<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 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 Number)
11601 WILSHIRE BLVD., 21ST FLOOR, LOS ANGELES, CALIFORNIA 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 due 2000
13 3/4% Convertible Subordinated Debentures, Series B due 2000
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 / /
There were 35,679,607 shares of outstanding Common Stock of the Registrant
as of January 31, 1996.
------------------------
Total number of pages 21 Exhibit Index begins on page 21
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<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Stockholders' Equity
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
(b) Reports on Form 8-K: None
</TABLE>
2
<PAGE>
PART I
ITEM 1.
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1995 1995
-------------- --------------
<S> <C> <C>
Cash and cash equivalents........................................................ $ 1,705,000 $ 3,139,000
Restricted cash.................................................................. 1,959,000 1,162,000
Accounts receivable, net of allowance for doubtful accounts...................... 12,751,000 7,864,000
Due from affiliates.............................................................. 305,000 309,000
Notes receivable from August Entertainment, Inc.................................. 597,000 676,000
Film costs, net of accumulated amortization...................................... 72,416,000 73,716,000
Property and equipment, at cost, net of accumulated depreciation and
amortization.................................................................... 494,000 515,000
Other assets..................................................................... 1,604,000 1,571,000
-------------- --------------
$ 91,831,000 $ 88,952,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts payable and accrued liabilities......................................... $ 4,285,000 $ 3,245,000
Notes payable.................................................................... 30,807,000 28,398,000
Deferred film license fees....................................................... 2,990,000 2,753,000
Contractual obligations, principally participants' share payable and talent
residuals....................................................................... 756,000 995,000
Production advances.............................................................. 14,962,000 16,609,000
Convertible subordinated debentures, net of deferred issuance costs.............. 17,622,000 17,745,000
-------------- --------------
Total liabilities............................................................ $ 71,422,000 $ 69,745,000
-------------- --------------
Stockholders' equity:
Common stock, no par value. Authorized 80,000,000 shares, issued and
outstanding 35,679,607 shares at December 31, 1995 and 35,466,599 shares at
September 30, 1995............................................................ 23,527,000 23,337,000
Accumulated deficit.............................................................. (3,118,000) (4,130,000)
-------------- --------------
Total stockholders' equity................................................... $ 20,409,000 $ 19,207,000
-------------- --------------
$ 91,831,000 $ 88,952,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to condensed consolidated financial statements.
3
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Operating revenues................................................................. $ 16,107,000 $ 5,438,000
Costs related to operating revenues................................................ 13,313,000 4,297,000
Selling, general and administrative expenses....................................... 896,000 993,000
-------------- -------------
Earnings from operations......................................................... 1,898,000 148,000
Interest income.................................................................... 54,000 66,000
Interest expense................................................................... (929,000) (759,000)
-------------- -------------
Earnings (loss) before income taxes.............................................. 1,023,000 (545,000)
Provision for income taxes......................................................... 11,000 --
-------------- -------------
Net earnings (loss).............................................................. $ 1,012,000 $ (545,000)
-------------- -------------
-------------- -------------
Net earnings (loss) per common and common equivalent share......................... $ 0.03 $ (0.02)
-------------- -------------
-------------- -------------
Weighted average number of common and common equivalent shares outstanding......... 35,589,000 30,942,000
-------------- -------------
-------------- -------------
</TABLE>
See accompanying Notes to condensed consolidated financial statements.
4
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1995 1994
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................................... $ 1,012,000 $ (545,000)
Adjustments to reconcile net earnings (loss) to net cash used by operating
activities:
Increase in restricted cash................................................. (797,000) --
Amortization of film costs.................................................. 13,310,000 4,244,000
Depreciation and amortization............................................... 52,000 53,000
Amortization of capitalized issuance costs and warrants..................... 107,000 108,000
Accounts receivable, net.................................................... (4,887,000) 243,000
Due from affiliates......................................................... 83,000 (708,000)
Increase in film costs...................................................... (12,010,000) (9,853,000)
Accounts payable and accrued liabilities.................................... 1,040,000 (74,000)
Deferred film license fees.................................................. 237,000 114,000
Contractual obligations..................................................... (239,000) (126,000)
Production advances......................................................... (1,647,000) 360,000
--------------- --------------
Net cash (used) by operating activities................................... (3,846,000) (6,184,000)
--------------- --------------
Cash flows from investing activities:
Increase in property and equipment, net....................................... (31,000) (94,000)
Increase in other assets...................................................... (33,000) (250,000)
--------------- --------------
Net cash (used) by investing activities................................... (64,000) (344,000)
--------------- --------------
Cash flows from financing activities:
Increase in notes payable..................................................... 5,009,000 7,763,000
Repayment of notes payable.................................................... (2,600,000) (8,200,000)
Other......................................................................... 67,000 (60,000)
--------------- --------------
Net cash provided (used) by financing activities............................ 2,476,000 (497,000)
--------------- --------------
Net (decrease) in cash...................................................... (1,434,000) (7,025,000)
Cash and cash equivalents at beginning of period................................ 3,139,000 15,681,000
--------------- --------------
--------------- --------------
Cash and cash equivalents at end of period...................................... $ 1,705,000 $ 8,656,000
--------------- --------------
--------------- --------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
(1) During the quarter ended December 31, 1994, $1,200,000 of convertible
subordinated debentures before unamortized capitalized issuance costs of
$136,000 were converted into 1,236,920 shares of Common Stock.
(2) During the quarter ended December 31, 1995, $210,000 of convertible
subordinated debentures before unamortized issuance costs of $20,000 were
converted into 213,008 shares of common stock.
See accompanying Notes to condensed consolidated financial statements.
5
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 1995
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------------------------------
RETAINED
EARNINGS
NUMBER OF COMMON (ACCUMULATED
SHARES STOCK DEFICIT) TOTAL
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995..................... 35,466,599 $ 23,337,000 $ (4,130,000) $ 19,207,000
Conversions of convertible debentures............. 213,008 190,000 -- 190,000
Net earnings...................................... -- -- 1,012,000 1,012,000
------------- -------------- -------------- --------------
Balance at December 31, 1995...................... 35,679,607 $ 23,527,000 $ (3,118,000) $ 20,409,000
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
See accompanying Notes to condensed consolidated financial statements.
6
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Kushner-Locke Company (the "Company") is principally engaged in the
development, production and distribution of feature films, direct-to-video
films, television series, movies-for-television, mini-series and animated
programming.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of The Kushner-Locke Company, its subsidiaries and certain less than
wholly-owned entities where the Company has control. All material intercompany
balances and transactions have been eliminated.
These unaudited consolidated financial statements and notes thereto have
been condensed and, therefore, do not contain certain information included in
the Company's annual consolidated financial statements and notes thereto. The
unaudited condensed consolidated financial statements should be read in
conjunction with the Company's annual consolidated financial statements and
notes thereto.
The unaudited condensed consolidated financial statements reflect, in the
opinion of management, all adjustments, all of which are of a normal recurring
nature, necessary to present fairly the financial position of the Company as of
December 31, 1995, the results of its operations for the three month periods
ended December 31, 1995 and 1994, and its cash flows for the three month periods
ended December 31, 1995 and 1994. Interim results are not necessarily indicative
of results to be expected for a full fiscal year.
Certain reclassifications have been made to conform prior year balances with
the current presentation.
RESTRICTED CASH
During the quarter ended December 31, 1995, the Company had $1,959,000 in
restricted cash related to advances made by the Company to film producers for
the acquisition of distribution rights. These cash advances were being held in
escrow accounts as collateral by financial institutions providing production
loans to those producers.
INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This
statement supersedes SFAS No. 96, "Accounting for Income Taxes." Under the asset
and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operating results in the period encompassing the
enactment date.
7
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share is based upon the
weighted average number of shares of common stock outstanding plus common
equivalent shares consisting of dilutive outstanding warrants and stock options.
The weighted average number of common and common equivalent shares outstanding
for the calculation of primary earnings per share was 35,589,000 and 30,942,000
for the quarters ended December 31, 1995 and 1994, respectively. The inclusion
of the additional shares, assuming the conversion of the Company's convertible
subordinated debentures, would have been anti-dilutive for the first quarters
ended December 31, 1995 and December 31, 1994.
(2) FILM COSTS
Film costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
-------------- --------------
<S> <C> <C>
In process or development.............................................. $ 40,280,000 $ 42,115,000
Released, principally television productions, net of accumulated
amortization.......................................................... 32,136,000 31,601,000
-------------- --------------
$ 72,416,000 $ 73,716,000
-------------- --------------
-------------- --------------
</TABLE>
(3) NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
-------------- --------------
<S> <C> <C>
Note payable to bank, revolving credit facility secured by
substantially all Company assets, interest at prime (8.25% at February
1, 1996) plus 1.25%, outstanding principal balance due December 31,
1996.................................................................. $ 15,000,000 $ 14,804,000
Notes payable to banks and/or financial institutions consisting of six
production loans secured by certain film rights held by producers,
priced at different rates for each loan; approximately $1,480,281 of
principal is payable before March 1996, $3,370,441 before July 1996,
$1,737,704 before August 1996 and $9,218,623 before October 1996...... 15,807,000 13,594,000
-------------- --------------
$ 30,807,000 $ 28,398,000
-------------- --------------
-------------- --------------
</TABLE>
8
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) CONVERTIBLE SUBORDINATED DEBENTURES
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
-------------- --------------
<S> <C> <C>
Series A Convertible Subordinated Debentures due December 15, 2000,
bearing interest at 10% per annum payable June 15 and December 15, net
of unamortized capitalized issuance costs and warrants of $11,000 and
$13,000, respectively................................................. $ 76,000 $ 84,000
Series B Convertible Subordinated Debentures due December 15, 2000,
bearing interest at 13 3/4% per annum payable monthly, net of
unamortized capitalized issuance costs of $337,000 and $354,000,
respectively.......................................................... 2,969,000 2,972,000
Convertible Subordinated Debentures due December 15, 2000, bearing
interest at 8% per annum payable February 1 and August 1, net of
unamortized capitalized issuance costs of $988,000 and $1,058,000,
respectively.......................................................... 9,999,000 10,129,000
Convertible Subordinated Debentures due July 1, 2002, bearing interest
at 9% per annum payable January 1 and July 1, net of unamortized
capitalized issuance costs of $472,000 and $490,000, respectively..... 4,578,000 4,560,000
-------------- --------------
$ 17,622,000 $ 17,745,000
-------------- --------------
-------------- --------------
</TABLE>
SERIES A DEBENTURES
As of December 31, 1995, the Company had outstanding $87,000 principal
amount of Series A Debentures. The debentures are recorded net of unamortized
underwriting discounts, expenses associated with the offering and warrants
totaling $11,000 which are amortized using the interest method to interest
expense over the term of the debentures. Approximately $2,000 of capitalized
issuance costs have been amortized to interest expense for the three months
ended December 31, 1995.
SERIES B DEBENTURES
As of December 31, 1995 the Company had outstanding $3,306,000 principal
amount of Series B Debentures due 2000. The Series B Debentures are recorded net
of unamortized underwriting discounts and expenses associated with the offering
totaling $337,000, which are amortized using the interest method to interest
expense over the term of the debentures. Approximately $17,000 of capitalized
issuance costs had been amortized as interest expense for the three months ended
December 31, 1995.
8% DEBENTURES
As of December 31, 1995, the Company had outstanding $10,987,000 principal
amount of 8% Debentures. The debentures are recorded net of unamortized
underwriting discounts and expenses associated with the offering totaling
$988,000 which are amortized using the interest method to interest expense over
the term of the debentures. Approximately $70,000 of capitalized issuance costs
had been amortized as interest expense for the three months ended December 31,
1995.
9
<PAGE>
THE KUSHNER-LOCKE COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
9% DEBENTURES
As of December 31, 1995, the Company had outstanding $5,050,000 principal
amount of 9% Debentures. The debentures are recorded net of unamortized
underwriting discounts and expenses associated with the offering totaling
$472,000, which are amortized using the interest method to interest expense over
the term of the debentures. Approximately $18,000 of capitalized issuance costs
had been amortized as interest expense for the three months ended December 31,
1995.
(5) INCOME TAXES
Income taxes for the three month periods ended December 31, 1995 and 1994
were computed using the effective income tax rate estimated to be applicable for
the full fiscal year, which is subject to ongoing review and evaluation by
management. Management believes that all taxable income for the fiscal year will
be offset by a deferred tax asset which will keep the effective federal tax rate
at approximately 0%.
(6) CONTINGENCIES
The Company is involved in certain legal proceedings and claims arising out
of the normal conduct of its business. Reference is made to the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1995 for a
description of certain legal proceedings. Management of the Company believes
that the ultimate resolution of these matters will not have a material adverse
effect upon the Company's results of operations or financial condition.
In its normal course of business as a entertainment distributor, the Company
makes contractual down payments for the acquisition of distribution rights upon
signature of documentation. This initial advance for rights ranges for 10% to
30% of the total purchase price. The balance of the payment is generally due
upon the complete delivery by third party producers of acceptable film or video
materials and proof of rights held and insurance policies that may be required
for the Company to begin exploitation of the product. As of December 31, 1995
the Company had made contractual agreements for an aggregate of approximately
$1,315,000 in payments due should those third party producers complete delivery
to the Company. If such third parties use the Company's distribution agreement
as collateral for a production loan, then the Company may be obligated to make
such payments to financial institutions or others instead of such third party
producers. More than one half of these obligations have originated from the
acquisition personnel in the Company's cable joint venture known as KLC/New
City. These amounts are payable over the next eighteen months.
10
<PAGE>
PART I
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues are currently derived primarily from the production
or the acquisition of distribution rights of films released in the U.S. by
studios, pay cable, basic cable, and videocassette companies; and from the
development, production and distribution of television programming for the major
U.S. television networks, basic and pay cable television and first-run
syndication; as well as from the licensing of all rights to the films and
television programs in international territories. While the Company generally
finances all or a substantial portion of the budgeted production costs of its
programming through domestic and international licensing and other arrangements,
the Company typically retains rights in its programming which may be exploited
in future periods or in additional territories. In April 1993, the Company
established a feature film operation to produce and distribute low and medium
budget films for theatrical and/or home video or cable release. The Company also
produces a limited number of higher-budget theatrical films to the extent the
Company is able to obtain an acceptable domestic studio to release the film
theatrically in the U.S.
The Company's revenues and results of operations are significantly affected
by accounting policies required for the industry and management's estimates of
the ultimate realizable value of its films and programs. Production advances
received prior to delivery or completion of a program are treated as deferred
revenues and are recorded as either production advances or deferred license
fees. Production advances are generally recognized as revenue on the date the
program is delivered or available for delivery. Deferred license fees are
recognized as revenue on the date of availability and/or delivery of the item of
product.
The Company generally capitalizes all costs incurred to produce a film,
including the interest expense funded under production loans. Such costs also
include the actual direct costs of production, certain exploitation costs and
production overhead. Capitalized exploitation or distribution costs include
those costs that clearly benefit future periods such as film prints and
prerelease and early release advertising that is expected to benefit the film in
future markets. These costs, as well as participation and talent residuals, are
amortized each period on an individual film or television program basis in the
ratio that the current period's gross revenues from all sources for the program
bear to management's estimate of anticipated total gross revenues for such film
or program from all sources. In the event management reduces its estimates of
the future gross revenues associated with a particular item of product, which
had been expected to yield greater future proceeds, a significant write-down and
a corresponding decrease in the Company's earnings for the quarter and fiscal
year end in which such write-down is taken could result.
Gross profits for any period are a function in part of the number of
programs delivered in that period and the recognition of costs in that period.
Because initial licensing revenues and related costs generally are recognized
either when the program has been delivered or is available for delivery,
significant fluctuations in revenues and results of operations may occur from
period to period. Thus, a change in the amount of entertainment product
available for delivery from period to period have materially affected a given
period's revenues and results of operations and year-to-year results may not be
comparable. The continuing shift of the Company's product mix during this fiscal
year may further affect the Company's quarter to quarter or year to year results
of operations as new products may be amortized differently as determined by
length of product life cycle and the number of related revenue sources.
11
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
The Company's operating revenues for the first quarter ended December 31,
1995 were $16,107,000, an increase of $10,699,000, or 196%, from $5,438,000 from
the prior fiscal year's first quarter ended December 31, 1994. This increase was
due primarily to the timing of delivery and/or availability of films and
television programs. The Company has shifted its current product mix towards a
greater percentage of feature films due to opportunities available to the
Company.
The Company recognized approximately $6,157,000 of revenues during the first
quarter of fiscal 1996 from the delivery and/or availability of the ABC network
mini-series INNOCENT VICTIMS starring Hal Holbrook and Rick Schroder; and
$3,071,000 from the delivery and/or availability of four feature films: (a)
SERPENT'S LAIR starring Jeff Fahey for WarnerVision, (b) THE GRAVE starring
Gabrielle Anwar, Eric Roberts and Craig Sheffer, and (c) two of the six "Josh
Kirby: Time Warrior" films for Paramount entitled THE HUMAN PETS and PLANET OF
THE DINO KNIGHTS. The majority of remaining revenues for the period came from a
license to a German distributor of rights to distribute the Company's library in
Germany and from continuing licenses of completed product from the Company's
library to domestic cable channel operators and international sub-distributors.
Operating revenues for the first quarter of fiscal 1995 were primarily
attributable to the delivery and/or availability of the theatrical feature film
WES CRAVEN PRESENTS: MINDRIPPER and the television movie for CBS entitled
DANGEROUS INTENTIONS, which together made up $3,650,000 of revenues for the
period.
In various stages of production for the Company's slate of projects
currently scheduled for distribution during the balance of the fiscal year are
(a) the major theatrical feature film THE LEGEND OF PINOCCHIO starring Martin
Landau and Jonathan Taylor Thomas, (b) two animated feature films for Buena
Vista Home Video, a division of The Walt Disney Company, that are sequels to the
successful direct-to-video title THE BRAVE LITTLE TOASTER, (c) the feature film
THREE MEN AND A JOB starring Jeff Fahey and Rae Dawn Chong, (d) a television
movie for CBS called NO EASY ANSWERS starring Judith Light and (e) an
infomercial on the subject of Christian music through the Company's partnership
called TVFirst. Currently in pre-production and scheduled for principal
photography starting in the second quarter are two television movies for CBS
entitled PRINCESS DIANA and EVERY WOMAN'S DREAM, and a pilot for ABC called THE
GUN. In addition, the Company has acquired domestic cable rights for a package
of over 50 films, the majority of which are scheduled to be delivered during
fiscal 1996, for distribution through a joint venture of the Company called
KLC/New City; and acquired the international distribution rights to an
additional 14 films for distribution through Kushner-Locke International, Inc.
Since December 31, 1995, the projects recently completed and available for
delivery, or actually delivered to the Company include (a) the feature film
FREEWAY executive produced by Oliver Stone and starring Kiefer Sutherland, Reese
Witherspoon and Brooke Shields, (b) the feature film WHOLE WIDE WORLD starring
Vincent D'Onofrio and (c) an infomercial on the subject of romantic
relationships through the Company's partnership called TVFirst. During the first
quarter of 1996, approximately $12,010,000 was expended for new projects. Film
costs in process or development at December 31, 1995 increased to $40,280,000
from $7,606,000 at December 31, 1994.
Costs relating to operating revenues were $13,313,000 during the first
quarter of fiscal 1996 as compared to $4,297,000 during the first quarter of
fiscal 1995. As a percentage of operating revenues, costs relating to operating
revenues were approximately 83% for the first quarter of fiscal 1996 compared to
approximately 79% for the first quarter of fiscal 1995. The increased costs in
the most recent period reflect a weighting of the product mix toward titles
which, in general, are amortized more rapidly than titles determined to have a
longer product life cycle and a greater number of related revenue sources.
Selling, general and administrative expenses decreased to $896,000 in the
first quarter of fiscal 1996 from $993,000 in the first quarter of fiscal 1995.
The decrease resulted from additional capitalization of overhead in connection
with increased production and distribution levels. This higher level
12
<PAGE>
of operating activity has been provided by the Company's increased staffing and
personnel, primarily in the feature film and international distribution
divisions, and the Company's funding of overhead and development costs
associated with joint ventures or partnerships related to interactive/multimedia
applications, cable distribution and infomercial production.
Overhead for the first quarter of fiscal 1996 did not include the 8%
aggregate pre-tax profit performance bonus (in the maximum amount of $200,000
each per year) accruing to Messrs. Locke and Kushner under their employment
agreements as amended in March 1994. Subject to approval by the Board of
Directors, Messrs. Locke and Kushner have agreed to waive their pre-tax profit
performance bonus in the event the Company's annual net income in fiscal 1996 is
less than $1,000,000 and will receive such bonuses through an increased pre-tax
profit percentage if the Company's net income for fiscal 1996 exceeds
$1,000,000; but in no event shall they be entitled to receive a higher
performance bonus than they would have received under the original employment
agreements.
Interest expense for the first quarter ended December 31, 1995 was $929,000
as compared to $759,000 for the first quarter ended December 31, 1994. The
increase was due to higher average borrowings under the Company's line of credit
primarily associated with increased production and acquisition financing of
non-network movies. Total indebtedness for borrowed money increased to
$30,807,000 at December 31, 1995 from $9,163,000 at December 31, 1994
The Company's estimated effective income tax expense was approximately 1%
for the first quarter ended December 31, 1995 compared to an estimated effective
income tax expense of approximately 0% for the year ended December 31, 1994. The
$11,000 tax expense in first quarter of fiscal 1996 consisted of state taxes
related to the number of active subsidiary companies.
The Company reported earnings of $1,012,000, or $.03 per share, for the
first quarter ended December 31, 1995 as compared to a net loss of $(545,000),
or $(.02) per share, for the first quarter ended December 31, 1994. Weighted
number of common shares for the compared first quarters were 35,589,000 in 1996
and 30,942,000 for 1995. The earnings in first quarter of fiscal 1996 resulted
primarily from the Company completing a portion of its film and television
projects in process and recognition of revenues on existing contracts receivable
("presales") made to third parties licensing the rights to distribute those
projects in certain media and territories. The losses in the first quarter of
fiscal 1994 resulted primarily from the delivery and or availability of fewer
titles and certain expenses related to the expansion of the Company's feature
film and international distribution divisions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $3,664,000 (including $1,959,000 of
restricted cash being used as collateral for certain production loans) at
December 31, 1995 from $4,301,000 (including $1,162,000 of restricted cash) at
September 30, 1995 primarily from utilization of working capital in the
development, production, acquisition and distribution of feature films and, to a
lesser extent, television programs; and expansion of the Company's business
lines into related ancillary markets for its product. At December 31, 1995, the
Company had net negative liquid assets of approximately $(18,372,000) consisting
of cash and cash equivalents, accounts receivable and amounts due from
affiliates less accounts payable and accrued liabilities, short-term production
loans and the $15,000,000 current portion of the Company's existing line of
credit which was then due to mature on January 31, 1996. The Company's line of
credit subsequently was extended to December 31, 1996.
The Company's production and distribution operations are capital intensive.
The Company has funded its working capital requirements through receipt of third
party domestic license payments and international licensing, as well as other
operating revenues, and proceeds from debt and equity financing, and has relied
upon its line of credit and transactional production loans to provide bridge
production financing prior to receipt of license fees. The Company funds
production and acquisition costs out of its working capital, including the line
of credit, and through certain pre-sale of rights in
13
<PAGE>
international markets. In addition, the expansion of the Company's international
distribution business and the establishment of a new feature film division have
significantly increased the Company's working capital requirements and use of
related production loans.
The Company experienced net negative cash flows from operating activities
(resulting from the Company's significant expansion of production) of
$(3,846,000) during the three months ended December 31, 1995, which was
partially offset by net cash of $2,476,000 provided by financing activities from
production loans and greater usage of the Company's revolving line of credit. As
a result primarily of the foregoing factors, net unrestricted cash decreased
during the three month period by $1,434,000 to $1,705,000 on December 31, 1995.
As the Company expands production and distribution activities and increases its
debt service burdens, it will continue to experience net negative cash flows
from operating activities, pending receipt of licensing revenues, other revenues
and sales from its library.
CREDIT FACILITY
The Company's current line of credit with Imperial Bank provides for
borrowings up to $15,000,000 based on specified percentages of eligible domestic
and international accounts and contracts receivable and net film costs balances
through December 31, 1996. The line of credit is secured by substantially all of
the Company's assets and bears interest at an annual rate of prime (8.25% as of
February 1, 1996) plus 1.25%. The Company is required to pay a commitment fee of
.5% per annum of the unused portion of the credit line. As of December 31, 1995,
the Company had drawn down $15,000,000 under this facility and had no further
availability.
The Imperial credit agreement, as amended and restated in August 1993, had
an original maturity date of June 2, 1995. The original maturity date was
extended in March 1995 to September 30, 1995, then subsequently extended in
September 1995 to December 29, 1995 and further extended in December 1995 to
January 31, 1996. On January 12, 1996, Imperial Bank provided to the Company its
commitment to extend the existing credit line through December 31, 1996 and the
Company paid a loan fee to the bank in connection with such commitment and
agreed to issue warrants to purchase 500,000 shares of common stock to the bank
at an exercise price no less than fair market value. The related amendment to
the existing credit agreement became effective on January 31, 1996 upon payment
of the balance of the loan fee. The third amendment to the Credit Agreement
eliminated existing financial covenants as of September 30, 1995 and substituted
revised quarterly net worth and net income requirements and set a minimum
liquidity level.
The outstanding credit agreement contains various covenants in addition to
those mentioned above to which the Company must adhere. These covenants, among
other things, include limitations on additional indebtedness, liens,
investments, disposition of assets, guarantees, deficit financing, affiliate
transactions and the use of proceeds and prohibit payment of dividends and
prepayment of subordinated debt. The outstanding credit agreement also contains
a provision permitting the bank to declare an event of default if the services
of either of Messrs. Locke or Kushner are not available to the Company unless a
replacement acceptable to the bank is named.
The Company has commenced discussions with Imperial Bank concerning
arranging or participating in a multi-year increased syndicated credit facility
to amend or replace the existing facility by May 31, 1996 in which it is
expected that Imperial Bank would continue to participate in a decreased amount.
If such facility is not in place by such time, as required by the amendment to
the facility, the existing line of credit will be reduced in size from
$15,000,000 to $12,500,000 during the period from May 31, 1996 to October 31,
1996 and will mature December 31, 1996.
SECURITIES OFFERINGS
From December 1990 through April 1991, the Company sold an aggregate of
$5,700,000 principal amount of Series A Debentures and an aggregate of
$6,000,000 principal amount of Series B Debentures. In connection with the
issuance of certain of the Series A Debentures, the Company issued warrants to
purchase an aggregate of 2,100,000 shares of Common Stock at an exercise price
of $2.00
14
<PAGE>
per share. In November 1995, the Company elected to extend the expiration date
of such warrants from March 20, 1996 to March 20, 1997. As of September 30,
1995, approximately $97,000 principal amount of Series A Debentures and
$3,326,000 of Series B Debentures were outstanding. The Series A Debentures are
convertible into shares of Common Stock at the rate of approximately $1.27 per
share and the Series B Debentures into shares of Common Stock at the rate of
approximately $1.54 per share. The reduction in Series A and Series B Debentures
has resulted primarily from conversions to Common Stock. The Company currently
has the right to redeem the Series A Debentures at redemption prices at 103% of
par after September 30, 1995 and declining to par after September 30, 1997. The
indentures under which the Company's outstanding debentures described above were
issued contain various covenants to which the Company must adhere. These
covenants, among other things, also impose certain limitations on additional
indebtedness and dividend payments by the Company.
In November 1992, the Company completed an offering of 8,050,000 shares of
its common stock for which the Company received net proceeds of approximately
$6,640,000.
During March and April 1994, the Company sold $16,437,000 principal amount
of 8% Convertible Subordinated Debentures due 2000. In connection with the
issuance of the 8% Debentures, the Company issued warrants to purchase up to 10%
of the aggregate principal amount of Debentures sold at an exercise price equal
to 120% of the principal amount of the Debentures. The 8% Debentures are
convertible into shares of common stock at the rate of $.975 per share, subject
to customary anti-dilutive provisions and provisions in the event of certain
payment defaults. The Company will have the right to redeem the 8% Debentures at
redemption prices commencing at 102.7% of par on or after February 1, 1998 and
declining to par on or after February 1, 2000. The Debentures are subordinated
in right of payment to all Senior Indebtedness (as defined) of the Company and
rank pari passu with the Company's Series A and Series B Debentures. The fiscal
agency agreement, under which the Company's 8% Debentures were issued, contains
various covenants to which the Company must adhere.
During July 1994, the Company sold $5,050,000 principal amount of 9%
Convertible Subordinated Debentures due 2002. In connection with the issuance of
the 9% Debentures, the Company issued warrants to purchase up to 9% of the
aggregate principal amount of Debentures sold at an exercise price equal to 120%
of the principal amount of the Debentures. The 9% Debentures are convertible
into shares of common stock at the rate of $1.58 per share, subject to customary
anti-dilutive provisions and provisions in the event of certain payment
defaults. The Company has the right to redeem the 9% Debentures at redemption
prices commencing at 103% of par on or after July 1, 1998 and declining to par
on or after July 1, 2000. The Debentures are subordinated in right of payment to
all Senior Indebtedness (as defined) of the Company and rank pari passu with the
Company's Series A, Series B and 8% Debentures. The fiscal agency agreement,
under which the Company's 9% Debentures were issued, contains various covenants
to which the Company must adhere.
In September 1994, the Company filed a registration statement covering an
aggregate of 21,388,064 shares of common stock comprising the shares of common
stock issuable upon conversion of the 8% Convertible Subordinated Debentures and
the 9% Convertible Subordinated Debentures and certain warrants issued to
underwriters. Since the end of the fiscal year, primarily as a result of the
conversion of the 8% and 9% Debentures, the number of outstanding shares of
common stock has increased from 30,069,101 to 35,679,607 as of December 31,
1995.
PRODUCTION/DISTRIBUTION LOANS
The Company's other short term borrowings, totaling $15,807,019 as of
December 31, 1995, consist of production loans from Newmarket Capital Group L.P.
("Newmarket"), Banque Paribas (Los Angeles Agency) ("Paribas") and Imperial Bank
("Imperial") to consolidated production entities. The Kushner-Locke Company
provides limited corporate guarantees for a portion of the Newmarket and Paribas
loans which are callable in the event that the production companies' loan
amounts (including a reserve for fees, interest and financing costs) are not
adequately collateralized with acceptable
15
<PAGE>
contracts receivable from third party domestic and/or foreign sub-distributors
by certain dates or by the maturity date of the loan. Deposits on the purchase
price paid by these sub-distributors are held as restricted cash collateral by
the Lenders.
The table below shows production loans as of December 31, 1995. Corporate
guarantees have been reduced as of December 22, 1995 due to the Company reaching
certain sales milestones as allowed under the Newmarket loans. Three of the
production loans were scheduled to mature before April 1996. The Company
requested, and Newmarket agreed, to extend the maturity dates by approximately
90 days on the production loans for SERPENT'S LAIR, THE GRAVE and WHOLE WIDE
WORLD for customary delays in the process of delivering and collecting cash from
foreign territories.
<TABLE>
<CAPTION>
AMOUNTS WEIGHTED
FILM LENDER LOAN AMOUNT OUTSTANDING INTEREST GUARANTY MATURITY
- --------------------------- -------------- -------------- -------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
THE LEGEND OF PINOCCHIO.... Newmarket $ 12,500,000 $ 9,218,623 8.75% $2,175,000 9-30-96
SERPENT'S LAIR............. Newmarket $ 1,005,000 $ 763,100 9.25% $ 345,000 6-30-96
THE GRAVE.................. Newmarket $ 2,100,000 $ 1,554,684 10.25% $ 300,000 6-30-96
WHOLE WIDE WORLD........... Newmarket $ 1,550,000 $ 1,052,627 8.00% $ 500,000 6-30-96
FREEWAY.................... Paribas $ 1,983,333 $ 1,737,704 7.00% $ 961,667 7-5-96
TIME WARRIORS.............. Imperial $ 1,950,000 $ 1,480,281 9.60% *$1,480,281 2-28-96
-------------- -------------- --------------
$ 21,088,333 $ 15,807,019 $5,761,948
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
* The TIME WARRIORS loan was reduced to $606,607 as of February 1, 1996.
In October 1994, The Kushner-Locke Company obtained a production loan in the
amount of $1,950,000 from Imperial Bank to cover a portion of the budget of the
JOSH KIRBY: TIME WARRIORS series. The Imperial loan bears interest at Prime
(8.25% as of February 1, 1996) plus 3% payable monthly plus loan fees of $97,500
plus a net profit participation. The loan is secured solely by the rights, title
and assets related to the film series which has been completely and is in the
process of being delivered to domestic and international sub-distributors.
Collection of cash from sales has been reducing the loan balance. At December
31, 1995, the outstanding loan balance was $1,480,281 under the TIME WARRIOR
production loan. The loan matures on February 28, 1996 but was partially prepaid
in January 1996. The remaining principal balance as of February 1, 1996 was
approximately $606,607.
The Company entered into a long form agreement dated as of February 6, 1995
with Savoy Pictures, Inc. ("Savoy") relating to the development, production,
financing and distribution of a live-action feature-length theatrical motion
picture currently titled THE LEGEND OF PINOCCHIO. The film commenced principal
photography in July 1995. The film will be distributed in foreign territories by
the Company. The film will be distributed domestically by New Line Pictures (a
subsidiary of Turner Entertainment Co.) which has acquired the domestic and 50%
of certain ancillary rights from Savoy. Pursuant to the February 6, 1995 letter
agreement, the Company licensed those domestic and ancillary rights to Savoy in
exchange for Savoy funding 50% of the budget to the production entity up to
$25,000,000 (which budget has been subsequently increased to approximately
$28,450,000 of which the majority of such increase has been financed by Savoy in
exchange for certain profit participations). In order to fund the Company's up
to $12,850,000 share of the budgeted negative costs, the Company has assisted
the film's production company, a consolidated entity, in obtaining loan
documentation from Newmarket which agreed to provide for financing in the amount
of 50% of the film's original budget up to $12,500,000, a portion of which is
reserved to pay the lender's financing fees and costs. The loan bears interest
at LIBOR plus 2% and fees were determined on a sliding scale related to the
amount of acceptable contracts receivable at the time of initial funding. As of
December 31, 1995 $2,175,000 of the obligations of the production company to
Newmarket under the loan facility, other than the portion of the loan covered by
more than $13,000,000 of foreign pre-sales, was guaranteed by The Kushner-Locke
Company.
16
<PAGE>
There is no assurance that THE LEGEND OF PINOCCHIO, which represents the
Company's biggest budget theatrical motion picture to date, will be successful.
The Company has obtained completion bond insurance to guaranty that the film
will be completed and delivered to the technical specifications of Savoy (as
assigned to New Line Pictures) and international sub-distributors. New Line
Pictures has agreed to accept the technical specifications ordered by Savoy as
its delivery requirements. The Company's ability to complete this project is
materially dependent upon both funding by Savoy (against domestic distribution
rights it licensed) and by Newmarket (against the Company's foreign pre-sales
and remaining foreign rights).
In May and June 1995 the Company, in its role as world wide distributor,
agreed to guaranty a portion of two production loans to film producers, which
are consolidated entities, from Newmarket with respect to the feature films
SERPENT'S LAIR and THE GRAVE. The loans of $1,005,000 and $2,100,000 each bear
interest at an annual rate of Prime (8.25% as of February 1, 1996) plus 1% on
the first $500,000 advanced under the loan, then pricing options are at either
(a) Prime plus 1% or (b) LIBOR plus 3% on the remaining loan balance through
February 1, 1996 when the loans have a pricing increase to Prime + 3% through
the maturity date of such loans, plus loan fees of $60,000 per loan, plus a net
profit participation. The loans are secured by the rights, title and assets of
the production companies related to those films. The loans mature on June 30,
1996. The Kushner-Locke Company's corporate guaranty is reducible by
substitution of contracts receivable from sub-distributors licensing rights to
these films in certain media and territories. Milestone dates for aggregate
acceptable contracts receivable were set by Newmarket within the loan
documentation. In September and December 1995, Newmarket granted waivers to the
borrower for not reaching these milestones and amended its Loan and Security
Agreements accordingly. At December 31, 1995, the outstanding balance on The
Kushner-Locke Company's corporate guaranty of principal and interest for
SERPENT'S LAIR was reduced to $345,000 and for THE GRAVE was reduced to $300,000
as a result of reaching certain acceptable sales levels.
In August 1995 the Company, in its role as world wide distributor, agreed to
guaranty a portion of two other production loans to film producers, which are
consolidated entities, provided by Newmarket and Banque Paribas, Los Angeles
Agency ("Paribas") with respect to the films WHOLE WIDE WORLD and FREEWAY. The
$1,550,000 loan from Newmarket for WHOLE WIDE WORLD bears interest at rate of
Prime (8.25% as of February 1, 1996) plus 1% on the first $500,000 advanced
under the loan, then pricing options are at either (a) Prime plus 1% or (b)
LIBOR plus 3% on the remaining loan balance through February 1, 1996 when the
loan has a pricing increase to Prime + 3% through the maturity date of June 30,
1996, plus loan fees of $60,000, plus a net profit participation. The
Kushner-Locke Company's corporate guaranty is reducible by the substitution of
acceptable contracts receivable. Milestone dates for aggregate acceptable
contracts receivable were set by Newmarket within the loan documentation. In
September and December 1995, Newmarket granted waivers to the Borrower for not
reaching these milestones and amended its Loan and Security Agreement
accordingly. As of December 31, 1995 The Kushner-Locke Company's outstanding
corporate guaranty of principal for WHOLE WIDE WORLD was $500,000 and Newmarket
required that the loan be repaid by $500,000 of principal. The Paribas loan for
$1,983,333 for FREEWAY bears interest at either (a) Reference Rate (8.25% as of
February 1, 1996) plus 1/2% or (b) LIBOR + 2% until the maturity date of July 5,
1996. In this case, there are no milestone dates for aggregate contracts
receivable and The Kushner-Locke Company's corporate guaranty of $961,667 is not
reducible during the life of the loan. The amount of the difference between the
cash collected and $961,667 is collectable at the maturity date by Paribas from
The Kushner-Locke Company.
In December 1994, the Company advanced August Entertainment, Inc. ("August")
$650,000 against distribution rights to third party product. August is majority
owned by Gregory Cascante, who joined the Company as head of its new
international film distribution division. The agreement is secured by all assets
of August, including a pledge of all sales commissions due to August from the
producers thereof on the films SLEEP WITH ME, LAWNMOWER MAN II and NOSTRADAMUS.
While the right of August to receive such commissions with respect to the film
LAWNMOWER MAN II is subordinate to
17
<PAGE>
the interests of the production lenders, The Allied Entertainments Group PLC,
and its subsidiaries which produced the film, has guaranteed payment of such
commissions to the extent they would be payable had there been no production
loan on that film. The loan bears interest at the lesser of (a) Prime (8.25% at
February 1, 1996) plus 2% or (b) 10%. Repayment of principal and interest is by
collection of commissions assigned as collateral. As of December 31, 1995 the
Company had been repaid approximately $170,000 toward interest and principal.
The loan matures in December 1996.
SUMMARY
While the Company believes that it will obtain a multi-year increased
syndicated credit facility by May 31, 1996, there is no assurance that the
Company will obtain such credit accommodation. If the Company is unable to
obtain such increased credit facility, the Company will seek alternative
financing. However, there is no guarantee that alternative financing will be
available on acceptable terms. If such increased credit facility and/or
alternative financing is not available, Management believes that existing
resources and cash generated from operating activities, after a reduction of the
level of Company's investment in film costs, will be adequate to comply with the
terms of the extension of the Imperial credit facility through December 1996. To
the extent that existing resources and a reduction in the level of Company's
investment in film costs are not adequate, Management has the ability and intent
to reduce operating expenses. In the event that the Company is unable to comply
with the terms of such extension or obtain an additional extension or
alternative financing after the current maturity date of December 31, 1996, the
Company would seek to restructure its obligations under the facility. This would
have a significant effect on the Company's operations.
The Company's business and operations have not been materially affected by
inflation.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibits filed as part of this report are listed on the "Index
to Exhibits" which follows the signature page hereto.
(b) Reports on Form 8-K: None.
19
<PAGE>
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
(Registrant)
Dated: February 12, 1996 /s/ PETER LOCKE
--------------------------------------
Peter Locke
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Dated: February 12, 1996 /s/ DONALD KUSHNER
--------------------------------------
Donald Kushner
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND
SECRETARY
Dated: February 12, 1996 /s/ LENORE NELSON
--------------------------------------
Lenore Nelson
CHIEF FINANCIAL OFFICER,
EXECUTIVE VICE PRESIDENT AND
ASSISTANT SECRETARY
20
<PAGE>
INDEX TO EXHIBITS
EXHIBITS:
<TABLE>
<C> <S> <C>
10.44 Amendment to the 1988 Stock Incentive Plan dated May 17, 1994
10.45 Amendment No. 3 dated December 31, 1995 between The Kushner-Locke Company and
Imperial Bank for the Third Amended and Restated Credit Agreement dated as
of February 9, 1990, as amended and restated as of December 14, 1990, as of
May 1, 1992 and as of August 31, 1993
10.46 First Amendment to Credit Documents dated December 22, 1995 between Allied
Pinocchio Productions, Limited, Newmarket Capital Group L.P., Bank of
America National Trust and Savings Association, The Kushner-Locke Company
and Kushner-Locke International, Inc. (THE LEGEND OF PINOCCHIO)
10.47 Third Amendment to Credit Documents dated December 22, 1995 between Dayton
Way Pictures II, Inc., Newmarket Capital Group L.P. and Kushner-Locke
International, Inc., a division of The Kushner-Locke Company (SERPENTS LAIR)
10.48 Second Amendment to Credit Documents dated December 22, 1995 between Dayton
Way Pictures, Inc., Newmarket Capital Group L.P. and Kushner-Locke
International, Inc., a division of The Kushner-Locke Company. (THE GRAVE)
10.49 Second Amendment to Credit Documents dated December 22, 1995 between Dayton
Way Pictures IV, Inc. and Newmarket Capital Group L.P. (WHOLE WIDE WORLD)
10.50 Cross Collateralization Agreement dated as of July 7, 1995 between The
Kushner-Locke Company, Allied Pinocchio Productions Ltd., Dayton Way
Pictures, Inc., Dayton Way Pictures II, Inc., Dayton Way Pictures IV, Inc.
and Newmarket Capital Group, L.P.
10.51 First Amendment to Cross Collateralization Agreement dated January 10, 1996
between The Kushner-Locke Company, Allied Pinocchio Productions Ltd., Dayton
Way Pictures, Inc., Dayton Way Pictures II, Inc., Dayton Way Pictures IV,
Inc. and Newmarket Capital Group, L.P.
</TABLE>
21
<PAGE>
(EXHIBIT 10.44)
THE KUSHNER-LOCKE COMPANY
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
_______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 1994
_______________
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of The
Kushner-Locke Company (the "Company") will be held at The Loews Santa Monica
Beach Hotel, 1700 Ocean Avenue, Santa Monica, California on May 17, 1994, at
2:00 p.m. local time, to consider and vote upon the following:
(i) The election of Directors;
(ii) To approve the appointment of KPMG Peat Marwick as the Company's
independent accountants for the fiscal year ending September 30, 1994;
(iii) To amend the Company's Amended Articles of Incorporation to increase the
number of authorized shares of Common Stock of the Company from the
present amount of 50,000,000 shares to 80,000,000 shares;
(iv) To amend the Company's 1988 Stock Incentive Plan (the "Plan") to (a)
increase the number of shares of Common Stock of the Company authorized
under the Plan from 1,500,000 shares to 4,500,000 shares and (b) to
extend the term of the Plan from October 15, 1998 to May 15, 2004;
(v) To ratify the Option Committee's grant of options under the Plan to
purchase 900,000 shares of Common Stock to each of Donald Kushner and
Peter Locke; and
(vi) Such other business as may properly come before the meeting or any
adjournment(s) thereof.
Information concerning these matters, including the names of the nominees for
the Company's Board of Directors, is set forth in the attached Proxy Statement,
which is a part of this Notice.
The Board of Directors of the Company has fixed April 4, 1994 as the record
date for the determination of the shareholders entitled to notice of, and to
vote at the Annual Meeting. Accordingly, only those shareholders of record at
the close of business on that date are entitled to vote at the Annual Meeting or
any adjournment(s) thereof.
The Company's Board of Directors urges that all shareholders of record
exercise their right to vote at the meeting personally or by proxy.
Your proxy will continue in full force and effect unless and until you revoke
such proxy prior to the vote such proxy pertains to. You may revoke your proxy
by a writing delivered to the Company stating that the proxy is revoked or by a
subsequent proxy executed by you, or by attending the meeting and voting in
person. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed.
By Order of the Board of Directors
[SIGNATURE OF DONALD KUSHNER]
Donald Kushner
CO-CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER,
CHIEF FINANCIAL OFFICER AND SECRETARY
April 21, 1994
Los Angeles, California
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE, SIGN
(DO NOT PRINT) YOUR NAME AND DATE THE ENCLOSED PROXY CARD(S) AS PROMPTLY AS
POSSIBLE AND RETURN IT (THEM) IN THE ENCLOSED PRE-ADDRESSED ENVELOPE. IF YOU
RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT
NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND
RETURNED.
<PAGE>
EXHIBIT B
PROPOSED AMENDMENTS TO THE 1988 STOCK INCENTIVE PLAN
OF THE KUSHNER-LOCKE COMPANY
SECTION 2.4 of the Company's 1988 Stock Incentive Plan is amended to read as
follows:
The stock to be offered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock. The aggregate amount of Common Stock that
may be issued or transferred pursuant to Awards granted under this Plan shall
not exceed 4,500,000 shares, subject to adjustment as set forth in Section 7.2.
If any Option and any related Stock Appreciation Right shall lapse or terminate
without having been exercised in full, or any Common Stock subject to a
Restricted Stock Award shall not vest or any Common Stock subject to a
Performance Share Award shall not have transferred, the unpurchased shares
subject thereto shall again be available for purposes of this Plan.
SECTION 3.1 of the Company's 1988 Stock Incentive Plan is amended to read as
follows:
(a) One or more Options may be granted to any Eligible Person. Each Option
so granted shall be designated by the Committee as either a Nonqualified Stock
Option or an Incentive Stock Option.
(b) Nonqualified Stock Options shall be granted to each of Donald Kushner
and Peter Locke to purchase 900,000 of Common Stock. The duration of each such
Option shall be for a period of ten years from the date of grant. No such
Option may be exercised until the first anniversary of the date of grant. Such
Options shall be granted as of March 7, 1994 and will vest over a five-year
period with 20% of the shares of Common Stock subject to the Option vesting on
the first anniversary of the date of grant and an additional 20% of the shares
of Common Stock subject to the Option may be purchased on the second, third,
fourth and fifth anniversaries of the date of grant. The purchase price for the
shares of Common Stock to be purchased pursuant to the exercise of any Option
granted under this Section 3.1(b) shall be paid in cash or bank cashier's check
at an exercise price equal to the fair market value at the date of grant.
Notwithstanding any provision of this Plan to the contrary, the provisions of
this Section 3.1(b) may not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations promulgated
thereunder.
SECTION 7.10 of the Company's 1988 Stock Incentive Plan is amended to read as
follows:
Unless previously terminated by the Board, this Plan shall terminate at the
close of business on May 15, 2004, and no Awards shall be granted under it
thereafter, but such termination shall not affect any Award theretofore granted.
<PAGE>
(EXHIBIT 10.45)
AMENDMENT NO. 3 (the "Amendment") dated as of
December 31, 1995 to the Third Amended and Restated Credit
Agreement, dated as of February 9, 1990, as amended and
restated as of December 14, 1990, as of May 1, 1992 and as
of August 31, 1993, (as heretofore amended, the "Credit
Agreement"), among THE KUSHNER-LOCKE COMPANY, a California
corporation (the "Company"), the other Individual Borrowers
referred to therein (collectively with the Company,
"Borrower"), the Lenders referred to therein (the "Lenders")
and IMPERIAL BANK, a California banking corporation as Agent
(the "Agent").
INTRODUCTORY STATEMENT
All capitalized terms not otherwise defined in this Amendment are as
defined in the Credit Agreement.
The Company has requested that certain provisions of the Credit
Agreement be amended and waived as hereinafter set forth.
Accordingly, the parties hereby agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT.
Subject to the conditions set forth in Section 4, the Credit Agreement
is hereby amended as follows:
(A) The definition of "Borrowing Base Availability" appearing in
Article 1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"'BORROWING BASE AVAILABILITY' shall mean, at any date of
determination, the LESSER of: (i) an amount equal to the sum of (a)
the lesser of the Tier 1 Borrowing Base or $15,000,000; PLUS (b) the
lesser of the Tier 2 Borrowing Base or $4,000,000; PLUS (c) the least
of the Tier 3 Borrowing Base, $6,000,000 or 40% of the Borrowing Base;
PLUS (d) the lesser of the Tier 4 Borrowing Base or $2,500,000, or
(ii) the Commitment then in effect, MINUS, in both cases, the sum of
(A) the aggregate then outstanding principal amount of all Advances
and Letter of Credit Usage under the Credit Facility, and
(B) aggregate amount of any then imposed Third Party Financing
Reserve."
(B) Clause (xiv) of the definition of "Ineligible Receivable(s)"
appearing in Article 1 of the Credit Agreement is hereby amended by adding the
following proviso at the end thereof:
<PAGE>
", provided, however, that aggregate receivables owing from TaurusFilm
GmbH & Company included in the Borrowing Base may exceed 15% of the
Borrowing Base but may not exceed $3,000,000."
(C) The following definition is hereby added to Article 1 of the
Credit Agreement in the correct alphabetical sequence"
" 'NET INCOME' shall mean, for any period for which such amount is
being determined, the net income of the Borrower for such period in
accordance with GAAP."
(D) The definition of "Maturity Date" appearing in Article l of the
Credit Agreement is amended in its entirety to read as follows:
"'Maturity Date' shall mean December 31, 1996."
(E) Section 2.2.2 of the Credit Agreement is hereby amended by
changing the date appearing therein to December 31, 1996.
(F) The following clause (c) is hereby added at the end of Section
2.12.2 of the Credit Agreement:
"(c) The Commitment shall automatically be reduced to the amount
set forth in column (y) below as of the date set forth in column (x)
below:
Column (x) Column (y)
---------- ----------
May 31, 1996 $14,583,000
June 28, 1996 14,166,000
July 31, 1996 13,749,000
August 30, 1996 13,332,000
September 30, 1996 12,915,000
October 31, 1996 12,500,000
December 31, 1996 0
(G) Section 5.4 of the Credit Agreement is hereby amended as follows:
(i) to amend the heading of such Section in its entirety to read as follows:
"Borrowing Base Certificates and Liquidity Certificates"; (ii) to insert "(a)"
at the beginning of the existing text of such Section, immediately preceding the
word "Concurrently"; and (iii) to add the following paragraph at the end
thereof:
"(b) On a monthly basis no later than the last day of each
calendar month, Borrower shall deliver to the Agent a liquidity
certificate (in a form mutually agreed upon by Borrower and the Agent
and certified as true and correct by the Chief Financial Officer of
KLC)
- 2 -
<PAGE>
demonstrating in reasonable detail compliance with the provisions of
Section 5.8 hereof as of the last day of the applicable calendar
month, provided, however, that in demonstrating such compliance,
additional availability under the Facility shall be determined using
the Borrowing Base set forth in the Borrowing Base Certificate most
recently delivered to the Agent. Failure by Borrower to fully comply
with the foregoing within ten (10) days of the last day of each
calendar month shall constitute an Event of Default hereunder, and,
without limiting the Agent's, the Issuing Bank's or the Lenders'
rights and remedies, shall entitle the Agent, the Issuing Bank or the
Lenders, as the case may be, without notice, to thereafter refrain
from making any Advances or issuing any Letters of Credit hereunder
until such liquidity certificate has been delivered to the Agent."
(H) Sections 5.7, 5.8, 5.9, 5.10 and 5.11 appearing in Article 5 of
the Credit Agreement are hereby amended by deleting them in their entirety and
replacing them with the following:
"5.7. MINIMUM CONSOLIDATED CAPITAL BASE.
Borrower's Consolidated Capital Base shall not be less than
$36,000,000 during the period from 12/31/95 through 3/30/96;
$37,000,000 during the period from 3/31/96 through 6/29/96;
$39,650,000 during the period from 6/30/96 through 9/29/96;
$40,900,000 during the period from 9/30/96 through 12/30/96 and
$43,400,000 thereafter. For purposes hereof, Consolidated Capital
Base shall mean Tangible Net Worth plus Subordinated Debt. In the
event any item of Product with a budget in excess of $1,500,000 has
not been released or aired within 12 months of its completion,
Tangible Net Worth shall be reduced by the book value of such item of
Product. In addition, to the extent that Subordinated Debt increases
at any time due solely to accreted interest, the amount of such
accreted interest shall also be deducted for purposes of this
calculation.
5.8. LIQUIDITY.
Borrower shall maintain a minimum total amount of cash, cash
equivalents and Borrowing Base Availability of not less than
$2,000,000 at all times. For purposes of this Section 5.8 only, if
the Borrower shall have cash and cash equivalents which total
$1,000,000 or more, then Borrowing Base Availability shall be
determined using only clause (i) of the definition of Borrowing Base
Availability and disregarding clause (ii) of such definition.
- 3 -
<PAGE>
5.9. MINIMUM NET INCOME.
Borrower shall not permit Net Income for the period ended on the
dates listed below in column (x) to be less than the amount listed
opposite such period in column (y) below:
Column (x) Column (y)
---------- ----------
12/31/95 $1,000,000
3/31/96 750,000
6/30/96 2,650,000
9/30/96 1,250,000
12/31/96 2,400,000
5.10 [Intentionally omitted]
5.11 [Intentionally omitted]"
(I) Article 5 of the Credit Agreement is hereby amended by adding the
following new Section 5.31 thereto:
"5.31. ING NOTICES AND DOCUMENTS.
No later than February 29, 1996, the Borrower shall have taken
all appropriate and necessary action (as determined by the Agent in
its reasonable discretion) in connection with the various notices and
documents previously distributed by Internationale Nederlanden (U.S.)
Capital Corporation ("ING") or the Company relating to a possible
financing transaction between ING and the Borrower."
(J) The second sentence of Section 7.2 of the Credit Agreement is
hereby amended as follows: (i) to add the words "and Section 5.4(b)" after the
words "under Section 5.2" appearing therein; and (ii) to insert "(a)" after the
number 5.4 appearing therein.
(K) Article 7 of the Credit Agreement is hereby amended by adding the
following Sections 7.17, 7.18 and 7.19 at the end thereof:
"7.17. CHAIN OF TITLE REVIEW. On or prior to March 31, 1996,
the Agent shall not have received such copyright search reports and
chain of title material on such titles as the Agent shall have
reasonably requested, which reports and materials shall be
satisfactory to the Agent in its reasonable discretion.
7.18. WARRANT AGREEMENT. On or prior to March 31, 1996, the
Agent shall not have received a Warrant Agreement executed by the
Borrower in form and
- 4 -
<PAGE>
substance reasonably satisfactory to the Agent with respect to 500,000
shares of KLC's common stock at an exercise price no less than the
fair market value of such stock on the date the warrant is granted.
7.19. INDEBTEDNESS OF KLC OR IO INTERNATIONAL LTD. KLC or IO
International Ltd. shall default in the payment when due of any
indebtedness or other obligation owed to Imperial Bank (individually
or as agent) or any other lender in connection with the series "Time
Warrior", including, without limitation, the payment of the unpaid
balance of the backend profit participation and the consideration for
the release by Imperial Bank of its participation in the future
revenue stream thereof."
SECTION 2. WAIVERS. The Lenders hereby waive the Borrowers'
compliance with Sections 5.7, 5.8, 5.9, 5.10 and 5.11 of the Credit Agreement as
of and for the period from 9/30/95 through 12/30/95.
SECTION 3. LOAN FEE. The Borrower hereby agrees to pay to the Agent
a loan fee (the "Loan Fee") equal to 2% of the amount of the Commitment upon the
earlier of (i) February 12, 1996 and (ii) execution of this Amendment. The
Agent acknowledges that it has received fifty percent (50%) of the Loan Fee.
SECTION 4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction in full of the following conditions:
(A) The Agent shall have received executed counterparts of this
Amendment from all the Borrowers and the Lenders;
(B) The Borrower shall have paid to the Agent the unpaid balance of
the Loan Fee referred to in Section 3 of this Amendment in full; and
(C) All legal matters in connection with this Amendment shall be
satisfactory to Morgan Lewis & Bockius LLP, counsel for the Agent.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants that:
(A) The representations and warranties contained in the Credit
Agreement are true and correct in all material respects on and as of the date
hereof as if such representations and warranties had been made on and as of the
date hereof except to the extent such representations and warranties expressly
relate to an earlier date; and
- 5 -
<PAGE>
(B) After giving effect to the provisions of this Amendment, no Event
of Default or event which with the passage of time, or the giving of notice or
both would constitute an Event of Default has occurred and is continuing.
SECTION 6. FULL FORCE AND EFFECT. Except as expressly amended or
waived hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof on the date hereof, and the Credit
Agreement as so amended is hereby ratified and confirmed. As used in the Credit
Agreement, the terms "Agreement", "this Agreement" "herein", "hereinafter",
"hereto", "hereof", and words of similar import, shall, unless the context
otherwise requires, mean the Credit Agreement as amended by this Amendment.
SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
SECTION 8. COUNTERPARTS. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one instrument.
SECTION 9. EXPENSES. Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agent and/or the Lenders in connection
with the preparation, execution and delivery of this Amendment, including, but
not limited to, the reasonable fees and disbursements of Morgan Lewis & Bockius
LLP, counsel for the Agent.
SECTION 10. HEADINGS. The headings of this Amendment are for the
purposes of reference only and shall not affect the construction of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first above written.
IMPERIAL BANK
Individually and as Agent
By: /s/ Janice Zeitinger
----------------------------
Name: Janice Zeitinger
Title: Vice President
- 6 -
<PAGE>
BORROWERS:
THE KUSHNER-LOCKE COMPANY
KL INTERNATIONAL, INC.
(formerly known as AKL
Distributing, Inc., AKL
Distribution, Inc. and KL
Distribution, Inc.)
ACME PRODUCTIONS, INC.
(formerly Acme Game Shows, Inc.)
KL PRODUCTIONS, INC.
(formerly AKL Productions, Inc.
and Kushner/Locke Company, Inc.)
KUSHNER-LOCKE PRODUCTIONS, INC.
(formerly Brave Little Co. and
Atlantic/Kushner-Locke
Productions, Inc.)
THE RELATIVES COMPANY
POST AND PRODUCTION SERVICES, INC.
(formerly Post Production
Services, Inc., KW Acquisitions
Corporation and KL Acquisition
Corp.)
L-K ENTERTAINMENT, INC.
FAMILY PICTURES, INC.
INTERNATIONAL COURTROOM
NEWS SERVICE
TROPICAL HEAT, INC.
KL SYNDICATION, INC. (formerly
D.I., Inc.)
ANDRE PRODUCTIONS, INC.
TKLC NO. 2, INC.
TWILIGHT ENTERTAINMENT, INC.
(formerly GENTOX FILMS, INC.)
KLC FILMS, INC.
KL FEATURES, INC. (formerly
KLC, Inc.)
KLF GUILD COMPANY (formerly
KLF Guild Co., Inc.)
KLF DEVELOPMENT CO.
KLTV GUILD CO.
KLTV DEVELOPMENT CO.
KUSHNER-LOCKE INTERNATIONAL, INC.
(formerly KLC Worldwide, Inc.)
KL INTERACTIVE MEDIA, INC.
By: /s/ Donald Kushner
------------------------------
Name:
Title: Authorized Signatory
- 7 -
<PAGE>
(EXHIBIT 10.46)
FIRST AMENDMENT TO
CREDIT DOCUMENTS
This First Amendment to Credit Documents ("Amendment") is made as of
December 22, 1995 by and among Newmarket Capital Group, L.P. ("Newmarket"), Bank
of America National Trust and Savings Association (together with Newmarket, the
"Lenders"), Allied Pinocchio Productions Limited (the "Borrower"), The Kushner-
Locke Company ("KL") and Kushner-Locke International, Inc. ("KLI").
R E C I T A L S
Reference is hereby made to the following documents and agreements in
connection with that certain motion picture presently entitled "THE LEGEND OF
PINOCCHIO" (the "Picture"):
A. Borrower and Lenders entered into that certain Loan Agreement dated as
of July 7, 1995, (the "Loan Agreement") relating to the Picture; and
B. The other Credit Documents, including without limitation, that certain
Note, that certain Security Agreement, that certain Interparty Agreement and
that certain KL Guaranty, as each of such terms is defined in the Loan
Agreement, together with all documents and agreements entered into in connection
with each of the foregoing.
WHEREAS, Borrower and Lenders now wish to amend the Loan Agreement, the
Interparty Agreement and the other Credit Documents and Lenders wish to repay
the KL Investment;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, Borrower and Lenders hereby agree
as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein are
used herein as defined in the Loan Agreement.
2. WAIVER. Lenders agree, upon Borrower's fulfillment of the conditions
precedent set forth on the attached Exhibit A, to waive any Event of Default
which has occurred and is continuing as of the date hereof under Section 8.11 of
the Loan Agreement as a result of Borrower's failure to cash collateralize the
KL Guaranty.
This waiver shall be effective only for the specific Event of Default(s)
specified above, and in no event shall this waiver be deemed to be a waiver of
(a) enforcement of the Lenders' rights with respect to any other Event(s) of
Default now existing or hereafter arising or (b) Borrower's compliance with any
other covenants or provisions of the Credit Documents.
Nothing contained herein nor any communications between the Lenders and the
Borrower shall be a waiver of any rights or remedies the Lenders have or may
have against the Borrower, except as specifically provided herein. The Lenders
hereby reserve and preserve all of their rights and
<PAGE>
remedies against the Borrower under the Loan Agreement, the other Credit
Documents, and applicable law.
3. AMENDMENTS.
(a) The parties hereto agree that the Loan Agreement is hereby amended as
follows:
(i) SECTION 2.2(b). Section 2.2(b) is hereby amended by adding the
following new subsection immediately following subsection 2.2(b)(iv): "(v)
reimbursement to Newmarket of $300,000 of amounts owing to Newmarket under that
certain Loan Agreement dated as of July 31, 1995 between Newmarket and Dayton
Way Pictures IV in connection with the motion picture "THE WHOLE WIDE WORLD"
("Whole Wide World Loan")".
(ii) SECTION 2.8(b). Section 2.8(b) is hereby amended by adding
the following at the end of such subsection: "Notwithstanding the foregoing,
Lenders agree to waive the above-referenced fee provided the KL Investment is
repaid pursuant to the provisions of this Agreement, as amended."
(iii)SECTION 8.11. Section 8.11 is hereby amended by (i) deleting the
phrase: "Section 3" in the second and third lines thereof and replacing it with
"Section 4(b)"; (ii) adding "(a)" before "Borrower" in the first line thereof;
and (iii) adding at the end of such Section 8.11: "or (b) Borrower has not
delivered to Lenders on or before March 15, 1996 Distribution Agreements
together with Distributor's Acceptances with a minimum guarantee of at least
$400,000 for the territory of Scandinavia."
(b) The parties hereto agree that the Interparty Agreement is hereby
amended as follows:
(i) SECTION 4(b). Section 4(b) is hereby amended by deleting the
references to "November 30, 1995" in the fourth and fourteenth line thereof and
replacing it with "January 31, 1996".
(ii) NEW SECTION 4(d). Section 4(d) is hereby further amended by
adding the following new subsection immediately following subsection 4(c): "(d)
Failure of Borrower, KL and/or KLI to deliver to Lenders by January 31, 1996
executed Distribution Agreements together with executed Distributor's
Acceptances and any applicable letters of credit in form and substance
acceptable to Lenders and guaranteed pursuant to the Completion Guaranty for all
sales made as of December 22, 1995 shall be deemed an Event of Default under the
Loan Agreement."
(iii) SECTION 5(b)(i). Section 5(b)(i) is hereby amended by adding
the following at the end of such subsection: "Notwithstanding the foregoing,
upon Borrower's, KL's and/or KLI's fulfillment of the conditions precedent set
forth in Exhibit A attached to the First Amendment to Credit Documents relating
hereto, (A) the amount of the KL Guaranty shall be reduced from $2,800,000 to
$1,500,000 and (B) Lenders shall repay the entire amount of the KL Investment by
advances under the Loan Agreement, PROVIDED that $300,000 of such repayment
shall be used
2
<PAGE>
solely to reimburse Newmarket for amounts owing under the Whole Wide World Loan
and $40,000 shall be used to pay the fee required in Section 2.8(b) of the Loan
Agreement (as amended). The KL Guaranty shall be released in full if and when
the Acceptable Pre-Sale Value of all Distribution Agreements delivered to Lender
are equal to or greater than the amount of the Production Facility."
(iv) SECTION 5(d). Section 5(d) is hereby amended by adding the
following at the end of such subsection: "Notwithstanding the foregoing, Lenders
agree to waive the above-referenced fee provided the KL Investment is repaid
pursuant to the provisions of this Agreement, as amended."
The Credit Documents and any and all documents and agreements entered into
in connection with any of the Credit Documents shall be deemed amended hereby to
the extent (and only to the extent) necessary to conform them to the terms
contained herein; except as expressly herein agreed, all of the foregoing
documents and agreements shall remain unchanged and in full force and effect
except that each reference in such documents and agreements to the Loan
Agreement, the Security Agreement, the Note, the Interparty Agreement, the KL
Guaranty, any other Credit Document, or any other document or agreement entered
into in connection with any of the foregoing shall be deemed to refer to such
document or agreement, respectively, as amended hereby.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that all of the representations and warranties set forth in the Loan
Agreement are true and correct and that no Event of Default under the Loan
Agreement has occurred or is continuing as of the date hereof except as
specifically waived herein.
5. EFFECTIVE DATE. This Amendment shall become effective upon delivery
to the Lenders of a fully executed copy of this Amendment. Except as
specifically set forth herein, the parties hereto agree and confirm that the
Loan Agreement and the other documents related thereto remain in full force and
effect as executed except that each reference in the Credit Documents to the
Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California. No amendment hereto shall
be effective unless in writing and executed by the parties hereto.
7. COUNTERPARTS. This Amendment may be executed in counterparts all of
which when taken together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, this Amendment is duly executed by an authorized
signatory of each of the parties hereto as of the date first above written.
ALLIED PINOCCHIO PRODUCTIONS LIMITED
By: /s/ Bruce Lilliston
-------------------------------------
Name: Bruce Lilliston
Title: Authorized Signatory
NEWMARKET CAPITAL GROUP, L.P.
By: BFB,LLC
Its: Managing General Partner
By: /s/ Will Tyrer
-------------------------------------
Name:
Title: President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Sheryl Bond
-------------------------------------
Name: Sheryl Bond
Title: Vice President
THE KUSHNER-LOCKE COMPANY
By: /s/ Donald Kushner
-------------------------------------
Name:
Title:
KUSHNER-LOCKE INTERNATIONAL, INC.
By: /s/ Donald Kushner
-------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT "A"
------------
CONDITIONS PRECEDENT
--------------------
1. Delivery to Lenders by Borrower, KL and/or KLI of the following:
(a) With respect to Benelux, executed Distribution Agreement and a
Distributor's Acceptance, in form and substance acceptable to Lenders, and
guaranteed pursuant to the Completion Guaranty.
(b) With respect to France, a letter of credit, in form and substance
acceptable to Lenders, guarantying payment of amounts due under the Distribution
Agreement relating thereto.
(c) With respect to Italy, executed Distribution Agreement and a
Distributor's Acceptance, in form and substance acceptable to Lenders, providing
for final payment of all amounts due under the Distribution Agreement no later
than April 30, 1997, and guaranteed pursuant to the Completion Guaranty.
(d) With respect to Spain, (i) executed Distribution Agreement and a
Distributor's Acceptance, in form and substance acceptable to Lenders and
guaranteed pursuant to the Completion Guaranty; (ii) an executed Guaranty from
Antenae 3 in favor of Lenders, in form and substance acceptable to Lenders; and
(iii) indefeasible payment to Lenders of the amount due under the Distribution
Agreement on signature of the Distribution Agreement ($206,250)("First
Payment").
(e) With respect to Taiwan, executed Distribution Agreement and a
Distributor's Acceptance, in form and substance acceptable to Lenders, and
guaranteed pursuant to the Completion Guaranty.
2. Notwithstanding anything to the contrary in this Agreement, if all
conditions precedent on this Exhibit A, other than the condition listed in
paragraph 1.(d)(iii) above, are fulfilled, the Waiver referenced in Paragraph 2
of this Agreement shall be effective and Lenders shall repay only $1,300,000 of
the KL Investment. Upon indefeasible payment of the First Payment, Lenders
shall repay the remaining $100,000 of the KL Investment.
3. Delivery to Lenders of an executed copy of that certain side letter of even
date herewith among INTER ALIA, Lenders, Borrower and KL relating to the
Collection Account and cross-collateralization.
5
<PAGE>
(EXHIBIT 10.47)
THIRD AMENDMENT TO
CREDIT DOCUMENTS
This Third Amendment to Credit Documents ("Amendment") is made as of
December 22, 1995 by and between Newmarket Capital Group, L.P. (the "Lender"),
Dayton Way Pictures II, Inc. (the "Borrower") and Kushner-Locke International, a
division of the Kushner-Locke Company ("KL").
R E C I T A L S
Reference is hereby made to the following documents and agreements in
connection with that certain motion picture presently entitled "THE NESTING"
(the "Picture"):
A. Borrower and Lender entered into that certain Loan Agreement dated as
of May 24, 1995 as amended by that certain First Amendment to Loan Agreement
dated as of June 14, 1995 and that certain Second Amendment to Loan Agreement
dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to
the Picture; and
B. The other Credit Documents, including without limitation, that certain
Note, that certain Security Agreement, that certain Interparty Agreement and
that certain KL Guaranty, as each of such terms is defined in the Loan
Agreement, together with all documents and agreements entered into in connection
with each of the foregoing.
WHEREAS, Borrower and Lender now wish to amend the Loan Agreement, the
Interparty Agreement and the other Credit Documents and Lender wishes to repay
the KL L/C;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein are
used herein as defined in the Loan Agreement.
2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions
precedent set forth on the attached Exhibit A, to waive any Event of Default
which has occurred and is continuing as of the date hereof (i) under Section
8.11 (a) of the Loan Agreement as a result of Debtor's failure to deliver to
Lender on or before November 30, 1995 sufficient Distribution Agreements
together with Distributor's Acceptances related thereto with an Acceptable Pre-
Sale Value of at least $400,000 and (ii) under Section 8.11 (b) of the Loan
Agreement as a result of Debtor's failure to deliver to Lender on or before
December 15, 1995 sufficient Distribution Agreements together with Distributor's
Acceptances related thereto with an aggregate Acceptable Pre-Sale Value together
with the face amount of the KL L/C of at least $960,000.
This waiver shall be effective only for the specific Event of Default(s)
specified above, and in no event shall this waiver be deemed to be a waiver of
(a) enforcement of the Lender's rights with respect to any other Event(s) of
Default now existing or hereafter arising or (b)
<PAGE>
Debtor's compliance with any other covenants or provisions of the Credit
Documents.
Nothing contained herein nor any communications between the Lender and the
Debtor shall be a waiver of any rights or remedies the Lender has or may have
against the Debtor, except as specifically provided herein. The Lender hereby
reserves and preserves all of its rights and remedies against the Debtor under
the Loan Agreement, the other Credit Documents, and applicable law.
3. AMENDMENTS.
(a) The parties hereto agree that the Loan Agreement is hereby amended as
follows:
(i) SECTION 2.2. Section 2.2(b) is hereby amended by adding the
following new subsection immediately following Section 2.2(b)(iii): "(iv)
reimbursement to Lender of $200,000 of amounts owing to Lender under that
certain Loan Agreement dated as of July 31, 1995 between Lender and Dayton Way
Pictures IV in connection with the motion picture "THE WHOLE WIDE WORLD" ("Whole
Wide World Loan")".
(ii) SECTION 2.3. Section 2.3 is hereby amended by deleting the
reference to "February 28, 1996" in the seventh line thereof and replacing it
with "March 31, 1996".
(iii) SECTION 2.4(a). Section 2.4(a) is hereby amended by adding
the following at the end of such subsection: "Notwithstanding the foregoing,
effective February 1, 1996, the Loans shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate equal to the sum of three percent (3.0%)
per annum plus the "Prime Rate.""
(iv) SECTION 8.11. Section 8.11 of the Loan Agreement is hereby
amended by deleting the current text in its entirety and replacing it with the
following: "Borrower and/or KL fails to deliver to Lender on or before January
31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and
letters of credit, if applicable, all in form and substance acceptable to Lender
and guaranteed pursuant to the Completion Guaranty, for all sales of
distribution rights in connection with the Picture made as of December 22, 1995
as set forth on Schedule I to the Third Amendment."
(b) The parties hereto agree that the Interparty Agreement is hereby
amended as follows:
(i) SECTION 5(b). Section 5(b) of the Interparty Agreement is hereby
amended by adding the following at the end of the paragraph: "Notwithstanding
the foregoing, upon Borrower's and/or KL's fulfillment of the conditions set
forth on Exhibit A attached to the Third Amendment to Credit Documents relating
hereto, Lender shall repay the entire amount of the KL Investment by advances
under the Loan Agreement, PROVIDED that $200,000 of such repayment shall be used
solely to reimburse Lender for amounts owing under the Whole Wide World Loan.
The KL Guaranty shall be
2
<PAGE>
released in full if and when the Acceptable Pre-Sale Value of all Distribution
Agreements delivered to Lender are equal to or greater than the amount of the
Production Facility."
The Credit Documents and any and all documents and agreements entered into
on connection with any of the Credit Documents shall be deemed amended hereby to
the extent (and only to the extent) necessary to conform them to the terms
contained herein; except as expressly herein agreed, all of the foregoing
documents and agreements shall remain unchanged and in full force and effect
except that each reference in such documents and agreements to the Loan
Agreement, the Security Agreement, the Note, the Interparty Agreement the KL
Guaranty any other Credit Document, or any other document or agreement entered
into in connection with any of the foregoing shall be deemed to refer to such
document or agreement, respectively, as amended hereby.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that all of the representations and warranties set forth in the Loan
Agreement are true and correct and that no Event of Default under the Loan
Agreement has occurred or is continuing as of the date hereof except as
specifically waived herein.
5. EFFECTIVE DATE. This Amendment shall become effective upon delivery
to the Lender of a fully executed copy of this Amendment. Except as specifically
set forth herein, the parties hereto agree and confirm that the Loan Agreement
and the other documents related thereto remain in full force and effect as
executed except that each reference in the Credit Documents to the Loan
Agreement shall be deemed to refer to the Loan Agreement as amended hereby.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California. No amendment hereto shall
be effective unless in writing and executed by the parties hereto.
7. COUNTERPARTS. This Amendment may be executed in counterparts all of
which when taken together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, this Amendment is duly executed by an authorized
signatory of each of the parties hereto as of the date first above written.
DAYTON WAY PICTURES II, INC.
By: /s/ Alan Abrams
-------------------------------------
Name:
Title:
NEWMARKET CAPITAL GROUP, L.P.
By: BFB,LLC
Its: Managing General Partner
By: /s/ Will Tyrer
-------------------------------------
Name:
Title: President
KUSHNER-LOCKE INTERNATIONAL, a division of the
Kushner-Locke Company
By: /s/ Donald Kushner
-------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT "A"
------------
1. Delivery to Lender by Borrower and/or KL of the following:
(a) With respect to Germany, executed Distributor's Acceptance, in form and
substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty,
signed by all parties thereto and providing for a final payment no later than
delivery of the Initial Delivery Materials (as defined in the Distributor's
Acceptance).
(b) With respect to Spain, executed Distribution Agreement and
Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed
pursuant to the Completion Guaranty and signed by all parties thereto and
providing for a final payment no later than delivery of the Initial Delivery
Materials (as defined in the Distributor's Acceptance).
Notwithstanding Section 5(b) of the Interparty Agreement, the amount of the
KL Investment which Lender is obligated to repay shall be reduced by the amount
of the minimum guarantee for any territory listed in paragraphs (a) and (b)
above for which Borrower and/or KL does not deliver all items listed in such
paragraph.
2. Delivery to Lender of an executed copy of that certain side letter of even
date herewith among, INTER ALIA, Lender, Borrower and KL relating to the
Collection Account and cross-collateralization.
5
<PAGE>
(EXHIBIT 10.48)
SECOND AMENDMENT TO
CREDIT DOCUMENTS
This Second Amendment to Credit Documents ("Amendment") is made as of
December 22, 1995 by and among Newmarket Capital Group, L.P. (the "Lender"),
Dayton Way Pictures, Inc. (the "Borrower") and Kushner-Locke International, a
division of the Kushner-Locke Company ("KL").
R E C I T A L S
Reference is hereby made to the following documents and agreements in
connection with that certain motion picture presently entitled "THE GRAVE" (the
"Picture"):
A. Borrower and Lender entered into that certain Loan Agreement dated as
of June 12, 1995 as amended by that certain First Amendment to Loan Agreement
dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to
the Picture; and
B. The other Credit Documents, including without limitation, that certain
Note, that certain Security Agreement, that certain Interparty Agreement and
that certain KL Guaranty, as each of such terms is defined in the Loan
Agreement, together with all documents and agreements entered into in connection
with each of the foregoing.
WHEREAS, Borrower and Lender now wish to further amend the Loan Agreement,
the Interparty Agreement and the other Credit Documents and Lender wishes to
repay a portion of the KL Investment;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein are
used herein as defined in the Loan Agreement.
2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions
precedent set forth on the attached Exhibit A, to waive any Event of Default
which has occurred and is continuing as of the date hereof (i) under Section
8.11 (a) of the Loan Agreement as a result of Debtor's failure to deliver to
Lender on or before November 30, 1995 sufficient Distribution Agreements
together with Distributor's Acceptances related thereto with an Acceptable Pre-
Sale Value of at least $700,000 and (ii) under Section 8.11 (b) of the Loan
Agreement as a result of Debtor's failure to deliver to Lender on or before
December 15, 1995 sufficient Distribution Agreements together with Distributor's
Acceptances related thereto with an Acceptable Pre-Sale Value of at least
$1,400,000.
This waiver shall be effective only for the specific Event of Default(s)
specified above, and in no event shall this waiver be deemed to be a waiver of
(a) enforcement of the Lender's rights with respect to any other Event(s) of
Default now existing or hereafter arising or (b) Debtor's compliance with any
other covenants or provisions of the Credit Documents.
<PAGE>
Nothing contained herein nor any communications between the Lender and the
Debtor shall be a waiver of any rights or remedies the Lender has or may have
against the Debtor, except as specifically provided herein. The Lender hereby
reserves and preserves all of its rights and remedies against the Debtor under
the Loan Agreement, the other Credit Documents, and applicable law.
3. AMENDMENTS.
(a) The parties hereto agree that the Loan Agreement is hereby amended as
follows:
(i) SECTION 2.3. Section 2.3 of the Loan Agreement is hereby amended
by deleting the reference to "March 14, 1996" in the seventh line thereof and
replacing it with "March 31, 1996".
(ii) SECTION 2.4(a). Section 2.4(a) of the Loan Agreement is hereby
amended by adding the following at the end of such section: "Notwithstanding the
foregoing, effective February 1, 1996, the Loans shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate equal to the sum of three percent (3.0%)
per annum plus the "Prime Rate.""
(iii)SECTION 8.11. Section 8.11 of the Loan Agreement is hereby
amended by deleting the current text in its entirety and replacing it with the
following: "Borrower and/or KL fails to deliver to Lender on or before January
31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and
letters of credit, if applicable, all in form and substance acceptable to Lender
and guaranteed pursuant to the Completion Guaranty, for all sales of
distribution rights in connection with the Picture made as of December 22, 1995
as reflected on Schedule I to the Second Amendment to Credit Documents relating
hereto."
(b) The parties hereto agree that the Interparty Agreement is hereby
amended as follows:
(i) SECTION 5(b). Section 5(b) of the Interparty Agreement is hereby
amended by deleting the current text of Section 5(b) in its entirety and
replacing it with the following: "The KL Guaranty shall be reduced from $690,000
to $250,000 and $287,500 of the KL Investment shall be repaid by the Lender
advancing funds therefor under the Loan Agreement upon Borrower's fulfillment of
the conditions precedent set forth on Exhibit A to the Second Amendment to
Credit Documents relating hereto. Notwithstanding the foregoing, the KL
Guaranty shall be released in full and the remainder of the KL Investment shall
be repaid by the Lender advancing funds therefor under the Loan Agreement if and
when the Acceptable Pre-Sale Value of all Distribution Agreements delivered to
Lender are equal to or greater than the amount of the Production Facility."
The Credit Documents and any and all documents and agreements entered into
on connection with any of the Credit Documents shall be deemed amended hereby to
the extent (and only to the extent) necessary to
2
<PAGE>
conform them to the terms contained herein; except as expressly herein agreed,
all of the foregoing documents and agreements shall remain unchanged and in full
force and effect except that each reference in such documents and agreements to
the Loan Agreement, the Security Agreement, the Note, the Interparty Agreement
the KL Guaranty any other Credit Document, or any other document or agreement
entered into in connection with any of the foregoing shall be deemed to refer to
such document or agreement, respectively, as amended hereby.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that all of the representations and warranties set forth in the Loan
Agreement are true and correct and that no Event of Default under the Loan
Agreement has occurred or is continuing as of the date hereof except as
specifically waived herein.
5. EFFECTIVE DATE. This Amendment shall become effective upon delivery
to the Lender of a fully executed copy of this Amendment.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California. No amendment hereto shall
be effective unless in writing and executed by the parties hereto.
7. COUNTERPARTS. This Amendment may be executed in counterparts all of
which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment is duly executed by an authorized
signatory of each of the parties hereto as of the date first above written.
DAYTON WAY PICTURES, INC.
By: /s/ Alan Abrams
-----------------------------------
Name:
Title:
NEWMARKET CAPITAL GROUP, L.P.
By: BFB,LLC
Its: Managing General Partner
By: /s/ Will Tyrer
-----------------------------------
Name:
Title:
KUSHNER-LOCKE INTERNATIONAL, a division
of The Kushner-Locke Company
By: /s/ Donald Kushner
-----------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT "A"
------------
1. Delivery to Lender by Borrower and/or KL of the following:
(a) With respect to Germany, executed Distributor's Acceptance, in form and
substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty
and signed by all parties thereto.
(b) With respect to Japan, executed Distribution Agreement and
Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed
pursuant to the Completion Guaranty and signed by all parties thereto.
(c) With respect to Home Box Office, Inc., executed Distributor's
Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to
the Completion Guaranty and signed by all parties thereto.
(d) With respect to Cabin Fever, executed Distribution Agreement providing
for a minimum guarantee of at least $450,000 and a Distributor's Acceptance, in
form and substance acceptable to Lender, guaranteed pursuant to the Completion
Guaranty and signed by all parties thereto.
The $287,500 portion of the KL Investment to be repaid by the Lender
pursuant to Section 5(b) of the Interparty Agreement (as amended) shall be
reduced by the amount of the minimum guarantee for any territory listed in
paragraphs (a) through (d) above for which Borrower and/or KL does not deliver
all items listed in such paragraph.
2. Delivery to Lender of an executed copy of that certain side letter of even
date herewith among, INTER ALIA, Lender, Borrower and KL relating to the
Collection Account and cross-collateralization.
4
<PAGE>
(EXHIBIT 10.49)
SECOND AMENDMENT TO
LOAN AGREEMENT
This Second Amendment to Loan Agreement ("Amendment") is made as of
December 22, 1995 by and between Newmarket Capital Group, L.P. (the "Lender")
and Dayton Way Pictures IV, Inc. (the "Borrower").
R E C I T A L S
Reference is hereby made to the following documents and agreements in
connection with that certain motion picture presently entitled "THE WHOLE WIDE
WORLD" (the "Picture"):
A. Borrower and Lender entered into that certain Loan Agreement dated as
of July 31, 1995 as amended by that certain First Amendment to Loan Agreement
dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to
the Picture; and
B. The other Credit Documents, including without limitation, that certain
Note, that certain Security Agreement, that certain Interparty Agreement and
that certain KL Guaranty, as each of such terms is defined in the Loan
Agreement, together with all documents and agreements entered into in connection
with each of the foregoing.
WHEREAS, Borrower and Lender now wish to further amend the Loan Agreement
and the other Credit Documents;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as
follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein are
used herein as defined in the Loan Agreement.
2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions
precedent set forth on the attached Exhibit A, to waive any Event of Default
which has occurred and is continuing as of the date hereof under Section 8.11(a)
of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or
before November 30, 1995 sufficient Distribution Agreements together with
Distributor's Acceptances related thereto with an Acceptable Pre-Sale Value of
at least $675,000 excluding any sale of the United States.
This waiver shall be effective only for the specific Event of Default(s)
specified above, and in no event shall this waiver be deemed to be a waiver of
(a) enforcement of the Lender's rights with respect to any other Event(s) of
Default now existing or hereafter arising or (b) Debtor's compliance with any
other covenants or provisions of the Credit Documents.
Nothing contained herein nor any communications between the Lender and the
Debtor shall be a waiver of any rights or remedies the Lender has or may have
against the Debtor, except as specifically provided herein. The Lender hereby
reserves and preserves all of its rights and remedies
<PAGE>
against the Debtor under the Loan Agreement, the other Credit Documents, and
applicable law.
3. AMENDMENT. The parties hereto agree that the Loan Agreement is hereby
amended as follows:
(a) SECTION 2.4(a) Section 2.4(a) is hereby amended by adding the
following at the end of such section: "Notwithstanding the foregoing, effective
February 1, 1996, the Loans shall bear interest on the unpaid principal amount
thereof from the date made through maturity (whether by acceleration or
otherwise) at a rate equal to the sum of three percent (3.0%) per annum plus the
"Prime Rate.""
(b) SECTION 8.11. Section 8.11 of the Loan Agreement is hereby
amended by deleting the current text in its entirety and replacing it with the
following: "Borrower and/or KL fails to deliver to Lender on or before January
31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and
letters of credit, if applicable, all in form and substance acceptable to Lender
and guaranteed pursuant to the Completion Guaranty, for all sales of
distribution rights in connection with the Picture made as of December 22, 1995
as set forth on Schedule I attached to the Second Amendment to Loan Agreement
relating hereto."
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that all of the representations and warranties set forth in the Loan
Agreement are true and correct and that no Event of Default under the Loan
Agreement has occurred or is continuing as of the date hereof except as
specifically waived herein.
5. EFFECTIVE DATE. This Amendment shall become effective upon delivery
to the Lender of a fully executed copy of this Amendment. Except as specifically
set forth herein, the parties hereto agree and confirm that the Loan Agreement
and the other documents related thereto remain in full force and effect as
executed except that each reference in the Credit Documents to the Loan
Agreement shall be deemed to refer to the Loan Agreement as amended hereby.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California. No amendment hereto shall
be effective unless in writing and executed by the parties hereto.
7. COUNTERPARTS. This Amendment may be executed in counterparts all of
which when taken together shall constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment is duly executed by an authorized
signatory of each of the parties hereto as of the date first above written.
DAYTON WAY PICTURES IV, INC.
By: /s/ Alan Abrams
------------------------------------
Name:
Title:
NEWMARKET CAPITAL GROUP, L.P.
By: BFB,LLC
Its: Managing General Partner
By: /s/ Will Tyrer
------------------------------------
Name:
Title: President
3
<PAGE>
EXHIBIT "A"
------------
1. Delivery to Lender by Borrower and/or KL of the following:
(a) With respect to Germany, executed Distributor's Acceptance, in form and
substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty,
signed by all parties thereto and providing for a final payment no later than
delivery of the Initial Delivery Materials (as defined in the Distributor's
Acceptance).
(b) Executed copy of that certain side letter of even date herewith among,
INTER ALIA, Lender and Borrower relating to the Collection Account and cross-
collateralization.
4
<PAGE>
(EXHIBIT 10.50)
CROSS COLLATERALIZATION AGREEMENT
---------------------------------
Dated as of July 7, 1995
Newmarket Capital Group, L.P.
202 North Canon Drive
Beverly Hills, California 90210
Attention: Will Tyrer
Gentlemen:
A. Reference is hereby made to the following agreements:
1. That certain Loan Agreement dated as of July 7, 1995 (the "Pinocchio
Loan Agreement") between Newmarket Capital Group, L.P. ("Newmarket") and Bank of
America National Trust and Savings Association on the one hand and Allied
Pinocchio Productions Limited ("APPL") relating to that certain motion picture
currently entitled "THE LEGEND OF PINOCCHIO," and the Security Agreement
executed in connection therewith (the "Pinocchio Security Agreement");
2. That certain Loan Agreement dated as of May 24, 1995 (the "Nesting
Loan Agreement") between Newmarket and Dayton Way Pictures II, Inc. ("DWII")
relating to that certain motion picture currently entitled "THE NESTING" (a/k/a
"SERPENT'S LAIR") and the Security Agreement executed in connection therewith
(the "Nesting Security Agreement");
3. That certain Loan Agreement dated as of June 12, 1995 (the "Grave Loan
Agreement") between Newmarket and Dayton Way Pictures, Inc. ("DW") realting to
that certain motion picture currently entitled "THE GRAVE" and the Security
Agreement executed in connection therewith (the "Grave Security Agreement");
4. That certain Loan Agreement dated as of July 31, 1995 (the "WWW Loan
Agreement") between Newmarket and Dayton Way Pictures IV, Inc. ("DWIV") realting
to that certain motion picture currently entitled "THE WHOLE WIDE WORLD" and the
Security Agreement executed in connection therewith (the "WWW Security
Agreement");
B. For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Each of DWII, DW and DWIV agree that the "Secured Obligations" under
each of the Nesting Security Agreement, the Grave Security Agreement and the WWW
Security Agreement shall include all of the obligations of DWII, DW and DWIV
under the Nesting Loan Agreement, the Grave Loan Agreement and the WWW Loan
Agreement and all such obligations shall, as of the date hereof, be cross-
collateralized. As a result, all of DWII, DW and DWIV agree
<PAGE>
that the Lender is entitled to use the proceeds of any Collateral, whether
granted pursuant to the Grave Security Agreement, the Nesting Security Agreement
or the WWW Security Agreement, in order to satisfy the obligations arising under
the Grave Loan Agreement, the Nesting Loan Agreement or the WWW Loan Agreement.
2. In the event that The Kushner-Locke Company ("K-L") does not conclude
its loan facility with ING Bank ("ING") on or before January 15, 1996 or all of
the conditions precedent to ING advancing funds thereunder have not been
satisfied or waived on r before January 15, 1996, then APPL agrees that the
"Secured Obligations" under the Pinocchio Security Agreement shall include all
of the obligations of DWII to Newmarket under the Nesting Loan Agreement, of DW
to Newmarket under the Grave Loan Agreement and of DWIV to Newmarket under the
WWW Loan Agreement and DWII, DW and DWIV agree that the "Secured Obligations"
under each of the Nesting Security Agreement, the Grave Security Agreement and
the WWW Security Agreement shall include the obligations of APPL to Newmarket
under the Pinocchio Loan Agreement.
3. Each of DW, DWII, DWIV, APPL and K-L hereby appoint Newmarket as the
Collection Agent for all proceeds derived from the exploitation of "THE GRAVE,"
"THE NESTING," "WHOLE WIDE WORLD" and "THE LEGEND OF PINOCCHIO" and hereby agree
that Newmarket shall be entitled to deduct from all such proceeds a fee equal to
0.75% of all proceeds derived from such pictures in excess of the amounts
required to repay the obligations of DW, DWII, DWIV and APPL under the Grave
Loan Agreement, the Nesting Loan Agreement, the WWW Loan Agreement and the
Pinocchio Loan Agreement, respectively. Each of DW, DWII, DWIV, APPL and K-L
agree that they will enter into a more complete Collection Agreement with
Newmarket relating to each of the above-referenced motion picture on or before
January 30, 1996.
4. Except as specifically amended hereby, the Grave Security Agreement,
the Nesting Security Agreement, the WWW Security Agreement and the Pinocchio
Security Agreement remain in full force and effect (as each of the same may have
been amended by fully-executed amendment agreements) and are enforceable against
the respective parties thereto.
5. Each of DW, DWII, DWIV and APPL agree that they shall execute any
further instruments or documents necessary or reasonably requested by Newmarket
to effectuate the foregoing provisions.
6. None of this Agreement or any provision hereof may be amended, waived,
discharged or terminated unless such amendment, waiver, discharge or termination
is in writing signed by the parties hereto. This Agreement shall be deemed to
be a "Credit Document" as defined in each of the Pinocchio Loan Agreement, the
Grave Loan Agreement, the Nesting Loan Agreement and the WWW Loan Agreement.
<PAGE>
7. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF CALIFORNIA OF THE UNITED STATES OF AMERICA WITHOUT REFERENCE TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
IN WITNESS WHEREOF, this Agreement is entered into this __ day of December,
1995 and is executed by an authorized signatory of each of the parties set out
below.
THE KUSHNER-LOCKE COMPANY
By: /s/ Donald Kushner
-------------------------------------
Its:
DAYTON WAY PICTURES, INC.
By: /s/ Alan Abrams
-------------------------------------
Its:
DAYTON WAY PICTURES II, INC.
By: /s/ Alan Abrams
-------------------------------------
Its: Authorized Signatory
DAYTON WAY PICTURES IV, INC.
By: /s/ Alan Abrams
-------------------------------------
Its:
ALLIED PINOCCHIO PRODUCTIONS LTD.
By: /s/ Bruce Lilliston
-------------------------------------
Its:
ACKNOWLEDGED AND AGREED:
NEWMARKET CAPITAL GROUP, L.P.
By: BFB, LLC.
Its: Its Managing General Partner
By: /s/ Will Tyrer
- -------------------------------------
Its: President
3
<PAGE>
(EXHIBIT 10.51)
FIRST AMENDMENT TO
CROSS COLLATERALIZATION AGREEMENT
This First Amendment to Cross Collateralization Agreement ("Amendment") is
dated as of January 10, 1996 among Newmarket Capital Group, L.P. ("Newmarket"),
Dayton Way Pictures, Inc. ("DW"), Dayton Way Pictures II, Inc. ("DWII"), Dayton
Way Pictures IV, Inc. ("DWIV"), Allied Pinocchio Productions, Ltd. ("APPL") and
The Kushner-Locke
Company ("K-L").
R E C I T A L S
WHEREAS, Newmarket, DW, DWII, DWIV, APPL and K-L have entered into that
certain Cross Collateralization Agreement dated as of July 7, 1995, (the
"Agreement") relating to those certain motion pictures presently entitled "THE
GRAVE", "THE NESTING", "THE WHOLE WIDE WORLD" and "THE LEGEND OF PINOCCHIO"; and
WHEREAS, Newmarket, DW, DWII, DWIV and K-L now wish to amend the Agreement;
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, Newmarket, DW, DWII, DWIV, APPL and
K-L hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein are
used herein as defined in the Agreement.
2. AMENDMENT. The parties hereto acknowledge that K-L and ING have been
unable to conclude their loan facility as of the date hereof and therefore APPL
hereby agrees that notwithstanding the provisions of Section 2 of the Agreement,
the "Secured Obligations" under the Pinocchio Security Agreement shall, as of
the date hereof, include all of the obligations of DWII to Newmarket under the
Nesting Loan Agreement, of DW to Newmarket under the Grave Loan Agreement and of
DWIV to Newmarket under the WWW Loan Agreement and DWII, DW and DWIV agree that
the "Secured Obligations" under each of the Nesting Security Agreement, the
Grave Security Agreement and the WWW Security Agreement shall include the
obligations of APPL to Newmarket under the Pinocchio Loan Agreement.
3. EFFECTIVE DATE. This Amendment shall become effective upon delivery
to Newmarket of a fully executed copy of this Amendment. Except as specifically
set forth herein, the parties hereto agree and confirm that the Agreement, the
Grave Security Agreement, the Nesting Security Agreement, the WWW Security
Agreement and the Pinocchio Security Agreement and the other documents related
thereto remain in full force and effect as executed.
4. Each of DW, DWII, DWIV and APPL agree that they shall execute any
further instruments or documents necessary to effectuate the foregoing
provisions.
5. None of this Amendment or any provision hereof may be amended, waived,
discharged or terminated unless such amendment, waiver, discharge or waiver is
in writing signed by the parties hereto. This Amendment shall be deemed to be a
"Credit Document" as defined in each of the Pinocchio Loan Agreement, the Grave
Loan Agreement, the Nesting Loan Agreement and the WWW Loan Agreement.
<PAGE>
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California. No amendment hereto shall
be effective unless in writing and executed by the parties hereto.
7. COUNTERPARTS. This Amendment may be executed in counterparts all of
which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment is executed by an authorized signatory
of each of the parties below on the date first set forth above.
DAYTON WAY PICTURES, INC.
By: /s/ Alan Abrams
-------------------------------
Name:
Title:
DAYTON WAY PICTURES II, INC.
By: /s/ Alan Abrams
-------------------------------
Name:
Title:
DAYTON WAY PICTURES IV, INC.
By: /s/ Alan Abrams
-------------------------------
Name:
Title:
ALLIED PINOCCHIO PRODUCTIONS LTD.
By: /s/ Bruce Lilliston
-------------------------------
Name: Bruce Lilliston
Title: Authorized Signatory
THE KUSHNER-LOCKE COMPANY
By: /s/ Donald Kushner
-------------------------------
Name:
Title:
NEWMARKET CAPITAL GROUP, L.P.
By: BFB,LLC
Its: Managing General Partner
By: /s/ Will Tyrer
-------------------------------
Name:
Title: President
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000842009
<NAME> KUSHNER-LOCKE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,664
<SECURITIES> 0
<RECEIVABLES> 12,751
<ALLOWANCES> 0
<INVENTORY> 72,416 <F3>
<CURRENT-ASSETS> 0 <F1>
<PP&E> 1,975
<DEPRECIATION> 1,481
<TOTAL-ASSETS> 91,831
<CURRENT-LIABILITIES> 0 <F2>
<BONDS> 30,807
0
0
<COMMON> 23,527
<OTHER-SE> (3,118)
<TOTAL-LIABILITY-AND-EQUITY> 91,831
<SALES> 0
<TOTAL-REVENUES> 16,107
<CGS> 0
<TOTAL-COSTS> 13,313
<OTHER-EXPENSES> 896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 929
<INCOME-PRETAX> 1,023
<INCOME-TAX> 11
<INCOME-CONTINUING> 1,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,012
<EPS-PRIMARY> .028
<EPS-DILUTED> 0
<FN>
<F1> (15) THE COMPANY DOES NOT ISSUE A CLASSIFIED BALANCE SHEET.
<F2> (19) THE COMPANY DOES NOT ISSUE A CLASSIFIED BALANCE SHEET.
<F3> (14) INCLUDED AS INVENTORY WAS COMPLETED FILM COSTS:
PRODUCTIONS IN PROCESS AND DEVELOPMENT.
</FN>
</TABLE>
