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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, 1999
[ ] 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 (ZIP CODE)
OFFICES)
(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, 1999 were
$10,800,000.
As of April 24, 2000, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the issuer was approximately
$ 2,994,000 based upon the closing sales 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 24, 2000: 21,612,058
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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, 1999 (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
The following table sets forth biographical information with respect to
the directors of the Company.
NAME AGE POSITION
---- --- --------
Terrence A. Elkes 65 Chairman of the Board and Chief Executive Officer
Kenneth Gorman* 60 Vice-Chairman
Bruce Maggin* 56 Director
John T. Healy 60 Director
Lee Masters 47 Director
John R. Sprieser 51 Director
Ronald Lightstone 61 Director
- --------------
* 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. Sprieser was elected a director of the Company at
the annual meeting of shareholders held January 18, 2000.
TERRENCE A. ELKES was appointed to the Board in June 1997. He was
elected Chairman on July 30, 1998 and became the Company's Chief Executive
Officer on May 14, 1999. 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 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.
2
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KENNETH F. GORMAN has been a director of the Company since March 1997.
He was elected Vice-Chairman on July 30, 1998 and Vice-Chairman of the Office of
the Chief Executive on May 14, 1999. 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.
3
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RONALD LIGHTSTONE was President and Chief Executive Officer of the
Company from June 1997 until May 14, 1999 and Co-Vice-Chairman of the Office of
the Chief Executive from May 14, 1999 to September 15, 1999. He has been a
director since March 1997. He is currently a principal of Sagpond Ventures. 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 R. SPRIESER was elected to the Board on January 18, 2000. Mr.
Sprieser is Senior Vice President and Chief Financial Officer of IDC Services,
Inc. having been with that Company since December 1988. He was elected to the
Board of Directors of IDC Services, Inc. in 1996. From March 1996 to April 1998,
Mr. Sprieser was Chief Operating Officer of ASI Marketing Research, Inc., a
subsidiary of IDC Services. Prior to joining IDC Services, Mr. Sprieser was Vice
President and Chief Financial Officer of Longman Group USA, Inc., and before
that, Chief Financial Officer of MTI Vacations, Inc. He is a Certified Public
Accountant, and received his BBA from the University of Oklahoma and an MBA from
Indiana University.
INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following table sets forth certain biographical information with
respect to the current executive officers of the Company, other than executive
officers whose biographical information is set forth above under the heading
"Information with Respect to Directors," and employees who are not executive
officers but who are expected to make a significant contribution to the
Company's business.
NAME AGE POSITION
---- --- --------
John T. Brady 58 Vice President and Chief Financial Officer
John Hunt 54 President and Chief Executive Officer of NewStar
Publishing and Internet Services
Ronald M. Ziskin 48 President of NewStar Television
Gene L. George 35 President of NewStar Worldwide
JOHN T. BRADY has been Vice President and Chief Financial Officer of
the Company since January 1999. He had been 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.
JOHN HUNT became President and Chief Executive Officer of NewStar
Publishing and Internet Services as of March 1, 2000. From June 1, 1999 through
April 2000, Mr. Hunt was director of publishing for the Company's Audio
Literature imprint following the Company's acquisition of the assets of American
Audio Literature, Inc. Mr. Hunt founded American Audio Literature in 1987 and
served as its President and Chief Executive Officer until the acquisition.
RONALD M. ZISKIN has been the President of the Company's television
production subsidiary, NewStar Television, since its creation in April 1996. Mr.
Ziskin is a producer and television executive with over twenty years of
experience. He spent nine years at ABC Television Station, serving as Executive
Producer of KABC-TV and KGO-TV. He was Vice President of Programming and
Production at Lifetime, which he helped launch that network. Mr. Ziskin founded
Four Point Entertainment, Inc. (the predecessor in interest to NewStar
Television) in 1984, and as President of such company he produced more than
1,000 hours of dramatic and reality television programming over a period of 13
years. Mr. Ziskin also was with Viacom International and Hearst/ABC/Viacom
Entertainment as Vice President Programming and Production, Cable Operations.
4
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GENE L. GEORGE joined the Company in October 1995 as Vice President,
Sales and Acquisitions of Dove International, the film and television
distribution of Arista Classics, where he saw the worldwide distribution of over
fifty independently produced and specialized theatrical motion pictures over an
eight-year period. In 1992, he was elected to the Board of Directors of the
American Film Marketing Association, where he served six consecutive terms. In
1986, Mr. George received his bachelor's degree cum laude in international
business and marketing from California State University at Northridge.
INFORMATION WITH RESPECT TO FORMER DIRECTORS AND EXECUTIVE OFFICERS WHO
HELD SUCH POSITIONS IN 1999
The following table sets forth information with respect to former
directors and executive officers of the Company who served as directors or
executive officers during 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven F. Mayer 40 Director
Robert C. Murray 40 Vice President, General Counsel and Secretary
Peter Engel 64 President and Chief Executive Officer of
Publishing and Internet Services
</TABLE>
Mr. Mayer was a director of the Company from November 1996 to November
1999. Mr. Murray was Vice President , General Counsel, and Secretary of the
Company from October 1997 to February 2000. Mr. Engel was President and Chief
Executive Officer of NewStar Publishing and Internet Services from January 2000
until February 15, 2000.
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 Rule 16a-3(e) during the fiscal year
ended December 31, 1999, the Company believes that during fiscal year ended
December 31, 1999: Messrs. Elkes and Gorman each filed three late reports, one
of which related to one transaction, one of which related to five transactions
and one of which related to three transactions; Gorman Limited Partnership filed
one late report which related to one transaction; Mr. Maggin filed two late
reports, one of which related to three transactions and one of which related to
five transactions; Mr. Healy filed one late report which related to three
transactions; Mr. Mayer filed one late report which related to four
transactions; Mr. Lightstone filed one late report which related to three
transactions; and Apollo Partners, LLC, MDJ Investments, Limited, Joseph J.
Bradley, Mitzi Elkes, David Elkes, Joseph Macdonell, and Maura Nash Gorman each
filed one late report which related to five 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, 1999, 1998 and
1997, respectively, of the Company's Chief Executive Officer, Vice-Chairman, and
the three other executive officers of the Company who received compensation in
excess of $100,000 during 1999:
5
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<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>
Terrence A. Elkes (1) (1) (1) (1) (1) (1) (1)
Chairman and Chief
Executive Officer
Kenneth F. Gorman (2) (2) (2) (2) (2) (2) (2)
Vice-Chairman
Ronald Lightstone (3) 1999 $ 57,846 -- -- $ 4,781(4)
President, Chief Executive 1998 $200,000 -- -- -- $ 19,000(5)
Officer and Director 1997 $110,769 -- 612,400(6) -- --(5)
John T. Brady (7) 1999 $175,000 -- -- 125,000(8) $ 18,752(7)
Vice President and 1998 -- -- -- 25,000(8) $ 81,765(7)
Chief Financial Officer 1997 -- -- -- -- $ 50,345(7)
Robert Murray 1999 $129,231 -- -- 120,000(9) --
Vice President and 1998 $125,000 -- -- 30,000(9) --
General Counsel and Secretary 1997 $ 26,442 -- -- -- --
Peter Engel (10) 1999 $199,231 -- -- -- --
President and Chief Executive 1998 -- -- -- -- --
Officer of NewStar Publishing 1997 -- -- -- -- --
And Internet Services
</TABLE>
(1) Mr. Elkes became Chief Executive Officer in May 1999. In 1999, Mr. Elkes
was granted options to purchase 100,000 shares of Common Stock at $1.20
per share. For the years 1997-1998, Mr. Elkes received no compensation
from the Company, other than for his services as a Director. For Director
services for 1997-1998, Mr. Elkes received options to purchase 10,000
shares of Common Stock for $1.313 per share. For Director services for
1998-1999, Mr. Elkes received options to purchase 10,000 shares of Common
Stock for $0.875 per share.
(2) Mr. Gorman became Vice Chairman of the Office of the Chief Executive in
May 1999. In 1999, Mr. Gorman was granted options to purchase 100,000
shares of Common Stock at $1.20 per share. For the years 1997-1998, Mr.
Gorman received no compensation from the Company, other than for his
services as a Director. For Director services for 1997-1998, Mr. Gorman
received options to purchase 10,000 shares of Common Stock for $1.313 per
share. For Director services for 1998-1999, Mr. Gorman received options to
purchase 10,000 shares of common stock for $0.875 per share.
(3) Mr. Lightstone resigned as President and Chief Executive Officer in May
1999.
(4) In 1999, Mr. Lightstone was granted options to purchase 400,000 shares of
Common Stock at $1.20 per share. For Director services for 1997-1998, Mr.
Lightstone received options to purchase 10,000 shares of Common Stock for
$1.313 per share. For Director services for 1998-1999, Mr. Lightstone
received options to purchase 10,000 shares of Common Stock for $0.875 per
share. In 1999, Mr. Lightstone received 401(k) Company matching
contributions of $4,781.
(5) 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).
6
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(6) 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.
(7) Mr. Brady became Vice President and Chief Financial Officer on January 1,
1999. Prior to that time he was a consultant for the Company and received
consulting fees. In 1999, Mr. Brady received $18,752 in consulting fees
for services rendered in 1998. For 1997, Media Equities International paid
a portion of Mr. Brady's total consulting fees equal to $25,000.
(8) In 1998, Mr. Brady received options to purchase 25,000 shares of Common
Stock for $1.50 per share. In 1999, Mr. Brady received options to purchase
125,000 shares of Common Stock for $1.20 per share. On October 19, 1999,
the Board approved the repricing of stock options previously granted to
employees of the Company, excluding Directors, to $0.50 per share with a
concomitant reduction in the number of stock options. The recipients may
elect to retain their options with the original exercise price or agree to
accept the lesser number of stock options with the $0.50 exercise price.
As of April 24, 2000, Mr. Brady had not exercised the repricing option.
(9) In 1998, Mr. Murray received options to purchase 30,000 shares of Common
Stock for $1.50 per share. In 1999, Mr. Murray received options to
purchase 120,000 shares of Common Stock for $1.20 per share. On October
19, 1999, the Board approved the repricing of stock options previously
granted to employees of the Company, excluding Directors, to $0.50 per
share with a concomitant reduction in the number of stock options. The
recipients may elect to retain their options with the original exercise
price or agree to accept the lesser number of stock options with the $0.50
exercise price. As of April 24, 2000, Mr. Murray had not exercised the
repricing option.
(10) Peter Engel joined the Company in 1999. He received no compensation prior
to that time.
OPTION/SAR GRANTS IN 1999
There were no SARs granted to the named executive officers during 1999.
The following tables set forth stock options granted to the named executive
officers during 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS/ EXERCISE OR
UNDERLYING OPTIONS/SARS SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---- ------- -------------- --------- ----
<S> <C> <C> <C> <C>
Terrence A. Elkes 10,000 0.9% $0.875 1/1/04
Terrence A. Elkes 10,000 0.9% $1.313 1/1/04
Terrence A. Elkes 100,000 8.6% $1.20 7/21/09
Kenneth F. Gorman 10,000 0.9% $0.875 1/1/04
Kenneth F. Gorman 10,000 0.9% $1.313 1/1/04
Kenneth F. Gorman 100,000 8.6% $1.20 7/21/09
Ronald Lightstone 10,000 0.9% $0.875 1/1/04
Ronald Lightstone 10,000 0.9% $1.313 1/1/04
Ronald Lightstone 400,000 34.3% $1.20 7/21/09
John T. Brady 125,000 10.7% $1.20 (1) 7/21/09
Robert C. Murray 120,000 10.3% $1.20 (1) 7/21/09
</TABLE>
(1) On October 19, 1999, the Board approved the repricing of stock options
previously granted to employees of the Company, excluding Directors, to
$0.50 per share with a concomitant reduction in the number of stock
options. The recipients may elect to retain their options with the
original exercise price or agree to accept the lesser number of stock
options with the $0.50 exercise price. The Board considered that the price
of the Company's stock had fallen significantly since the time the options
had been granted to the employees and that the purpose of the option
grants was to retain and reward key employees and keep management focused
on building shareholder value.
7
<PAGE>
OPTIONS EXERCISED IN 1999 AND YEAR-END OPTION VALUES
No stock options were exercised by any named executive officer during
1999. 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, 1999. 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, 1999.
<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>
Terrence A. Elkes 120,000
Kenneth F. Gorman 120,000
Ronald Lightstone 420,000
John T. Brady 83,333 66,667 (1) (1)
Robert C. Murray 90,000 60,000 (1) (1)
</TABLE>
(1) As of April 24, 2000, neither Mr. Brady nor Mr. Murray had repriced their
options to $0.50 with a concomitant reduction in the number of options.
Had Mr. Brady done so, as of December 31, 1999 the value of his
unexercised exercisable in-the-money options would have been $803 and the
value of his unexercised unexercisable in-the-money options would have
been $1,085. Had Mr. Murray repriced his options, as of December 31, 1999
the value of his unexercised exercisable in-the-money options would have
been $729 and the value of his unexercised unexercisable in-the-money
options would have been $1,146.
COMPENSATION OF DIRECTORS
For the fiscal year ending December 31, 1999, the Company agreed to
grant to each director options to purchase 10,000 shares of Common Stock, which
options vested 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.
EMPLOYMENT AGREEMENTS
None of the executive officers or persons who were executive officers
in 1999 (i.e. Terrence A. Elkes, Kenneth F. Gorman, John T. Brady, Robert C.
Murray and Peter Engel) have or had an employment agreement with the Company.
Pursuant to an employment agreement dated as of February 4, 1998,
Ronald Lightstone was 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 ended on June 10, 1999. Pursuant to the agreement, Mr.
Lightstone was 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 provided 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.
8
<PAGE>
In 1999, each of Messrs. Brady and Murray entered into a Key Executive
Severance Agreement with the Company. Pursuant to such agreements, if such
executive's employment were to be terminated in anticipation of or within 1 year
after specified events constituting a change in control, such executive would be
entitled to receive a lump sum payment equal to such executive's then current
annual salary, and all stock options previously granted to such executive would
immediately vest and become exercisable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables sets forth information as of April 24, 2000,
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.
<TABLE>
<CAPTION>
COMMON STOCK
------------
SHARES OF
COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
- ------------------------ ------------------ --------------------
<S> <C> <C><C> <C>
Terrence A. Elkes.................... 12,238,557 (2)(3) 43.8%
Kenneth F. Gorman.................... 12,238,557 (2)(4) 43.8%
Ronald Lightstone.................... 8,174,040 (2)(5) 28.9%
H.A.M. Media Group, LLC.............. 7,642,042 (2)(6) 27.5%
Bruce Maggin......................... 7,712,042 (2)(7) 27.6%
John T. HEALY........................ 7,717,042 (2)(7) 27.6%
Media Equities International, LLC ... 7,642,042 (2)(8) 27.5%
MDJ Investments, Limited............. 7,642,042 (2) 27.5%
Joseph J. Bradley.................... 7,642,042 (2) 27.5%
Mitzi Elkes.......................... 7,642,042 (2) 27.5%
David Elkes.......................... 7,642,042 (2) 27.5%
Joseph Macdonell..................... 7,642,042 (2) 27.5%
Maura Nash Gorman.................... 7,642,042 (2) 27.5%
Elkes Limited Partnership............ 4,426,515 (9) 20.5%
Gorman Limited Partnership........... 4,476,514 (10) 20.7%
John R. Sprieser..................... 0 (11) *
Lee Masters.......................... 95,000 (12) *
John T. Brady........................ 163,332 (13) *
Robert C. Murray..................... 100,000 (14) *
Peter Engel.......................... 130,000 *
All current directors and executive officers
as a group (eight individuals)....... 7,770,401 (15) 61.6%
- ------------------
* Less than 1%.
</TABLE>
9
<PAGE>
(1) Percentages set forth are based upon 21,612,058 shares of Common Stock
outstanding as of April 24, 2000 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. MDJ Investments, Limited ("MDJ"), Joseph Macdonell, Maura
Nash Gorman, H.A.M. Media Group, LLC ("H.A.M. Media") and Mr. Lightstone
are members of MEI. Messrs. Elkes and Gorman are managers of MEI. Messrs.
Healy and Maggin are members and managers of H.A.M. Media. Joseph J.
Bradley, Mitzi Elkes, and David Elkes are shareholders of MDJ. The
business address for MEI, 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, NY
10017. The business adress for MDJ, Joseph J. Bradley, Mitzi Elkes, and
David Elkes is J. Bradley & Co., 130 West 42nd Street, New York, NY 10036.
The business address for Joseph Macdonell is 24 Fawn Hill Road, Mahwah, NJ
07430. The business address for Maura Nash Gorman is 20 Andover Road, Port
Washington, NY 10050. The business address for Mr. Lightstone is 400
Parkwood Drive, Los Angeles, CA 90077.
(3) Includes 4,426,515 shares beneficially owned by Elkes Limited Partnership.
Mr. Elkes is the managing general partner of Elkes Limited Partnership.
Includes 120,000 shares of Common Stock issuable to Mr. Elkes upon
exercise of options currently exercisable.
(4) Includes 4,476,514 shares beneficially owned by Gorman Limited
Partnership. Mr. Gorman is the managing general partner of Gorman Limited
Partnership. Includes 120,000 shares of Common Stock issuable to Mr.
Gorman upon exercise of options currently exercisable.
(5) Includes 400,000 shares of Common Stock issued pursuant to Mr.
Lightstone's employment agreement with the Company. As of April 24, 2000,
366,667 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. Also includes an
additional 77,554 shares held directly by Mr. Lightstone and 420,000
shares of Common Stock issuable upon exercise of options currently
exercisable.
(6) Does not include shares owned directly by Messrs. Healy or Maggin.
(7) Includes 70,000 shares of Common Stock issuable upon exercise of options
currently exercisable.
(8) Does not include shares owned directly by MDJ, Joseph Macdonell, Maura
Nash Gorman, Joseph J. Bradley, Mitzi Elkes, David Elkes H.A.M. Media or
Messrs. Elkes, Gorman, Healy, Maggin or Lightstone.
(9) Does not include any shares beneficially owned by MEI or Mr. Elkes. The
business address for Elkes Limited Partnership is 500 5th Avenue Suite
3520, New York, NY 10110.
(10) Does not include any shares beneficially owned by MEI or Mr. Gorman. The
business address for Gorman Limited Partnership is 500 5th Avenue Suite
3520, New York, NY 10110.
(11) The business address for Mr. Sprieser is IDC Services, Inc., 541 N.
Fairbanks Court, Suite 2500, Chicago, IL 60611.
10
<PAGE>
(12) Includes 70,000 shares of Common Stock issuable to Mr. Masters upon
exercise of options currently exercisable. The business address for Mr.
Masters is Liberty Interactive Media, 12312 Olympic Boulevard, Los
Angeles, CA 90064.
(13) Includes 25,000 shares of Common Stock issuable to Mr. Brady upon exercise
of stock options currently exercisable with an exercise price of $1.50 per
share, 83,332 shares of Common Stock issuable to Mr. Brady upon exercise
of stock options currently exercisable with an exercise price of $1.20 per
share, and 50,000 shares of Common Stock issuable to Mr. Brady upon the
exercise of stock options approved by the Board March 2, 2000 with an
exercise price of $0.93. Excludes options, which are not currently
exerciseable and will not be exerciseable within the next 60 days, to
purchase 41,667 shares of Common Stock with an exercise price of $1.20 per
share.
(14) Includes 20,000 shares of Common Stock issuable to Mr. Murray upon
exercise of stock options currently exercisable with an exercise price of
$1.50 per share, and 80,000 shares of Common Stock issuable to Mr. Murray
upon exercise of stock options currently exerciseable with an exercise
price of $1.20 per share. Excludes options, which are not currently
exerciseable and will not be exerciseable within the next 60 days, to
purchase 10,000 shares of Common Stock with an exercise price of $1.50 per
share and 40,000 shares of Common Stock with an exercise price of $1.20
per share.
(15) Includes the shares identified in footnotes (2), (3), (4), (5), (7), (12),
and (13).
SERIES B PREFERRED STOCK
------------------------
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
Media Equities International, 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 T. Healy........................... 4,000 (a) 100%
Ronald Lightstone....................... 4,000 (a) 100%
MDJ Investments, Limited................ 4,000 (a) 100%
Joseph J. Bradley....................... 4,000 (a) 100%
Mitzi Elkes............................. 4,000 (a) 100%
David Elkes............................. 4,000 (a) 100%
Joseph Macdonell........................ 4,000 (a) 100%
Maura Nash Gorman....................... 4,000 (a) 100%
- ---------------
(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.
11
<PAGE>
SERIES C PREFERRED STOCK
------------------------
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
Media Equities International, 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 T. Healy....................... 1,920 (b) 100%
Ronald Lightstone................... 1,920 (b) 100%
MDJ Investments..................... 1,920 (b) 100%
Joseph J. Bradley................... 1,920 (b) 100%
Mitzi Elkes......................... 1,920 (b) 100%
David Elkes......................... 1,920 (b) 100%
Joseph Macdonell.................... 1,920 (b) 100%
Maura Nash Gorman................... 1,920 (b) 100%
- ------------------
(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.
<TABLE>
SERIES D PREFERRED STOCK
------------------------
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------ ----------------
<S> <C> <C>
Media Equities International, 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 T. Healy............................. 214,113 (c) 100%
Ronald Lightstone......................... 214,113 (c) 100%
MDJ Investments........................... 214,113 (c) 100%
Joseph J. Bradley......................... 214,113 (c) 100%
Mitzi Elkes............................... 214,113 (c) 100%
David Elkes............................... 214,113 (c) 100%
Joseph Macdonell.......................... 214,113 (c) 100%
Maura Nash Gorman......................... 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.
12
<PAGE>
CHANGES IN CONTROL
No change in control of the registrant has occurred since the beginning
of January 1, 1998. As of December 31, 1997 Media Equities International, LLC
("MEI") controlled the Company through its ownership of equity securities and
the majority presence of its affiliates on the Board. From August 1998 through
May 1999, Elkes Limited Partnership ("ELP") purchased 4,426,515 shares of common
stock from the Company at prices ranging from $0.72 to $1.20 per share. From
August 1998 through August 1999 Gorman Limited Partnership ("GLP") purchased
4,476,614 shares of common stock from the Company at prices ranging from $0.72
to $1.20 per share. The managing general partner of ELP is Terrence A. Elkes.
The managing general partner of GLP is Kenneth F. Gorman. Each of Messrs. Elkes
and Gorman is a manager of MEI. From August 1998 through December 1998, Mr.
Lightstone purchased 742,698 shares of common stock from the Company at a price
of $0.72 per share. Mr. Lightstone is a member of MEI.
Pursuant to a Stock Purchase Agreement among MEI, the Company and
others, dated March 27, 1997 (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 of production matters and
certain other activities).
Pursuant to the MEI Stock Purchase Agreement and the terms of the
Series B Preferred Stock (all of the shares of which are beneficially owned by
MEI, as of April 24, 2000) so long as MEI owns 750,000 shares of common stock of
the Company (assuming for such purposes that the shares of the Series B
Preferred Stock and Series C Preferred Stock are converted in their entirety),
(i) so long as MEI holds a majority of the initially issued shares of Series B
Perferred 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, 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
provides for a board of directors having up to nine members. In the event of
default of the Company in the observance of certain covenants 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 Company following the cure of any default or until MEI no longer
owns at least 750,000 shares of common stock of the Company (assuming for such
purposes that the shares of Series B Preferred Stock and Series C Preferred
Stock are converted in their entirety).
ELP, GLP, and Mr. Lightstone are parties to a Stock Purchase Agreement,
dated as of July 30, 1998 (the "First E G and L Stock Purchase Agreement"). In
the event of default by the Company in the observance of certain covenants in
the First E G and L Stock Purchase Agreement, ELP, GLP and Mr. Lightstone have
the right to appoint two additional directors, which directors shall continue to
serve until the earlier of the next occurring annual meeting of the Company
following the cure of any default or until ELP, GLP, and Mr. Lightstone no
longer own at least 750,000 shares of common stock of the Company.
ELP, GLP, and Mr. Lightstone are parties to a Stock Purchase Agreement,
dated as of November 12, 1998 (the "Second E G and L Stock Purchase Agreement").
In the event of default by the Company in the observance of certain covenants in
the Second E G and L Stock Purchase Agreement, ELP, GLP, and Mr. Lightstone have
the right to appoint two additional directors, which directors shall continue to
serve until the earlier of the next occurring annual meeting of the Company
following the cure of any default or until ELP, GLP and Mr. Lightstone no longer
own at least 750,000 shares of common stock of the Company.
13
<PAGE>
On December 19, 1999 Apollo Partners, LLC ("Apollo") sold its entire
interest in MEI as follows: (i) 50% to MDJ Investments, Limited ("MDJ"), the
shareholders of which are Joseph Bradley, Mitzi Elkes, and David Elkes, (ii) 25%
to Joseph Macdonell, and (iii) 25% to Maura Nash Gorman. Messrs. Elkes and
Gorman are members and managers of Apollo.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 guaranteed 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 was 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.
14
<PAGE>
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. Subsequently, the
Company, MEI, the principals of MEI and The Chase Manhattan Bank agreed to set
the guaranty of the obligations of the company under the Credit Facility to an
amount not to exceed the lesser of (i) $2,000,000 and (ii) the outstanding
principal of and any interest on all loans made under the Credit Facility in
excess of the borrowing base, and that the Company would be permitted to borrow
amounts under the Credit Facility in excess of the borrowing base without the
prior approval of MEI. In consideration of such agreement, the Company agreed to
extend the exercise period of the warrants owned by MEI for one year and to
provide for a "cashless exercise" of such warrants.
The Company has agreed to reimburse each Director's travel expenses.
For service as a Director during the years 1997-1998 and 1998-1999, the Company
granted to each Director options to purchase 10,000 shares of Common Stock,
which options vest 25% at the end of each quarter, and made a cash payment of
$1,000 per quarter to each director not associated with MEI.
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. At the time of the transaction, Mr. Lightstone was 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.
In December 1998, the Company and Mr. Murray entered into a Trust
Agreement pursuant to which Mr. Murray, as trustee, was to hold in trust certain
shares of Common Stock issued by the Company, until such time as a registration
statement covering such shares was declared effective by the Securities and
Exchange Commission, at which time the shares were to be released to the
beneficial owners. The shares were released to the beneficial owners in 1999.
Mr. Murray did not receive any compensation as trustee.
In May 1999, the Company sold an aggregate of 833,334 shares of Common
Stock to ELP and GLP for $1,000,000. In May 1999, the Company sold an aggregate
of 250,000 shares of Common Stock to Peter Engel for $300,000. In connection
with such stock purchase, the Company and Mr. Engel entered into a registration
rights agreement. At the time of the transaction, Mr. Engel was President and
Chief Executive Officer of NewStar Publishing and Internet Services.
15
<PAGE>
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 an 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
form the Company at cost plus $25,000. As of September 30, 1999, the Company was
due $25,000, net of royalties, from Affinity.
On or about September 30, 1999, the Company sold excess inventory then
valued on the Company's books at approximately $1,250,000 to The Lakeside Group,
Inc. for cash in the amount of $278,000 and barter credits in an aggregate
amount valued at approximately $976,000, to be applied to future purchase of
media advertising. The terms of the agreement are similar to those contained in
agreements of this type that would be entered into between unrelated parties.
Fred Tarter is the President and a significant owner of The Lakeside Group, Inc.
Mr. Tarter was a partner with Mr. Engel in Affinity Communications Corporation.
During its 1999 year end closing, the Company learned that, based on more
current information, the estimated fair market value of the inventory was
$721,000. As a result of a change in the Company's business plan following the
change in publishing management in March 2000, the Company fully reserved
against the barter credits having determined that the change in business plan
eliminated almost all of the previously planned media advertising.
The Company has entered into various employment agreements and
severance agreements with, and granted stock options to, various employees,
officers and directors. See "EXECUTIVE COMPENSATION" herein.
16
<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 27th day of April, 2000.
NEWSTAR MEDIA INC.
By: /s/ Terrence A. Elkes
------------------------------------
Terrence A. Elkes,
Chairman 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/ Terrence A. Elkes Chairman and Chief April 27, 2000
------------------------
Terrence A. Elkes Executive Officer
/s/ John T. Brady Chief Financial Officer and April 27, 2000
------------------------
John T. Brady Chief Accounting Officer
/s/ Kenneth F. Gorman Vice-Chairman of the April 27, 2000
------------------------
Kenneth F. Gorman Board of Directors
/s/ Ronald Lightstone Director April 28, 2000
------------------------
Ronald Lightstone
/s/ John T. Healy Director April 28, 2000
------------------------
John T. Healy
/s/ Bruce Maggin Director April 28, 2000
------------------------
Bruce Maggin
/s/ John R. Sprieser Director April 27, 2000
------------------------
John R. Sprieser
/s/ Lee Masters Director April 28, 2000
------------------------
Lee Masters
</TABLE>
