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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR QUARTER ENDED MARCH 31, 1995 COMMISSION FILE NUMBER 0-17295
THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
California 95-4079057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11601 Wilshire Blvd., 21st Floor, Los Angeles, CA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 445-1111
Securities registered pursuant to Section 12(b) of the Act:
Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
10% Convertible Subordinated Debentures, Series A
13 3/4% Convertible Subordinated Debentures, Series B
Common Stock Purchase Warrants
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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Number of shares of registrant's common stock outstanding as of June 30,
1995: 32,081,983
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The undersigned registrant (the "Registrant") hereby amends the following
items of its Quarterly Report on Form 10-Q for the quarter ended March 31,
1995 (the "Report") as follows:
Exhibit 10.3
The Registrant hereby deletes the information set forth in Exhibit 10.3
included as part of the Report and replaces such Exhibit in its entirety with
Exhibit 10.3 included herewith.
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SIGNATURES
Pursuant to the requirements 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.
THE KUSHNER-LOCKE COMPANY
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(Registrant)
Dated: July 31, 1995 /s/ Peter Locke
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Peter Locke
Co-Chairman of the Board, Co-Chief
Executive Officer and President
Dated: July 31, 1995 /s/ Donald Kushner
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Donald Kushner
Co-Chairman of the Board, Co-Chief
Executive Officer and Secretary
Dated: July 31, 1995 /s/ Lenore Nelson
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Lenore Nelson
Chief Financial Officer, Executive
Vice President and Assistant Secretary
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EXHIBIT 10.3
[SAVOY PICTURES, INC. LETTERHEAD]
Dated: As of February 6, 1995
KL Features, Inc.
The Kushner-Locke Company
c/o Ziffren Brittenham Branca & Fischer
2121 Avenue of the Stars
Los Angeles, California 90067
RE: "Pinocchio"
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Gentlemen:
This letter shall serve to confirm the agreement between Savoy Pictures,
Inc. ("Savoy"), on the one hand, and KL Features, Inc. and The Kushner-Locke
Company (collectively "K-L"), on the other hand, in connection with the
development, production, financing and distribution of a live-action
feature-length theatrical motion picture tentatively entitled "Pinocchio"
("Picture") to be based on the existing screenplay presently entitled "The
Legend of Pinocchio" written by Sherry Mills and Joyce Warren (the
"Underlying Materials"), as follows:
A. BASIC TERMS: The basic terms and conditions of the parties'
agreement are as set forth in the InterOffice Memo ("Memo") which is attached
hereto as Exhibit "A" (and incorporated herein by this reference) and which
has been initialed by the parties hereto.
B. K-L REPRESENTATIONS: K-L hereby represents and warrants to Savoy
as follows: (i) K-L owns all right, title and interest in and to the
Underlying Materials and the Picture, free and clear of any and all third
party claims, liens or encumbrances; and (ii) K-L has the right to enter into
this Agreement and the consent of no other party is required in order to give
effect to the undertakings, representations and warranties of K-L hereunder.
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C. INDEMNIFICATION: K-L hereby agrees to indemnify and hold harmless
Savoy (and Savoy's parent and affiliated companies, and its and their
respective officers, directors, employees, licensees and assigns)
(collectively, the "Savoy Indemnified Parties") from and against any loss,
liability, damage, claim, action, cause of action or expense (including
reasonable attorneys' fees and court costs) which may be incurred by the
Savoy Indemnified Parties by reason of a breach of the representations and
warranties described in Paragraph B above.
The balance of the terms and conditions shall be negotiated in good faith
by the parties in accordance with Savoy's customary parameters for deals of
this type (but in any event consistent with the provisions set forth in the
Memo). However, unless and until a more formal agreement is entered into by
the parties hereto, this agreement shall constitute the legally binding
obligation of the parties hereto with respect to the subject matter hereof.
Entered into as of this ____ day of _____________, 1995.
SAVOY PICTURES, INC.
By: _____________________________
Its: ____________________________
KL FEATURES, INC.
By: [Signature of Donald Kushner]
Its: ____________________________
THE KUSHNER-LOCKE COMPANY
By: [Signature of Donald Kushner]
Its: ____________________________
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[SAVOY PICTURES ENTERTAINMENT, INC. LETTERHEAD]
INTEROFFICE MEMO
TO: ROB FRIED
FROM: HARRIS MASLANSKY
DATE: JANUARY 12, 1995 (REVISED FEBRUARY 6, 1995)
SUBJECT: "PINOCCHIO" -- DEAL TERMS
Following is a summary of the basic deal terms for the production and
distribution of the above picture:
1. BUDGET AND PRODUCTION COST: The budget will not exceed $25M, including a
contingency approved by the bond company, bond fee, and financing charges
(including bank commitment and interest charges). The target budget will be
$XXX** all-in with a maximum of $25M. Savoy and Kushner-Locke ("K-L") will
co-finance the negative cost portion of the budget including the bond and
contingency 50/50. If Savoy chooses to cash flow the picture, it will be
assumed that Savoy's advances bear interest at the same borrowing rate as K-L
is paying on its part. In addition, Savoy shall charge the picture with an
amount equal to the K-L bank commitment and financing charges to be recouped
as part of Savoy's contribution. Is is contemplated that $XXX** will be the
agreed-upon budgeted item for cast and that any cast breakage must be
approved by K-L and Savoy.
K-L must provide Savoy a satisfactory chain-of-title as a condition to
Savoy's obligation to proceed with any production funding in addition to the
$750K for development. Savoy to use good faith efforts to expeditiously
approved the chain-of-title, and will notify K-L of any prospective problems.
If K-L is unable to satisfy Savoy as the chain-of-title, K-L will immediately
reimburse Savoy for all monies advanced by Savoy.
K-L will verify development spending to date and subject to the following.
Savoy will be responsible for advancing over an agreed-upon cash flow
schedule an amount equal to the already outstanding K-L development monies.
At the point that K-L and Savoy have each advanced an equal amount, Savoy and
K-L will together continue to advance development monies as agreed pursuant
to the cash flow schedule until each party has advanced in the aggregate
$750K.
K-L will have a period of 45 days from execution of the agreement, or the
point at which each party has advanced $750K, whichever is sooner, to provide
Savoy with satisfactory evidence that it has put in place its share of the
production financing. If at the expiration of this 45-day period, K-L has not
succeeded, despite having exercised good faith efforts, in providing Savoy
with satisfactory evidence that is has put in place its share of the
production financing, Savoy shall elect to take one of the following options:
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* Savoy has approved Chain of Title.
** Confidential treatment requested.
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(a) to extend the period for 30 days by which K-L must satisfy Savoy with
satisfactory evidence; or
(b) to commit to remain involved for a period of 45 days in the development
and production of the picture with K-L in accordance with these deal terms
(at which point if K-L has provided satisfactory evidence that it has put
into place its share of the production financing, the parties will proceed to
production and, if K-L has not provided satisfactory evidence, then Savoy may
make the election under 1(c)); or
(c) to terminate its involvement with the picture, in which case K-L shall
reimburse Savoy, with interest, for Savoy's investment in the picture and
Savoy shall assign to K-L all of Savoy's rights in the picture.
All pre-production costs as provided in the cash flow schedule will also be
borne 50/50. Producer's fees, not including line producer fees, will not
exceed $XXX** and neither party will charge overhead to the other.
2. RIGHTS: Savoy will have all motion picture and allied rights in perpetuity
throughout the Domestic territories (US and Canada excluding French Canada
for which Savoy will have the economic benefit, and their respective
territories and possessions and commonwealths including Puerto Rico as well
as US and Canadian military bases and embassies throughout the world and all
airlines and ships flying the flag of the US or Canada). Guarantees received
by K-L for French Canada will be considered part of Savoy's contribution to
the production costs and any overages will be paid over to Savoy and
accounted for as Gross receipts. K-L will be entitled to a XXX%** sales
commission on the guarantees received for French Canada.
3. APPROVALS: Subject to the parameters of approved budget, K-L and Savoy
have mutual approval (with Savoy's decision final) of the budget, however,
notwithstanding the foregoing (budget cannot exceed $25M, and cast cannot
exceed $XXX** without full mutual approval), cash flow schedule, production
schedule, screenplay, (approved -- however, a rewrite will be done and
material changes in the screenplay are subject to mutual approval, with
Savoy's decision final) additional writers, director (Steve Barron is
pre-approved), principal cast, principal crew and other key creative elements
including the special effects company and locations, the line producer, UPM
and production auditor. Attached is a list of pre-approved elements.
[Still waiting for approved list.] Each party agrees that it will not
exercise its approvals to frustrate production, nor act inconsistently with
the budget parameters.
Both IFG and Film Finances (Film Finances is subject to Savoy's approval of the
cut-through guarantee) are pre-approved for the completion bond.
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** Confidential treatment requested.
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4. KUSHNER-LOCKE PARTICIPATION IN THE DOMESTIC TERRITORY:
A. Gross Participation: K-L to receive XXX%** of Adjusted Gross (which
shall mean Gross Proceeds less only costs incurred for conversion,
checking, claims, collections, copyright and royalties, residuals, trade
dues, licenses and taxes) to the extent that such participation would
exceed $XXX** until "Initial Actual Breakeven."
B. Home Video: Royalties will be XXX%** of wholesale list price for rental
units and XXX%** of wholesale list price for sell-through units and no
distribution fee shall be charged.
C. Bonuses: K-L shall receive the following bonuses:
After CBE (the point at which Savoy has recovered all its distribution
expenses, all "pre-break Participants" if any, and its production costs
plus interest) with no distribution fee, K-L shall receive XXX%** of
further Gross until it has received $XXX**;
at $XXX** of domestic theatrical film rentals (US and Canada, K-L shall
receive an additional $XXX**;
at $XXX** of domestic theatrical film rentals (US and Canada, K-L shall
receive an additional $XXX**; and
at $XXX** of domestic theatrical film rentals (US and Canada), K-L shall
receive an additional $XXX**.
D. Net Participation: K-L to receive XXX%** of XXX%** of Net Proceeds with
Breakeven calculated with a XXX%** fee.
5. THIRD PARTY PARTICIPATIONS: All Participations, deferments and bonuses
including those payable under "4" above on account of the Domestic
distribution will be paid by Savoy, and Participations under "4A" and "4C"
will be included as an additional expense in determining Net Profits. Once
Net Profits are reached, the Domestic share of all third party
Participations are to be borne from K-L's XXX%**. All third party
Participations with respect to Domestic distribution shall be subject to
mutual approval however, K-L shall have approval of Participations outside
of the Domestic territories but shall not use that approval to frustrate
Savoy's decisions as to casting. Based upon the budgeted amount for cast,
additional Participations may be granted by Savoy to the approved cast
without the additional approval of K-L as long as those percentages do not
exceed XXX%** of the talent's existing precedent. Savoy shall pay
residuals, if any, for the Domestic territory. Foreign and Domestic
Participations will be uncrossed. K-L will have a hard floor of XXX%** of
XXX%* of Net Proceeds. All Foreign residuals and participations will be
borne by K-L.
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** Confidential treatment requested.
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6. REVENUES FROM OTHER RIGHTS: Merchandising, novelization, music publishing,
soundtrack album, commercial tie-ins, interactive games, CD-ROM, music
video, electronic games and other ancillary rights in the picture will be
split 50/50 on a worldwide basis between Savoy and K-L and will not be
included in paragraph "4" computations. Savoy and K-L will mutually
determine who is best suited to handle the exploitation of these rights
(Savoy has tie-breaker vote). However, neither party will charge a fee for
arranging the exploitation of these rights.
7. OTHER: Savoy to have final cut for the Domestic territory as well as the
right to designate the release title, Kushner, Locke, and Mortoff ("K/L/M")
to receive "Produced by" or "Executive Producer" credits as K-L elects, in
an order to be designated by K/L/M, which credited K/L/M agree may be share
with other designated third parties, with K/L/M's credits appearing in
first position as between K/L/M and such third party (-ies). K/L/M's
credits shall be accorded both on-screen and in paid advertising, subject
to Savoy's standard "excluded ads provisions." Savoy to receive customary
releasing and presentation credits in the Domestic territory. K-L's NON-
animated logo to appear on-screen in main titles immediately following the
Savoy animated logo and production credits to appear on-screen in main
titles immediately after Savoy's standard "excluded ad provisions." K-L to
be consulted regarding the initial Domestic theatrical advertising campaign
and general release pattern as well as the creation of the trailers and
one-sheets/posters. Savoy's decisions final.*
K-L and Savoy to have mutual approval of initial press release and
announcements.
8. FOREIGN RELEASE: Foreign theatrical release can be day and date with
Savoy's Domestic theatrical release. However, K-L will have an outside date
of four months after delivery, or XXXX**, whichever is sooner.
CC: Steven Burkow
Victor Kaufman
Lew Korman
Donald Kushner
Peter Locke
Larry Mortoff
Jessica Roddy
Bruce Tobey
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* If prior to release of the picture, Savoy allows a third party
production/financing entity the use of an animated logo on screen for the
theatrical motion picture, Savoy agrees that it will allow K-L the use of its
animated logo in the main titles.**
** Confidential treatment required.
