<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(AMENDMENT NO. 1)
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-24984
NEWSTAR MEDIA INC.
(Name of Small Business Issuer 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) (Zip Code)
(310) 786-1600
--------------------------------------------
(Registrant's telephone number including area code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE.
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE 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 ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and none will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ending December 31, 1998 were
$15,800,000.
As of April 12, 1999, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the issuer was approximately
$23,277,124 based upon the average closing bid and asked price of the issuer's
common stock on such date.
Transitional Small Business Disclosure format: Yes ___ No X
Shares of Common Stock outstanding as of April 26, 1999: 17,408,358
================================================================================
<PAGE>
The undersigned registrant, NewStar Media Inc. (the "Company"), hereby
amends the following items of its annual report on Form 10-KSB for the fiscal
year ended December 31, 1998 (the "Report") as follows:
PART III
The Company hereby deletes the information set forth under Items 9, 10,
11 and 12 of the Report and replaces such items in their entirety as set forth
below.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors of the Company are elected annually by the shareholders to
serve for a term of one year or until their successors are duly elected and
qualified. As of the date hereof, the Board of Directors of the Company (the
"Board") consists of seven members. Executive officers are elected by and serve
at the discretion of the Board, subject to the rights, if any, of the executive
officer under any contract of employment. No family relationships exist between
or among any of the executive officers or directors of the Company.
INFORMATION WITH RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth biographical information with respect to
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Terrence A. Elkes 64 Chairman of the Board
Kenneth Gorman* 59 Vice-Chairman of the Board
Bruce Maggin* 55 Director
John T. Healy 58 Director
Lee Masters 45 Director
Steven F. Mayer* 39 Director
Ronald Lightstone 60 President and Chief Executive Officer and Director
John T. Brady 57 Vice President and Chief Financial Officer
Robert Murray 39 Vice President, General Counsel and Secretary
- ---------------
</TABLE>
* Denotes membership on the Audit Committee
Messrs. Lightstone, Healy and Gorman have been directors of the Company
since March 31, 1997. Messrs. Elkes and Maggin have been directors of the
Company since June 10, 1997. Mr. Masters has been a director of the Company
since September 30, 1997. Mr. Mayer has been a director of the Company since
November 1996.
TERRENCE A. ELKES was appointed to the Board in June 1997. Mr. Elkes is
presently a principal of Apollo Partners, LLC, formed in 1987, which is involved
in the acquisition of companies in the media, communications, entertainment and
broadcasting fields. Mr. Elkes served as President of Viacom from 1978 to 1982
and as Chief Executive Officer from September 1983 to 1987. He also served on
Viacom's Board of Directors from 1973 to 1987. Mr. Elkes joined Viacom in 1972
as Vice President, General Counsel and Secretary. He became Executive Vice
President in 1976 with responsibility for the financial, legal and human
resources areas of that company. Shortly thereafter, he assumed responsibility
for Viacom's pay television and cable television operations as well. Prior to
joining Viacom, Mr. Elkes served as Vice President and General Counsel for
Parsons and Whittemore, a privately-owned paper corporation. In this capacity,
he also managed the company's financial operations and international
development. Previously, Mr. Elkes was an attorney at Norwich Pharmacal Company
and later became General Counsel for Norwich's International Division. Mr. Elkes
received his bachelor's degree cum laude in economics and political science from
the City College of New York in 1955, and in 1958 he earned a doctor of law
degree from the University of Michigan. He is a member of the New York City Bar
Association and a former member of the International Radio and Television
2
<PAGE>
Society's Board of Governors. Currently, Mr. Elkes is Chairman of the Board of
Video Services Corporation and a Director of IDC Services, Inc. and Doane
Agricultural Services Company. Mr. Elkes is a member of the President's Advisory
Committee of the University of Michigan, a member of the University of
Michigan's Investment Advisory Board and is a Trustee of the Michigan Law School
Foundation.
KENNETH F. GORMAN has been a director of the Company since March 1997.
Since October 1987, he has been a principal of Apollo Partners, LLC, which is
involved in the acquisition of companies in the media, communications,
entertainment and broadcasting fields. Mr. Gorman joined Viacom in 1971 and
served in various capacities, including Executive Vice President and a member of
the Board of Viacom from October 1983 until September 1987 and Chairman of the
Viacom Networks Group from January 1986 until September 1987. Before joining
Viacom, he was with the CBS Broadcast Group, serving in various positions,
including Controller of CBS Radio. Mr. Gorman started his career in 1961 at the
National Broadcasting Company (NBC Radio Division). Mr. Gorman received a
bachelor's degree in accounting from St. John's University in New York in 1962
and an honorary doctorate degree in 1994. He was the recipient of the
President's Award of the National Cable Association in 1978. He formerly served
as the Treasurer and Director of the International Council of the National
Academy of Television Arts and Sciences. Mr. Gorman currently serves as Chairman
of IDC Services, Inc. and is a director of the Musicland Group, Inc. and Doane
Agricultural Services Company, and a member of the Advisory Board of St. John's
University.
BRUCE MAGGIN was appointed to the Board in June 1997. Mr. Maggin is the
founder and a principal of H.A.M. Media Group, LLC. Prior to forming H.A.M.
Media Group, LLC, Mr. Maggin was Executive Vice President of the Capital
Cities/ABC Multimedia Group. Mr. Maggin was also responsible for ABC's home
video business as well as its new media sales activities and technology
investments. As Executive Vice President, he was responsible for several
international consultancies including NHK in Japan and the BBC in the UK. Mr.
Maggin joined ABC originally in 1970 and had been Director of Corporate Planning
before his appointment as Vice President of Ziff Corporation, the parent company
of Ziff-Davis Publishing and Broadcasting. At Ziff Corporation, Mr. Maggin was
responsible for managing the company's diversification efforts. He returned to
ABC in 1982 in a newly created position, Vice President of Cost Management and
in 1983 became Vice President of ABC Video Enterprises. Mr. Maggin has been a
member of the board of several companies including the cable networks, Lifetime
and ESPN, and software ventures, Creative Wonders and O.T. Sports. He is also a
director of Phillips-Van Heusen Corporation. A member of the New York State Bar,
he received his BA degree from Lafayette College.
JOHN T. HEALY has been a director of the Company since March 1997.
Since February 1997, he has been a principal of the H.A.M. Media Group, LLC,
which engages in investments and provides advisory services in all media. Mr.
Healy has served as an advisor to Disney/ABC International Television since July
1996. He originally joined the American Broadcasting Co. ("ABC") in August of
1970 and held various executive positions including Vice President Corporate
Planning (1976), Vice President, ABC Video Enterprises (1983), President, ABC
Distribution Company (1986). Most recently, he was President of ABC
International Operations and Executive Vice President of ABC Cable &
International Broadcast Group from July 1993 to July 1996. Mr. Healy was a
member of the Board of Directors of Arts & Entertainment (which became A&E
Networks), Lifetime and ESPN cable services from their inception until his
resignation from the ABC Company in July 1996.
LEE MASTERS was appointed to the Board on September 30, 1997. Mr.
Masters is currently the President and Chief Executive Officer and a director of
Liberty Digital, LLC. From January 1990 to December 1998, Mr. Masters was the
President and Chief Executive Officer of E! Entertainment Television. Prior to
E! Entertainment Television, Mr. Masters was Executive Vice President and
General Manager of MTV Networks where he oversaw the network's worldwide
expansion. Prior to his career in television, Mr. Masters enjoyed a 20 year
career in radio. He began as a disc jockey and moved through the ranks as a
programmer, station manager and then the owner of a group of radio stations.
Originally from Doylestown, Pennsylvania, he attended Philadelphia's Temple
University, where he studied mathematics and philosophy. Mr. Masters is
currently a director of TCI Music.
STEVEN F. MAYER has served as a director of the Company since November
1996. Since November 1996, Mr. Mayer has been a managing director of Libra
Investments, Inc., an investment and merchant banking firm. From June 1994 until
November 1996, Mr. Mayer was the President and Managing Director of Aries
Capital Group, LLC, a private investment firm. From April 1992 until June 1994,
Mr. Mayer was an investment banker with Apollo Advisors, L.P. (not connected
with Apollo Partners, LLC) and Lion Advisors, L.P., affiliated private
investment firms. Prior to that time, Mr. Mayer was a lawyer with Sullivan &
Cromwell specializing in mergers, acquisitions, divestitures, leveraged buyouts
and corporate finance. Mr. Mayer is a member of the Board of Directors of
Chicago Pizza & Brewery, Inc., a restaurant company. In addition, Mr. Mayer has
served as the chairman or a member of numerous other boards of directors and
creditors committees. Mr. Mayer is a graduate of Princeton University and
Harvard Law School.
3
<PAGE>
RONALD LIGHTSTONE has been President and Chief Executive Officer of the
Company since June 1997 and a director since March 1997. From March 1992 to
April 1994, he was a member of the Board of Starsight Entertainment, a provider
of an electronic on-screen television guide. From December 1990 to October 1993,
he was Chief Operating Officer and a member of the Board of Spelling
Entertainment Group, Inc. From September 1982 to September 1987 he was Senior
Vice President of Viacom International Inc. ("Viacom"), and from December 1980
until September 1982 he was Senior Vice President, Business Affairs of the
Viacom Entertainment Group. Prior to that he was Vice President and General
Counsel of Viacom from November 1975 until December 1980. Mr. Lightstone has
served as Chairman of Multimedia Labs, Inc., a manufacturer of multimedia
equipment, from February 1994 to March 1997. Mr. Lightstone is a graduate of
Columbia University and New York University School of Law. Mr. Lightstone is a
member of Media Equities International, LLC.
JOHN T. BRADY has been Vice President and Chief Financial Officer of
the Company since January 1999. He was a consultant to the Company since
February 1997. Mr. Brady has more than 30 years experience in finance and
operations in the entertainment industry, having held senior management
positions with leading entertainment companies including Viacom and Spelling
Entertainment Group. Mr. Brady's management career at Viacom spanned sixteen
years from 1972 through 1988 and included serving as Senior Vice President and
Chief Financial Officer for Viacom's Cable Networks Group, comprised of MTV,
Showtime, The Movie Channel, VH1 and Nickelodeon. He was also Chief Financial
Officer of Viacom's Entertainment Group, responsible for television production
and distribution and product acquisitions. Mr. Brady was Senior Vice President
and Chief Financial Officer for Spelling Entertainment from 1988 to 1993 and
Chief Financial Officer at ITC Entertainment from 1993-1994 when the Company was
sold to Polygram Film Entertainment. Prior to joining NewStar, Mr. Brady was
president of his own consulting firm, Jaybe Enterprises, which provided merger
and acquisition and financial counseling to companies in the entertainment
industry. A graduate of Hofstra University in New York with a B.A. in Business
Administration, Mr. Brady is also a Certified Public Accountant and worked at
Coopers & Lybrand L.L.P. from 1964-1972.
ROBERT MURRAY joined the Company in October 1997 as Vice President and
General Counsel. Prior to joining the Company, Mr. Murray was a lawyer with
O'Melveny & Myers LLP specializing in corporate law and finance. Mr. Murray
received a BS degree from the University of Washington, a Ph.D. from the
Massachusetts Institute of Technology and a JD from Stanford University School
of Law.
4
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon the Company's review of Forms 3 and 4 and amendments
thereto furnished to the Company under the Rule 16a-3(e) during the fiscal year
ended December 31, 1998 and Form 5 and amendments thereto furnished to the
Company during the fiscal year ended December 31, 1998 and/or written
representations relating thereto, the Company believes that during fiscal year
ended December 31, 1998: Messrs. Maggin and Healy and Media Equities
International, LLC, H.A.M. Media Group, LLC and Apollo Partners, LLC each filed
three late reports, two of which related to one transaction each, and one of
which related to three transactions; Messrs. Elkes and Gorman each filed three
late reports, one of which related to one transaction, one of which related to
four transactions and one of which related to three transactions; Elkes Limited
Partnership and Gorman Limited Partnership each filed four late reports, two of
which related to two transactions each, one of which related to one transaction
and one of which was such entity's Form 3 filing; Mr. Murray filed one late
report relating to initial filing on Form 3; and Mr. Lightstone filed seven late
reports, six of which related to one transaction each and one of which related
to three transactions.
ITEM 10 - EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for services to the Company for the years ended December 31, 1998, 1997 and
1996, respectively, of the Company's Chief Executive Officer and the two other
executive officers of the Company who received compensation in excess of
$100,000 during 1998:
5
<PAGE>
<TABLE>
==============================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Restricted Securities
Name and Fiscal Stock Underlying All Other
--------- ------ ----- ---------- ---------
Principal position Year Salary Bonus Awards Options/SARs Compensation
------------------ ---- ------ ----- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Lightstone 1998 $200,000 -- -- -- $ 25,000(1)
President, Chief Executive 1997 $200,000 -- $612,400(2) -- --(1)
Officer and Director 1996 -- -- -- -- --
Neil Topham 1998 $175,000 $25,000 -- 100,000 $ 5,351(3)
Vice President and Chief 1997 $175,000 -- -- -- --
Financial Officer 1996 -- -- -- -- --
Robert Murray 1998 $125,000 -- -- 30,000 $ 3,822(3)
Vice President and 1997 $26,442 -- -- -- $793(3)
General Counsel and Secretary 1996 -- -- -- -- --
</TABLE>
(1) Pursuant to his employment agreement, Mr. Lightstone was to have received a
monthly automobile allowance of $1,000, but did not receive such payments
in 1997. In 1998, Mr. Lightstone received all amounts owed for car
allowance for 1997 and 1998 (an aggregate of $19,000). In 1998, the amount
under "All Other Compensation" also includes 401(k) Company matching
contributions in 1998 of $6,000.
(2) Represents 400,000 shares issued to Mr. Lightstone in January 1998 which
vest over a three year period (1/36 of such shares vesting each month),
which vesting commenced July 10, 1997.
(3) Represents 401(k) Company matching contributions.
6
<PAGE>
OPTION/SAR GRANTS IN 1998
There were no SARs granted to the named executive officers during 1998.
The following tables set forth stock options granted to the named executive
officers during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS/ EXERCISE OR
UNDERLYING OPTIONS/SARS SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---- ------- -------------- --------- ----
<S> <C> <C> <C> <C>
Ronald Lightstone -- -- N/A N/A
Neil Topham 100,000 19.2% $1.50 1/2/09
Robert C. Murray 30,000 5.7% $1.50 1/2/09
</TABLE>
OPTIONS EXERCISED IN 1998 AND YEAR-END OPTION VALUES
No stock options were exercised by any named executive officer during
1998. The following table provides certain information concerning the number of
shares covered by both exercisable and non-exercisable stock options held as of
December 31, 1998. Also shown are values for "in-the-money" options, which
represent the positive difference between the exercise price of such options and
the price of the Common Stock at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES NUMBER OF SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED UNEXERCISED
UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS OPTIONS/SARS OPTIONS/SARS
NAME UNEXERCISABLE EXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald Lightstone -- -- -- --
Neil Topham -- 100,000 -- --
Robert C. Murray 30,000 -- -- --
Ronald M. Ziskin 100,000 50,000 -- --
Peter Engel -- -- -- --
Gene George 30,000 -- -- --
Geoff Hannell -- -- -- --
</TABLE>
COMPENSATION OF DIRECTORS
For the fiscal year ending December 31, 1998, the Company has agreed to
grant to each director options to purchase 10,000 shares of Common Stock, which
options shall vest 25% at the end of each quarter, and to make a cash payment of
$1,000 per quarter to each director not associated with MEI.
7
<PAGE>
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement dated as of February 4, 1998,
Ronald Lightstone is employed by the Company as its President and Chief
Executive Officer. The term of Mr. Lightstone's employment agreement commenced
on June 10, 1997 and ends on June 10, 1999. Pursuant to the agreement, Mr.
Lightstone is paid a base salary of $200,000 per year. In addition to such base
salary, Mr. Lightstone was granted 400,000 shares of Common Stock, ownership of
which vests over a three year period (1/36 of such shares vesting each month),
commencing July 10, 1997. The employment agreement also provides for (i) three
weeks paid vacation, (ii) reimbursement of business related expenses, (iii) a
car allowance of $1,000 per month, and (iv) eligibility to participate in all
compensation, pension, retirement and welfare and fringe benefit plans, programs
and policies of the Company applicable to executives of the Company generally.
Pursuant to an employment agreement dated as of January 1, 1998, Ronald
Ziskin is employed as the President of the Company's television subsidiary. The
term of Mr. Ziskin's employment agreement commenced on January 2, 1998 and ends
on December 31, 2000. Pursuant to the agreement, Mr. Ziskin is paid an annual
base salary of $300,000 and an annual producer fee equal to 10% of NewStar
Televisions's income before taxes, such fee not to exceed $750,000. As an
advance against such fee, Mr. Zisken receives up to 30% of executive producer
fees received by NewStar Television for each television program produced by
NewStar Television. The employment agreement provided for the grant of options
to purchase 150,000 shares of common stock at $1.50 per share. The employment
agreement also provides for (i) four weeks paid vacation, (ii) reimbursement of
automobile expenses, (iii) reimbursement of business related expenses and (iv)
eligibility to participate in all pension plans and similar benefits and other
fringe benefits of the Company which are available to executive officers of the
Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth information as of April 15, 1999,
concerning shares of equity securities of the Company beneficially owned by each
shareholder known to the Company to own beneficially more than five percent (5%)
of the outstanding shares of such class, by each director, by each named
executive officer and by all current directors and executive officers as a
group. Unless otherwise specified, the address of each beneficial owner listed
below is 8955 Beverly Boulevard, Los Angeles, California 90048.
8
<PAGE>
<TABLE>
COMMON STOCK
------------
<CAPTION>
SHARES OF
COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
- ------------------------ ------------------ --------------------
<S> <C> <C>
Terrence A. Elkes............................... 11,651,890 (2)(3) 49.3%
Kenneth F. Gorman............................... 11,651,889 (2)(4) 49.3%
Ronald Lightstone............................... 8,784,740 (2)(5) 37.2%
H.A.M. Media Group, LLC......................... 7,679,542 (2) 32.5%
Bruce Maggin.................................... 7,674,542 (2) 32.5%
John T. Healy................................... 7,647,042 (2) 32.4%
Media Equities International, LLC .............. 7,642,042 (2) 32.3%
Apollo Partners, LLC............................ 7,642,042 (2) 32.3%
Elkes Limited Partnership....................... 4,009,848 (6) 23.0%
Gorman Limited Partnership...................... 4,009,847 (7) 23.0%
Steven F. Mayer................................. 20,000 (8) *
Lee Masters..................................... 0 (9) *
Robert Murray................................... 10,000 (10) *
All current directors and executive officers
as a group (nine individuals)................... 16,871,935 (2)(3)(4)(5) 71.4%
- ------------------
* Less than 1%.
</TABLE>
(1) Percentages set forth are based upon 17,408,358 shares of Common Stock
outstanding as of April 26, 1999 adjusted in each case for contingently
issuable Common Stock.
(2) Includes (i) 3,000,000 shares of Common Stock issuable to Media Equities
International, LLC ("MEI") upon exercise of warrants currently exercisable
as follows: 1,000,000 shares of Common Stock with an exercise price of
$2.00 per share, 1,000,000 shares of Common Stock with an exercise price of
$2.50 per share and 1,000,000 shares of Common Stock with an exercise price
of $3.00 per share, (ii) 2,000,000 shares of Common Stock issuable to MEI
upon conversion of 4,000 shares of Series B Preferred Stock currently
convertible, (iii) 960,000 shares of Common Stock issuable to MEI upon
conversion of 1,920 shares of Series C Preferred Stock currently
convertible, (iv) 258,000 shares of Common Stock issuable upon to MEI
conversion of 214,113 shares of Series D Preferred Stock currently
convertible and (v) 1,424,042 issued and outstanding shares of Common Stock
owned of record by MEI. The Series B Preferred Stock table (below) includes
4,000 shares of Series B Preferred Stock. The Series C Preferred Stock
table (below) includes 1,920 shares of Series C Preferred Stock. The Series
D Preferred Stock table below includes 214,113 shares of Series D Preferred
Stock. Apollo Partners, LLC ("Apollo"), H.A.M. Media Group, LLC ("H.A.M.
Media") and Mr. Lightstone are members of MEI. Messrs. Elkes and Gorman are
members and managers of Apollo. Messrs. Healy and Maggin are members and
managers of H.A.M. Media.
The business address for MEI, Apollo and Messrs. Elkes and Gorman is 500
5th Avenue Suite 3520, New York, NY 10110. The business address for H.A.M.
Media and Messrs. Healy and Maggin is 305 Madison Avenue, Suite 3016, New
York, New York 10017.
9
<PAGE>
(3) Includes 4,009,848 shares beneficially owned by Elkes Limited Partnership.
Mr. Elkes is the managing general partner of Elkes Limited Partnership.
(4) Includes 4,009,847 shares beneficially owned by Gorman Limited Partnership.
Mr. Gorman is the managing general partner of Gorman Limited Partnership.
(5) Includes 400,000 shares of Common Stock issued pursuant to Mr. Lightstone's
employment agreement with the Company. As of April 15, 1999, only 244,442
shares have vested and another 22,222 shares will vest within 60 days of
such date. However, all 400,000 shares, whether vested or not, have been
included as being owned by Mr. Lightstone.
(6) Does not include any shares beneficially owned by MEI, Apollo or Mr. Elkes.
The business address for Elkes Limited Partnership is 500 5th Avenue Suite
3520, New York, NY 10110.
(7) Does not include any shares beneficially owned by MEI, Apollo or Mr.
Gorman. The business address for Gorman Limited Partnership is 500 5th
Avenue Suite 3520, New York, NY 10110.
(8) Includes 10,000 shares of Common Stock issuable upon exercise of an option
with an exercise price of $3.75 per share, and 10,000 shares of Common
Stock issuable upon exercise of an option with an exercise price of $3.50
per share. The business address for Mr. Mayer is Libra Investments, 11766
Wilshire Blvd., Suite 870, Los Angeles, CA 90025.
(9) The business address for Mr. Masters is Liberty Interactive Media, 12312
Olympic Boulevard, Los Angeles, CA 90064.
(10) Includes 10,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options with an exercise price of $1.50 per share.
Excludes options, which are not currently exercisable and will not be
exercisable within the next 60 days, to purchase 20,000 shares of Common
Stock with an exercise price of $1.50 per share.
10
<PAGE>
<TABLE>
<CAPTION>
SERIES B PREFERRED STOCK
------------------------
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
<S> <C> <C>
Media Equities International, LLC................. 4,000 (a) 100%
Apollo Partners, LLC.............................. 4,000 (a) 100%
Terrence A. Elkes................................. 4,000 (a) 100%
Kenneth F. Gorman................................. 4,000 (a) 100%
H.A.M. Media Group, LLC........................... 4,000 (a) 100%
Bruce Maggin...................................... 4,000 (a) 100%
John Healy........................................ 4,000 (a) 100%
Ronald Lightstone................................. 4,000 (a) 100%
</TABLE>
- ---------------
(a) Each share of Series B Preferred is convertible six months after issuance
into 500 shares of Common Stock, subject to certain anti-dilution protections,
and has the right to vote together with all other voting classes and series of
stock of the Company as a single class on all actions to be taken by the
shareholders of the Company except that the Series B Preferred Stock shall not
be entitled to vote on the election of directors except voting as a separate
class shall be entitled to elect one-third of the directors of the Company. On
each such action that the shares of Series B Preferred Stock votes together with
other classes, each share of Series B Preferred Stock shall be entitled to such
number of votes as such shares are then convertible into on the Record Date. See
footnote 2 above.
SERIES C PREFERRED STOCK
------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
<S> <C> <C>
Media Equities International, LLC................. 1,920 (b) 100%
Apollo Partners, LLC.............................. 1,920 (b) 100%
Terrence A. Elkes................................. 1,920 (b) 100%
Kenneth F. Gorman................................. 1,920 (b) 100%
H.A.M. Media Group, LLC........................... 1,920 (b) 100%
Bruce Maggin...................................... 1,920 (b) 100%
John Healy........................................ 1,920 (b) 100%
Ronald Lightstone................................. 1,920 (b) 100%
</TABLE>
- ------------------
(b) Each share of Series C Preferred is convertible six months after issuance
into 500 shares of Common Stock subject to certain anti-dilution protections.
Each share of Series C Preferred Stock has the right to vote together with all
other voting classes and series of stock of the Company as a single class on all
actions to be taken by the shareholders of the Company. On each such action that
the shares of Series C Preferred Stock vote together with other classes, each
share of Series C Preferred Stock shall be entitled to such number of votes as
such shares are then convertible into on the Record Date. See footnote 2 above.
11
<PAGE>
SERIES D PREFERRED STOCK
------------------------
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
<S> <C> <C>
Media Equities International, LLC................. 214,113 (c) 100%
Apollo Partners, LLC.............................. 214,113 (c) 100%
Terrence A. Elkes................................. 214,113 (c) 100%
Kenneth F. Gorman................................. 214,113 (c) 100%
H.A.M. Media Group, LLC........................... 214,113 (c) 100%
Bruce Maggin...................................... 214,113 (c) 100%
John Healy........................................ 214,113 (c) 100%
Ronald Lightstone................................. 214,113 (c) 100%
</TABLE>
- -----------------
(c) Each share of Series D Preferred Stock is convertible into 1.20497 shares
of Common Stock, subject to certain anti-dilution protections. Each share of
Series D Preferred Stock has the right to vote together with all other voting
classes and series of stock of the Company as a single class on all actions to
be taken by the shareholders of the Company. On each such action Series D
Preferred Stock vote together with other classes, each share Series D Preferred
Stock shall be entitled to such number of votes as such shares are then
convertible into on the Record Date. See footnote 2 above.
CHANGES IN CONTROL
Pursuant to a Stock Purchase Agreement dated March 28, 1997 to which
MEI and the Company are parties (the "MEI Stock Purchase Agreement"), the
Company must obtain MEI's consent, which right of consent is required to be
exercised in good faith and in a commercially reasonable manner, prior to
undertaking certain activities (including adopting an annual budget, incurring
any debt for borrowed money or issuing securities (subject to certain limited
exceptions) or changing or altering its principal business or entering into new
businesses) and prior to the Company's executive officers undertaking certain
activities (including certain personnel matters, changes in certain of the
Company's outside advisors, certain litigation matters, certain acquisition or
production matters and certain other activities). Pursuant to the terms of the
MEI Stock Purchase Agreement and the terms of the Company's Series B Preferred
Stock, so long as MEI owns 750,000 shares of Common Stock of the Company
(assuming for such purposes that the shares of Preferred Stock were converted in
their entirety), (i) so long as MEI holds a majority of the initially issued
shares of Series B Preferred Stock, the holders of the Series B Preferred Stock
have the right to elect one-third of the Board, and (ii) if MEI no longer owns a
majority of the initially issued shares of the Series B Preferred Stock, MEI has
the right to nominate, and the Company is obligated to use its best efforts to
have elected as management nominees, one-third of the Board. The MEI Stock
Purchase Agreement fixes the number of directors at nine. In addition, in the
event of the default by the Company in the observance of certain covenants
enumerated in the MEI Stock Purchase Agreement, MEI has the right to appoint two
additional directors, which directors shall continue to serve until the earlier
of the next occurring annual meeting of the shareholders of the Company
following the cure of any default or until MEI no longer owns at least 750,000
shares of Common Stock (assuming for these purposes that the shares of Series B
Preferred Stock were converted in their entirety).
The Company is a party to a Stock Purchase Agreement, dated as of July
30, 1998, with Ronald Lightstone and Apollo (the "July Stock Purchase
Agreement"). Elkes Limited Partnership ("ELP") and Gorman Limited Partnership
("GLP") are assignees of Apollo under the July Stock Purchase Agreement. The
July Stock Purchase Agreement provides that in event of default by the Company
in the observance of certain covenants enumerated therein, ELP, GLP and Mr.
Lightstone have the right to appoint two additional directors to the Board,
which directors shall continue to serve until the earlier of the next occurring
annual meeting of shareholders of the Company following the case of any default
or until they no longer own at least 750,000 shares of common stock of the
Company.
12
<PAGE>
The Company is a party to a Stock Purchase Agreement, dated as of
November 12, 1998, with Ronald Lightstone and Apollo (the "November Stock
Purchase Agreement"). ELP and GLP are assignees of Apollo under the November
Stock Purchase Agreement. The November Stock Purchase Agreement provides that in
event of default by the Company in the observance of certain covenants
enumerated therein, ELP, GLP and Mr. Lightstone have the right to appoint two
additional directors to the Board, which directors shall continue to serve until
the earlier of the next occurring annual meeting of shareholders of the Company
following the case of any default or until they no longer own at least 750,000
shares of common stock of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1996, the Company entered into a consulting agreement with
Steven F. Mayer whereby Mr. Mayer was to provide certain financial consulting
and investment banking services to the Company. Such agreement provided for
compensation of $3,000 per month, options to purchase 10,000 shares of Common
Stock, certain contingent compensation and customary expense reimbursement. The
agreement ended effective February 28, 1997.
Pursuant to the MEI Stock Purchase Agreement, on March 27, 1997 MEI
purchased from the Company 3,000 shares of Series B Preferred Stock at $1,000
per share and warrants to purchase 1,500,000 shares of Common Stock, (ii) on May
15, 1997, MEI purchased from the Company 250 shares of Series B Preferred Stock
at $1,000 per share and warrants to purchase 125,000 shares of Common Stock and
(iii) on June 3, 1997, MEI purchased from the Company 750 shares of Series B
Preferred Stock at $1,000 per share and warrants to purchase 375,000 shares of
Common Stock. The MEI Stock Purchase Agreement provides for a three year
consulting arrangement with MEI which arrangement commenced on April 1, 1997
(the "Consulting Agreement"). MEI has agreed to provide substantial general
management consulting advice and services including but not limited to,
financial (including assisting in obtaining bank financing), television and film
distribution and business affairs. As compensation for such services and advice,
the Company is to pay MEI $300,000 per year, of which $200,000 is to be payable
in cash quarterly in advance and the remaining $100,000 is to be paid in shares
of Common Stock valued at the current market value on the date of payment,
payable quarterly in arrears. In 1998, the Company and MEI amended the
Consulting Agreement to provide that consulting fees for 1998 would be $200,000
instead of $300,000. During the year ended December 31, 1997, the Company paid
MEI $75,000 and accrued $75,000 in respect of such consulting fees. In 1998, the
Company and MEI agreed that the balance of the consulting fees for the year
ended December 31, 1997 and for all of fiscal year 1998 would be paid in Common
Stock. The Company issued a total of 308,028 shares of Common Stock as payment
of such consulting fees.
In September 1997, the Company entered into an agreement with MEI
providing the Company with a $450,000 loan facility for working capital purposes
(the "MEI Loan"). The MEI Loan was subsequently increased to $550,000. The MEI
Loan was secured by substantially all of the Company's assets, other than the
Company's building, which security interest was junior to the security interest
of Sanwa Bank. The MEI Loan provided for interest at 10% per annum, payable
monthly and was required to be repaid in full in the event the Company
refinanced the term loan with Sanwa Bank. The Company drew the entire $550,000
of the MEI Loan. On November 12, 1997, the MEI Loan was repaid in full from the
proceeds from a loan facility provided to the Company by The Chase Manhattan
Bank (the "Credit Facility"), and the MEI Loan was terminated.
Pursuant to Guaranty Agreements each dated as of November 4, 1997, each
of the principals of MEI (i.e. Messrs. Elkes, Gorman, Healy, Maggin and
Lightstone) agreed to guaranty the obligations of the Company under the Credit
Facility in an amount not to exceed the lesser of $2,000,000 and the outstanding
principal of and any interest on all loans made under the Credit Facility in
excess of the borrowing base (which borrowing base must be equal to or less than
$6,000,000). Each MEI principal guarantees an amount not to exceed the product
of 110% of such principal's ownership interest in MEI multiplied by the
aggregate amount guaranteed. The Company is not permitted to borrow any amounts
under the Credit Facility in excess of the borrowing base without the prior
written approval of MEI. The Company agreed to pay MEI a fee of $25,000 for such
guaranty by its principals. In order to secure the repayment of any amounts the
MEI principals may be required to pay to The Chase Manhattan Bank under the
guarantees, MEI was granted a security interest in substantially all of the
assets of the Company. Such security interest is junior to the security interest
of The Chase Manhattan Bank which secures the Company's obligations under the
Credit Facility. In July 1998, and in connection with the increase of Chase Loan
facility from $8,000,000 to $10,000,000, the principals of MEI agreed to
increase the guaranty of the obligations of the Company under the Credit
Facility to an amount not to exceed the lesser of $4,000,000 and the outstanding
principal of and any interest on all loans made under the Credit Facility in
excess of the borrowing base. As consideration for the increase in the guaranty,
the Company agreed to pay MEI an additional fee of $25,000 for such guaranty by
its principals. In August 1998, the Company issued 34,014 shares of Common Stock
to MEI, at the fair market value of the stock on the date of issuance, as
payment for such guarantee fees. On January 28, 1999, the Company and The Chase
Manhattan Bank were notified by one of the principals of MEI that there would be
no approvals for further extensions of credit under the Credit Facility.
13
<PAGE>
Pursuant to an employment agreement dated as of February 4, 1998,
Ronald Lightstone is employed by the Company as its President and Chief
Executive Officer. The term of Mr. Lightstone's employment agreement commenced
on June 10, 1997 and ends on June 10, 1999. Pursuant to the agreement, Mr.
Lightstone is paid a base salary of $200,000 per year. In addition to such base
salary, Mr. Lightstone was granted 400,000 shares of Common Stock issued as of
January 9, 1998, ownership which vests over a three year period (1/36 of such
shares vesting each month), commencing July 10, 1997. The employment agreement
also provides for (i) three weeks paid vacation, (ii) reimbursement of business
related expenses, (iii) a car allowance of $1,000 per month, and (iv)
eligibility to participate in all compensation, pension, retirement and welfare
and fringe benefit plans, programs and policies of the Company applicable to
executives of the Company generally.
The Company has agreed to reimburse each Board member's travel
expenses. For the fiscal year ended December 31, 1997, the Company was to grant
to each outside director options to purchase 5,000 shares of Common Stock. For
the fiscal year ended December 31, 1998, the Company has agreed to grant to each
director options to purchase 10,000 shares of Common Stock, which options will
vest 25% at the end of each quarter, and to make a cash payment of $1,000 per
quarter to each director not associated with MEI. The Company has not yet
granted such options.
In July 1998, the Company entered into a loan agreement with Apollo
pursuant to which the Company borrowed $1,500,000 with a due date of the earlier
of January 17, 1999 or the sale of the Company's principal office building.
Interest accrued at the prime rate of The Chase Manhattan Bank plus 2% and was
payable upon the principal due date. The loan was secured by a second mortgage
on the Company's principal office building and land. In September 1998, the loan
and accrued interest was fully paid.
In August 1998, the Company issued 392,854 shares of Common Stock to
MEI (as the owner of all of the Company's Series B, Series C and Series D
Preferred Stock) as payment of approximately $589,000 of accrued dividends on
such Preferred Stock. In November 1998, the Company authorized the issuance of
189,146 shares of Common Stock to MEI as payment of approximately $107,000 of
accrued dividends on such Preferred Stock. 171,057 of those shares were issued
in December 1998 and 18,089 were issued in January 1999. In December 1998, MEI
agreed to forgive all accrued dividends on such Preferred Stock for the quarter
ended December 31, 1998 (approximately $102,000).
Pursuant to a Stock Purchase Agreement, dated as of July 30, 1998,
between Apollo and Ronald Lightstone and the Company, and a Stock Purchase
Agreement, dated as of November 12, 1998, between Apollo, Mr. Lightstone and the
Company, the Company sold an aggregate of 8,122,393 shares of Common Stock of
the Company to Elkes Limited Partnership ("ELP") (as assignee of Apollo), Gorman
Limited Partnership ("GLP") (as assignee of Apollo) and Mr. Lightstone for an
aggregate price of $5,840,000 (or $0.719 per share). In connection with such
stock purchase agreements, the Company, Apollo and Mr. Lightstone entered into
registration rights agreements. The managing general partner of ELP is Terrence
Elkes, the Chairman of the Board of Directors of the Company. The managing
general partner of GLP is Kenneth Gorman, the Vice-Chairman of the Board of
Directors of the Company. Mr. Lightstone is the President and Chief Executive
Officer of, and a member of the Board of Directors of, the Company.
In December 1998, the Company sold an aggregate of 640,000 shares of
Common Stock to ELP and GLP for $500,000.
14
<PAGE>
As part of Mr. Topham's compensation as Vice President and Chief
Financial Officer, pursuant to a stock option agreement between the Company and
Mr. Topham, Mr. Topham was granted an option to purchase 100,000 shares of
Common Stock at an exercise price of $1.50 per share. Such option vested in
three equal parts on April 1, 1997, April 1, 1998 and December 30, 1998.
As part of Mr. Murrray's compensation as Vice President, General
Counsel and Secretary, pursuant to a stock option agreement between the Company
and Mr. Murray, Mr. Murray was granted an option to purchase 30,000 shares of
Common Stock at an exercise price of $1.50 per share. Such option is to vest
annually in three equal parts commencing January 1, 1999.
In December 1998, the Company and Mr. Murray entered into a Trust
Agreement pursuant to which Mr. Murray, as trustee, will hold in trust certain
shares of Common Stock issued by the Company, until such time as a registration
statement covering such shares is declared effective by the Securities and
Exchange Commission, at which time the shares will be released to the beneficial
owners. Mr. Murray receives no compensation as trustee.
15
<PAGE>
SIGNATURE
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, on this 28th day of April, 1999.
NEWSTAR MEDIA INC.
By: /s/ Ronald Lightstone
-------------------------------------
Ronald Lightstone, President and
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ronald Lightstone President, Chief Executive April 28, 1999
- ---------------------------- Officer and Director
Ronald Lightstone
/s/ John T. Brady Chief Financial Officer and April 28, 1999
- ---------------------------- Chief Accounting Officer
John T. Brady
/s/ Terrence A. Elkes Chairman of the April 28, 1999
- --------------------------- Board of Directors
Terrence A. Elkes
Vice-Chairman of the April __, 1999
- --------------------------- Board of Directors
Kenneth F. Gorman
/s/ John T. Healy Director April 28, 1999
- ---------------------------
John T. Healy
/s/ Bruce Maggin Director April 28, 1999
- ---------------------------
Bruce Maggin
/s/ Steven Mayer Director April 27, 1999
- ---------------------------
Steven Mayer
/s/ Lee Masters Director April 28, 1999
- ---------------------------
Lee Masters
</TABLE>
