Date,
(b) the Purchased Shares will not be transferable unless so registered or unless
an exception for such registration is applicable and (c) certificates
representing the Purchased Shares will bear a legend substantially in the
following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
3
<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) The Purchaser represents and warrants to the Company, that the
Purchaser and if the Purchaser is a limited liability company each member of the
Purchaser (i) is an "accredited investor" as defined in the 1933 Act and is
financially able to purchase the Purchased Shares (ii) is fully capable of
understanding the type of investment being made pursuant to this Agreement, and
the risks involved in connection therewith, (iii) believes that the nature of
the Purchased Shares is consistent with their overall investment programs and
financial position, (iv) recognizes that there are substantial risks involved in
their purchase of the Purchased Shares, (v) is capable of bearing the economic
risk of its investment for an indefinite period of time and can afford a
complete loss of its investment, (vi) has adequate means of providing for their
current liquidity needs, (vii) has no need for liquidity of their investment,
(viii) is not expecting any short term income from their investment and (ix) has
no reason to anticipate any change in personal circumstances, financial or
otherwise, which may cause or require any sale of the Purchased Shares.
(b) The Purchaser acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Purchased Shares and (ii) business and financial conditions of
the Company; and the Purchaser has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Purchased Shares, as it
has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement including any Appendices,
Schedules or Exhibits hereto, contain the entire agreement and understanding
among the parties with respect to the subject matter hereof and shall not be
modified or affected by any offer, proposal, statement or representation, oral
or written, made by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall specifically
include, incorporate and refer to the Appendices, Schedules and Exhibits
attached hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or assurances
(express or implied) other than those expressly set forth or provided for herein
and in the other documents referred to herein. This Agreement may not be
modified or amended orally, but only by a writing signed by the parties.
4
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<Signature Pages on Next Page>
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
The Company:
NEWSTAR MEDIA INC.
By: /s/ John T. Brady
--------------------------------
Name: John T. Brady
Title: Vice President &
Chief Financial Officer
The Purchaser:
GORMAN LIMITED PARTNERSHIP
By: /s/ Kenneth F. Gorman
--------------------------------
Name: Kenneth F. Gorman
Title: General Partner
<PAGE>
Exhibit 10.5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of May 4, 1999,
among NewStar Media Inc., a California corporation (the "COMPANY"), and Elkes
Limited Partnership ("PURCHASER").
WITNESSETH:
WHEREAS, the Company desires to sell, and the Purchaser desires to
purchase, subject to the terms and conditions of this Agreement, shares of the
Common Stock of the Company, par value $.01 per share (the "COMMON STOCK").
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES. Subject to the terms and conditions herein
set forth, the Company agrees to sell and issue to the Purchaser, and the
Purchaser agrees to purchase from the Company, 416,667 shares of Common Stock of
the Company for a purchase price per share equal to $1.20 (or an aggregate of
$500,000). The shares being purchased hereunder are hereinafter referred to as
the "PURCHASED SHARES". In connection with the purchase of the Purchased Shares,
the Purchaser shall have the right to assign all or a portion of its rights (but
not its obligation) to purchase the Purchased Shares from the Company under this
Agreement to one or more persons affiliated with the Purchaser, provided that
such person(s) submits to the Company a certificate setting forth the
representations in Section 3 below. Any such assignees shall be deemed a
"Purchaser" hereunder.
1.2. CLOSING. The closing of the issuance and sale of the Purchased
Shares to the Purchaser (the "CLOSING") shall take place at on or before May 11,
1999 (the "CLOSING DATE").
1.3 DELIVERY. At the Closing, the Company shall deliver to the
Purchaser a Registration Rights Agreement in form and substance satisfactory to
the Purchaser, duly executed by the Company, and the Purchaser shall pay the
purchase price for the Purchased Shares to the Company. Upon notice to the
Company's shareholders of the amendment of the Company's articles of
incorporation to increase the authorized number of shares, in accordance with
Regulation 14C of the Securities and Exchange Act of 1934, the Company shall
issue and deliver to the Purchaser a certificate or certificates, registered in
the name of the Purchaser, representing the Purchased Shares.
1
<PAGE>
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Purchased Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Purchased Shares when sold, issued and
delivered, against the full payment of the purchase price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Purchased Shares are not subject to any preemptive rights of stockholders of
the Company or to any right of first refusal or other similar right in favor of
any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Purchased Shares for sale to, or solicited offers
to buy from, or otherwise approached or negotiated with, any individual or
entity in connection with the sale of such securities other than a limited
number of investors, including the Purchaser. Assuming the accuracy of the
Purchaser's representations contained in Section 3 of this Agreement, the offer,
issuance and delivery of the Purchased Shares are exempt from registration under
the Securities Act of 1933, as amended (the "1933 ACT").
2
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company the following:
3.1. AUTHORIZATION. The Purchaser has all requisite power and authority
to execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Purchaser have
been duly authorized by all requisite corporate action, and this Agreement when
executed and delivered by the Purchaser will constitute its valid and binding
obligation, enforceable against the Purchaser in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Purchased Shares are being acquired
by the Purchaser for its own account, not as a nominee or agent, for investment
and not with a view to resale or distribution within the meaning of the 1933
Act, and the rules and regulations thereunder, and the Purchaser will not
distribute the Purchased Shares in violation or contravention of the 1933 Act;
provided that immediately upon the purchase of the Purchased Shares by the
Purchaser, the Purchaser intends to exchange the Purchased Shares, on a one for
one basis, for issued and outstanding shares of Common Stock of the Company that
are covered by an effective registration statement, with such persons as will
make to the Purchaser substantially the same representations and warranties as
contained in this Section 3. The Purchaser is not aware of any facts or
circumstances that contradict the representation in the first sentence of
Section 2.4.
3.3. RESTRICTIONS ON TRANSFER. The Purchaser acknowledges that (a) the
Purchased Shares are not registered under the 1933 Act as of the Closing Date,
(b) the Purchased Shares will not be transferable unless so registered or unless
an exception for such registration is applicable and (c) certificates
representing the Purchased Shares will bear a legend substantially in the
following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
3
<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) The Purchaser represents and warrants to the Company, that the
Purchaser and if the Purchaser is a limited liability company each member of the
Purchaser (i) is an "accredited investor" as defined in the 1933 Act and is
financially able to purchase the Purchased Shares (ii) is fully capable of
understanding the type of investment being made pursuant to this Agreement, and
the risks involved in connection therewith, (iii) believes that the nature of
the Purchased Shares is consistent with their overall investment programs and
financial position, (iv) recognizes that there are substantial risks involved in
their purchase of the Purchased Shares, (v) is capable of bearing the economic
risk of its investment for an indefinite period of time and can afford a
complete loss of its investment, (vi) has adequate means of providing for their
current liquidity needs, (vii) has no need for liquidity of their investment,
(viii) is not expecting any short term income from their investment and (ix) has
no reason to anticipate any change in personal circumstances, financial or
otherwise, which may cause or require any sale of the Purchased Shares.
(b) The Purchaser acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Purchased Shares and (ii) business and financial conditions of
the Company; and the Purchaser has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Purchased Shares, as it
has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement including any Appendices,
Schedules or Exhibits hereto, contain the entire agreement and understanding
among the parties with respect to the subject matter hereof and shall not be
modified or affected by any offer, proposal, statement or representation, oral
or written, made by or for any party in connection with the negotiation of the
terms hereof. All references herein to this Agreement shall specifically
include, incorporate and refer to the Appendices, Schedules and Exhibits
attached hereto which are hereby made a part hereof. There are no
representations, promises, warranties, covenants, undertakings or assurances
(express or implied) other than those expressly set forth or provided for herein
and in the other documents referred to herein. This Agreement may not be
modified or amended orally, but only by a writing signed by the parties.
4
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<Signature Pages on Next Page>
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
The Company:
NEWSTAR MEDIA INC.
By:/s/ JOHN T. BRADY
---------------------------------
Name: John T. Brady
Title: Vice President and Chief
Financial Officer
The Purchaser:
ELKES LIMITED PARTNERSHIP
By:/s/ TERRENCE A. ELKES
---------------------------------
Name:
Title: General Partner
<PAGE>
Exhibit 10.6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "AGREEMENT") made as of
May 19, 1999, among NewStar Media Inc., a California corporation (the
"COMPANY"), and Peter Engel (the "PURCHASER").
WITNESSETH:
WHEREAS, the Company desires to sell, and the Purchaser desires to
purchase, subject to the terms and conditions of this Agreement, shares of the
Common Stock of the Company, par value $.01 per share (the "COMMON STOCK").
NOW, THEREFORE, in the consideration of the foregoing and the
covenants, agreements, representations and warranties herein contained, and
intending to be legally bound, the parties hereby mutually agree as follows:
SECTION 1
SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING
1.1. SALE OF THE SECURITIES. Subject to the terms and conditions herein
set forth, the Company agrees to sell and issue to the Purchaser, and the
Purchaser agrees to purchase from the Company, 250,000 shares of Common Stock of
the Company for a purchase price per share equal to $1.20 (or an aggregate of
$300,000). The shares being purchased hereunder are hereinafter referred to as
the "PURCHASED SHARES". In connection with the purchase of the Purchased Shares,
the Purchaser shall have the right to assign all or a portion of its rights (but
not its obligation) to purchase the Purchased Shares from the Company under this
Agreement to one or more persons affiliated with the Purchaser, provided that
such person(s) submits to the Company a certificate setting forth the
representations in Section 3 below. Any such assignees shall be deemed a
"Purchaser" hereunder.
1.2. CLOSING. The closing of the issuance and sale of the Purchased
Shares to the Purchaser (the "CLOSING") shall take place on or before May 25,
1999 (the "CLOSING DATE").
1.3 DELIVERY. At the Closing, the Company shall (i) issue and deliver
to the Purchaser a certificate or certificates, registered in the name of the
Purchaser, representing the Purchased Shares and (ii) deliver to the Purchaser a
Registration Rights Agreement in form and substance satisfactory to the
Purchaser, duly executed by the Company, and the Purchaser shall pay the
purchase price for the Purchased Shares to the Company.
1
<PAGE>
SECTION 2
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser the following:
2.1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, and has all
requisite corporate power and authority to own and lease its properties and
assets and to conduct its business as currently conducted.
2.2. The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery, and performance of this agreement
by the Company have been duly authorized by all requisite corporate action, and
this Agreement when duly executed and delivered by the Company will constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with its respective terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally and general
equitable principles.
2.3. The sale, issuance and delivery of the Purchased Shares in
accordance with the terms of this Agreement have been authorized by all
necessary corporate action, and the Purchased Shares when sold, issued and
delivered, against the full payment of the purchase price, will be duly and
validly issued, fully paid and nonassessable. The sale, issuance and delivery of
the Purchased Shares are not subject to any preemptive rights of stockholders of
the Company or to any right of first refusal or other similar right in favor of
any person.
2.4. PRIVATE OFFERING. Neither the Company nor anyone acting on behalf
of the Company has offered the Purchased Shares for sale to, or solicited offers
to buy from, or otherwise approached or negotiated with, any individual or
entity in connection with the sale of such securities other than a limited
number of investors, including the Purchaser. Assuming the accuracy of the
Purchaser's representations contained in Section 3 of this Agreement, the offer,
issuance and delivery of the Purchased Shares are exempt from registration under
the Securities Act of 1933, as amended (the "1933 ACT").
2
<PAGE>
SECTION 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company the following:
3.1. AUTHORIZATION. The Purchaser has all requisite power and authority
to execute this Agreement and to carry out the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Purchaser have
been duly authorized by all requisite corporate action, and this Agreement when
executed and delivered by the Purchaser will constitute its valid and binding
obligation, enforceable against the Purchaser in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and general equitable principles.
3.2. PURCHASE FOR INVESTMENT. The Purchased Shares are being acquired
by the Purchaser for its own account, not as a nominee or agent, for investment
and not with a view to resale or distribution within the meaning of the 1933
Act, and the rules and regulations thereunder, and the Purchaser will not
distribute the Purchased Shares in violation or contravention of the 1933 Act.
3.3. RESTRICTIONS ON TRANSFER. The Purchaser acknowledges that (a) the
Purchased Shares are not registered under the 1933 Act as of the Closing Date,
(b) the Purchased Shares will not be transferable unless so registered or unless
an exception for such registration is applicable and (c) certificates
representing the Purchased Shares will bear a legend substantially in the
following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES MAY BE MADE BY
THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM."
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<PAGE>
3.4. SOPHISTICATION: ACCESS TO INFORMATION.
(a) The Purchaser represents and warrants to the Company, that the
Purchaser and if the Purchaser is a limited liability company each member of the
Purchaser (i) is an "accredited investor" as defined in the 1933 Act and is
financially able to purchase the Purchased Shares (ii) is fully capable of
understanding the type of investment being made pursuant to this Agreement, and
the risks involved in connection therewith, (iii) believes that the nature of
the Purchased Shares is consistent with their overall investment programs and
financial position, (iv) recognizes that there are substantial risks involved in
their purchase of the Purchased Shares, (v) is capable of bearing the economic
risk of its investment for an indefinite period of time and can afford a
complete loss of its investment, (vi) has adequate means of providing for their
current liquidity needs, (vii) has no need for liquidity of their investment,
(viii) is not expecting any short term income from their investment and (ix) has
no reason to anticipate any change in personal circumstances, financial or
otherwise, which may cause or require any sale of the Purchased Shares.
(b) The Purchaser acknowledges to the Company that it has had the
opportunity to ask questions of and receive answers from the Company's officers
and directors concerning the terms and conditions of the (i) purchase and
delivery of the Purchased Shares and (ii) business and financial conditions of
the Company; and the Purchaser has received to its satisfaction, such additional
information about the business and financial conditions of the Company and the
terms and conditions of the purchase and delivery of the Purchased Shares, as it
has requested.
SECTION 4
MISCELLANEOUS
4.1. GOVERNING LAW. This agreement shall be governed by and construed
and enforced in accordance with laws of the State of New York, without reference
to conflict of law provisions.
4.2. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding among the parties with respect to the subject matter hereof and
shall not be modified or affected by any offer, proposal, statement or
representation, oral or written, made by or for any party in connection with the
negotiation of the terms hereof. There are no representations, promises,
warranties, covenants, undertakings or assurances (express or implied) other
than those expressly set forth or provided for herein and in the other documents
referred to herein. This Agreement may not be modified or amended orally, but
only by a writing signed by the parties.
4
<PAGE>
4.3. SEVERABILITY. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall, to the
extent permitted by applicable law, be narrowed or replaced, to the extent
possible, with a judicial construction in such jurisdiction that effects the
intent of the parties regarding this Agreement and such unenforceable, invalid
or conflicting part. To the extent permitted by applicable law, notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
4.4. HEADINGS. The headings of the Sections of this Agreement are
reinstated for convenience of reference only and shall not be considered a part
hereof.
4.5. COUNTERPARTS. This agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
<Signature Pages on Next Page>
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date set forth above.
The Company:
NEWSTAR MEDIA INC.
By:/s/JOHN T. BRADY
-----------------------------------
Name: John T. Brady
Title: Vice President & CFO
The Purchaser:
/s/ PETER ENGEL
--------------------------------------
Peter Engel
<PAGE>
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of May 17, 1999, by and among
NewStar Media Inc., a California corporation (the "COMPANY"), located at 8955
Beverly Blvd., Los Angeles, CA 90048, and Peter Engel (the "PURCHASER"), located
at 619 S. June Street, Los Angeles, CA 90065.
WHEREAS, the Purchaser is acquiring securities of the Company pursuant
to a Stock Purchase Agreement dated the date hereof between the Company and the
Purchaser (the "STOCK PURCHASE AGREEMENT"; capitalized terms used in this
Registration Rights Agreement without definition shall have the meanings
ascribed thereto in the Stock Purchase Agreement).
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound, the parties hereto agree as
follows:
1. REGISTRATION RIGHTS
1.1 (a) The Company shall as expeditiously as practicable, but in any
event not later than 90 days from the Closing Date, prepare and file with the
Securities and Exchange Commission (the "COMMISSION") one or more registration
statements (individually and collectively, the "REGISTRATION STATEMENT") under
the Securities Act of 1933 (the "1933 ACT"), providing for the registration of
the Purchased Shares (together with all shares of Common Stock issued in
connection therewith, including by way of a stock split or other adjustment or
stock dividend, the "REGISTRABLE SECURITIES") for sale by the Purchaser.
Thereafter, the Company shall use its reasonable best efforts to cause such
Registration Statement to be declared effective as promptly as practicable. If
at any time after the Registration Statement becomes effective, the Registration
Statement is not available for sales by the Purchaser, then the Company shall,
as expeditiously as possible, prepare and file with the Commission, to the
extent required, an amendment or new registration statement in order to afford
the Purchaser the benefit of the registration contemplated in this Section 1.1,
and shall use its reasonable best efforts to have such amendment or new
registration statement declared effective as promptly as practicable.
(b) Notwithstanding the foregoing, in the event that the Company
proposes to undertake an underwritten public offering immediately prior to the
filing of or during the pendency of effectiveness of the Registration Statement,
the Purchaser will be obligated to either (x) join the underwritten offering
1
<PAGE>
with respect to all or a portion of the Registerable Securities requested by the
Purchaser to be included therein (subject to the approval of the managing
underwriter, which may exclude such shares entirely or require pro rata cut-back
with other selling shareholders) and/or (y) execute a "lock-up" agreement with
respect to the sale or other disposition of any Registrable Securities not so
included or permitted to be included for a period commencing with the filing of
the related registration statement and ending 90 days after the effective date
of the related registration statement, but in any event not more than 135 days
in the aggregate.
1.2. REGISTRATION PROCEDURES.
(a) The Registration Statement may be in any form for which the
Company then qualifies or which counsel for the Company deems appropriate;
(b) After the filing of the Registration Statement, the Company
will promptly notify the Purchaser of any stop order issued or, to the knowledge
of the Company, threatened by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if entered;
(c) The Company shall prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the registration statement
effective for three years from the date of effectiveness of the Registration
Statement, and so long as such registration is necessary to permit the public
resale thereof without any limitation on the amount of such sales pursuant to
Rule 144 under the Securities Act or otherwise, and comply with the provisions
of the 1933 Act with respect to the disposition of all Registrable Securities
during such period in accordance with the intended methods of disposition set
forth in the Registration Statement;
(d) The Company shall furnish to the Purchaser, before filing the
Registration Statement, if requested, copies of the Registration Statement as
proposed to be filed, and thereafter furnish to the Purchaser such number of
copies of the Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in the
registration statement (including each preliminary prospectus) and such other
document as the Purchaser may reasonably request in order to facilitate the
disposition of the Registrable Securities;
2
<PAGE>
(e) The Company shall notify the Purchaser, at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of the Purchaser prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) The Company shall otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders, as soon as reasonably
practicable, an earnings statement satisfying the provisions of Section 11(a) of
the 1933 Act and covering a period of twelve months, beginning within three
months after the effective date of the Registration Statement;
(g) The Company shall use its commercially reasonable efforts to
cause all Registrable Securities to be listed on each securities exchange (if
any) on which similar securities issued by the Company are then listed; and
(h) The Company shall provide a transfer agent and registrar for
all of the Registrable Securities not later then the effective date of such
Registration Statement.
1.3. DISCONTINUANCE OF DISPOSITION. The Purchaser, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 1.2 (e) shall forthwith discontinue disposition of the Registrable
Securities until the Purchaser receives copies of the supplemented or amended
prospectus contemplated by Section 1.2 (e) or until it is advised in writing
(the "Advice") by the Company that the use of the prospectus may be resumed and
has received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus.
1.4. INFORMATION TO BE FURNISHED BY PURCHASERS. The Purchaser shall
furnish to the Company such information and execute such documents regarding the
Registrable Securities held by the Purchaser and the intended method of
disposition thereof as the Company shall reasonably request in connection with
the action to be taken by the Company.
3
<PAGE>
1.5. EXPENSES OF REGISTRATION. The Company shall pay all expenses
incurred by the Company in complying with Section 1.1 and 1.3 (other than the
underwriter's discounts and commissions and fees and expenses of special counsel
to the Purchaser, if any), including, without limitation, all registration and
filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), printing expenses, fees, and
disbursements of counsel to the Company, and of the Company's independent public
accountants.
1.6. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless the Purchaser,
its executive officers, directors and controlling persons (within the meaning of
the 1933 Act) and each person who participates as an underwriter or controlling
person of an underwriter (within the meaning of the 1933 Act) with respect to a
Registration Statement pursuant to Section 1.1 against any losses, claims,
damages or liabilities to which any of them may become subject under the 1933
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or allegedly untrue statement of any material fact contained in a registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, and
will reimburse any of them for any legal or other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable hereunder in any such case if any such loss, claim, damage or
liability arise out of or is based upon any untrue statement or allegedly untrue
statement or omission or alleged omission made in such registration statement,
prospectus or amendment or supplement thereto in reliance upon and in conformity
with written information furnished to the Company for such purpose by such
Purchaser or by its representative.
(b) The Purchaser shall indemnify and hold harmless the Company,
its executive officers, directors and controlling persons (within the meaning of
the 1933 Act) and each person who participates as an underwriter or controlling
person of an underwriter (within the meaning of the 1933 Act) with respect to a
Registration Statement pursuant to Section 1.1 against any losses, claims,
damages or liabilities to which any of them may become subject under the 1933
Act or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, in reliance upon and in
conformity with written information furnished to the supplement thereof, in
reliance upon and in conformity with written information furnished to the
Company by each Purchaser or by its representative, and will reimbursement any
of them for any legal or other expenses reasonably incurred by them in
connection with investigating or defending, any such, loss, claim, damage,
liability or action.
4
<PAGE>
(c) A party's obligation to indemnify (the "indemnifying party")
and the other party's rights to indemnity and payment (the "indemnified party")
under Section 1.6 is contingent upon the indemnified party (i) giving the
indemnifying party prompt written notice of such claim; (ii) allowing the
indemnifying party to have sole right to control and direct the investigation,
preparation and defense of any such claim or action and all negotiations for its
settlement or compromise; and (iii) providing reasonable assistance to the
indemnifying party, such assistance to be solely at the cost and expense of the
indemnifying party. The indemnified party, at its own expense, shall be entitled
to participate in the defense and to receive copies of all pleadings and other
papers in connection with the claim.
(d) If for any reason the indemnification provided for in the
preceding Sections 1.6 (a) and 1.6 (b) is unavailable to an indemnified party as
contemplated by those sections, then the indemnifying party will contribute to
the amount paid or payable to the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations.
1.7. UNDERWRITING AGREEMENT. If the Registrable Securities are to be
sold pursuant to a registration statement in an underwritten offering in which
no shares of the Company are being sold for the account of the Company, the
Company agrees to enter into an underwriting agreement with the underwriter or
underwriters (who shall be subject to the approval of the Company) containing
customary representations and warranties with respect to the business and
operations of the Company, including without limiting the generality of the
foregoing, customary provisions with respect to indemnification by the Company
of the underwriters of such offering.
2. MISCELLANEOUS
2.1. OWNER OF REGISTRABLE SECURITIES. The Company may deem and treat
the person in whose name the Registrable Securities are registered as the
absolute owner thereof for all purposes whatsoever.
5
<PAGE>
2.2. SUCCESSORS. This Agreement shall be binding upon and shall inure
to the benefit of the successors and assigns of the Purchaser, and the term
"Purchaser" shall be deemed to include each such holder of Registrable
Securities. This Agreement shall be binding upon and shall inure to the benefit
of the Company and its successors and assigns.
2.3. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without regard
to such state's conflicts of law principles.
2.4. NOTICE. Any notice or other communication required or permitted
hereunder shall be sufficiently given only if sent by facsimile transmission or
by registered or certified mail, postage prepaid, addressed to the address
indicated on the first page hereof or such other address or addresses as may
hereafter be furnished in writing by notice similarly given by one party to the
other.
2.5. FULL AGREEMENT. This Agreement sets forth the entire understanding
of the parties with respect to transactions contemplated hereby, and shall not
be modified or amended except by written agreement of all parties hereto.
2.6. HEADINGS. The headings of the Sections of this Agreement are
inserted for convenience of reference only and shall not be considered a part
hereof.
2.7. COUNTERPARTS. This Agreement may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the date first forth above.
The Company:
NEWSTAR MEDIA INC.
By:/s/JOHN T. BRADY
---------------------------------
Name: John T. Brady
Title: Vice President and CFO
The Purchaser:
/s/ PETER ENGEL
------------------------------------
Peter Engel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
this is the legend
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
