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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
CALIFORNIA 11601 WILSHIRE BLVD., 95-4079057
(State or other jurisdiction of 21ST FLOOR (I.R.S. Employer
incorporation or organization) LOS ANGELES, CALIFORNIA 90025 Identification Number)
(310) 445-1111
</TABLE>
(Name and address, including zip code and telephone number, including
area code of Registrant's principal executive offices)
--------------------------
DONALD KUSHNER
CO-CHIEF EXECUTIVE OFFICER AND SECRETARY
THE KUSHNER-LOCKE COMPANY
11601 WILSHIRE BLVD., 21ST FLOOR
LOS ANGELES, CALIFORNIA 90025
(310) 445-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value............. 2,072,809 shares (2) $0.625 $1,295,506 $447
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee, based
upon the closing sales price of the Common Stock on the Nasdaq National
Market on August 12, 1996, in accordance with Rule 457(c) promulgated under
the Securities Act of 1933, as amended.
(2) A presently indeterminable number of shares of Common Stock are registered
hereunder which may be issued upon exercise of certain warrants and options
and, in the case of certain warrants to purchase certain Convertible
Subordinated Debentures, upon the conversion of such Convertible
Subordinated Debentures into Common Stock, in the event that certain
anti-dilution provisions become operative. No additional registration fee is
included for these shares.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-3
<TABLE>
<CAPTION>
FORM S-3 REGISTRATION STATEMENT ITEM AND HEADING HEADING IN PROSPECTUS
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<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Page; Cross Reference Sheet; Outside Front
Cover Page; Available Information
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... The Company; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security-Holders............................. Selling Shareholders
8. Plan of Distribution................................. Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be Registered........... Description of Securities
10. Interests of Named Experts and Counsel............... Not Applicable
11. Material Changes..................................... Not Applicable
12. Incorporation of Certain Information by Reference.... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
of Securities Act Liabilities....................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 15, 1996
PROSPECTUS
2,072,809 SHARES
THE KUSHNER-LOCKE COMPANY
COMMON STOCK
This Prospectus relates to an aggregate of 2,072,809 shares (the "Shares")
of common stock, no par value (the "Common Stock"), of The Kushner-Locke
Company, a California corporation (the "Company"), of which (i) 1,685,467 shares
are issuable by the Company upon the conversion of $1,643,330 aggregate
principal amount of the Company's 8% Convertible Subordinated Debentures due
2000 ("8% Debentures"), which 8% Debentures are issuable upon the exercise of
certain warrants to purchase such 8% Debentures, (ii) 287,342 shares are
issuable by the Company upon the conversion of $454,000 aggregate principal
amount of the Company's 9% Convertible Subordinated Debentures due 2002 (9%
Debentures"), which 9% Debentures are issuable upon the exercise of certain
warrants (collectively with the warrants referred to in (i), the "Warrants") to
purchase such 9% Debentures and (iii) 100,000 shares are issuable by the Company
upon the exercise of certain options (the "Options") to purchase shares of
Common Stock, all of which may be offered for sale by the holders thereof
(collectively, the "Selling Shareholders"). See "Description of Securities."
The Company will not receive any proceeds from the sale of the shares of
Common Stock underlying the Warrants or the Options. However, the Company will
receive proceeds from the applicable Selling Shareholders in the event the
Warrants or Options are exercised.
The Common Stock is traded on the Nasdaq National Market ("NNM") under the
symbol "KLOC" and on the Pacific Stock Exchange under the symbol "KLO." On
August 12, 1996, the closing sales price of the Common Stock as reported on the
NNM was $0.625 per share.
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "RISK FACTORS"
ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Selling Shareholders, acting as principal for their own account,
directly or through agents, dealers, brokers, or underwriters to be designated
from time to time, may sell the Shares from time to time on terms to be
determined at the time of sale. To the extent required, the number of Shares to
be sold, the respective purchase price and public offering price, the name of
any agent, dealer, broker or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each Selling
Shareholder reserves the sole right to accept or reject, in whole or in part,
any proposed purchases of the Shares.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1996.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
ANY SELLING SHAREHOLDER OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH JURISDICTION.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Company's Common Stock is listed on the NNM.
Such material can also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Additional information regarding the Company and the Shares offered hereby
is contained in the Registration Statement on Form S-3 (of which this Prospectus
is a part) and the exhibits thereto filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. For further information pertaining to the Company and the Shares
offered hereby, reference is hereby made to the Registration Statement
(including documents incorporated by reference therein) and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance such statements are qualified in their entirety by reference to the
copy of such contract or other document filed as an exhibit to the Registration
Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
September 30, 1995;
2. Amendment to Annual Report of the Company on Form 10-K/A for the fiscal year
ended September 30, 1995, as filed on January 29, 1996;
3. Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended
December 31, 1995;
4. Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended
March 31, 1996;
5. Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended
June 30, 1996; and
6. Proxy Statement of the Company dated April 18, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in any accompanying Prospectus Supplement or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Copies of all documents incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) will be provided without charge to each person, including any
beneficial owner, who receives a copy of this Prospectus on the request of such
person made to The Kushner-Locke Company, 11601 Wilshire Blvd., 21st Floor, Los
Angeles, California 90025, tel: (310) 445-1111, Attention: Donald Kushner.
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THE COMPANY
GENERAL
The Kushner-Locke Company (the "Company") is a leading independent
entertainment company principally engaged in the development, production and
distribution of original feature films and television programming. The Company's
feature films are developed and produced for the made-for-video, pay cable and
theatrical motion picture markets. The Company's television programming has
included television series, mini-series, movies-for-television, animation and
reality and game show programming for the major networks, pay cable television,
first-run syndication and international markets. The Company established its
feature film operations in April 1993. In September 1994, the Company employed
certain new, experienced international theatrical film sales personnel to expand
the Company into foreign theatrical distribution. In 1995, the Company formed
KLC/New City Tele-Ventures ("KLC/New City") to acquire films for distribution
through emerging new delivery systems, including pay cable, pay-per-view, basic
cable, video-on-demand and satellite.
The Company's feature film activities can be grouped into three areas:
higher-budget films intended for wide-screen domestic theatrical release
(historically, no more than one project per year), low-to-moderate budget films
released direct-to-video or on cable television and films and film rights
acquired for distribution only. In certain cases, the Company's low-to-moderate
budget films may have a limited theatrical release or a cable premiere before
being released in home video. For fiscal 1996, in the higher-budget film
category, the Company's feature film THE ADVENTURES OF PINOCCHIO, starring
Martin Landau, Jonathan Taylor Thomas and a puppet from Jim Henson's Creature
Shop and budgeted at approximately $29 million, was released theatrically on
July 26, 1996 in the U.S. by New Line Pictures (a division of Turner
Entertainment Co., "New Line"). The Company's lower-budget feature slate for
1996 includes approximately 20 films, including SERPENT'S LAIR starring Jeff
Fahey, THE GRAVE starring Gabrielle Anwar, Eric Roberts and Craig Sheffer,
FREEWAY executive produced by Oliver Stone and starring Reese Witherspoon,
Kiefer Sutherland and Brooke Shields, WHOLE WIDE WORLD starring Vincent
D'Onofrio and Renee Zewelleger and being distributed in the U.S. by Sony
Classics, THE LAST TIME I COMMITTED SUICIDE starring Keanu Reeves, five
children's fantasy adventure films for Paramount Pictures under Paramount
Pictures' Moonbeam label and two animated feature film sequels to the Company's
1988 video release THE BRAVE LITTLE TOASTER for a division of The Walt Disney
Company. The Company's distribution activities consist primarily of foreign
distribution of product produced, overseen or acquired by the Company and,
through the KLC/New City joint venture, domestic distribution of 60 low-budget
feature films to the pay-per-view, pay cable, basic cable and other ancillary
markets.
Since its inception 1983, the Company has produced or distributed over 1,000
hours of original television programming, including various television series,
movies-for-television and mini-series. The Company's movies-of-the-week
currently in production or which have aired recently include PRINCESS IN LOVE
starring Julie Cox in the book version of Princess Diana's affair for CBS, EVERY
WOMAN'S DREAM starring Jeff Fahey for CBS, A HUSBAND, A WIFE AND A LOVER
starring Judith Light for CBS and ECHO starring Jack Wagner for ABC. In
addition, in pre-production for NBC is the fifth sequel to the JACK REED movies
starring Brian Dennehy. The Company has produced a one-hour prime time pilot for
ABC as a potential mid-season replacement series entitled THE GUN written and
directed by Emmy award winner Jim Sadwith starring Rosanna Arquette and Peter
Horton. The pilot was co-executive produced by Robert Altman (director of
M*A*S*H., THE PLAYER, and PRE-A-PORTER). As of March 31, 1996, the Company had
10 movies-for-television and various television series in different stages of
development for potential production.
The Company's executive offices are located at 11601 Wilshire Boulevard,
Suite 2100, Los Angeles, California 90025, and its telephone number is (310)
445-1111.
RECENT DEVELOPMENTS
On June 25, 1996, the Company closed a $40 million syndicated revolving
credit agreement with a group of banks led by The Chase Manhattan Bank N.A. as
Agent ("Chase"). Such agreement provides
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for borrowings by the Company based on specified percentages of domestic and
international accounts and contracts receivable and a specified percentage of
the Company's book value of unamortized library film costs (as adjusted). In
addition, the Company will from time to time allocate a production trance in its
line of credit for the Company's productions. Such tranche will allow the
Company to borrow up to 50% of the production deficit after accounting for
specified percentage pre-sales, licensing fees and similar revenues from their
parties and a required Company equity participation. All loans made pursuant to
such agreement are secured by substantially all of the Company's assets and
bears interest, at the Company's option, either (i) at LIBOR (5.69% as of August
9, 1996) plus 3% (for that portion of the borrowing base supported by accounts
or contracts receivable) or 4% (for that portion of the borrowing base supported
by unamortized library film costs or for loans made under the production
tranche) or (ii) at the Alternate Base Rate (which is the greater of (a) Chase's
Prime Rate (8.25% as of August 9, 1996), (b) Chase's Base CD Rate (5.34% as of
August 9, 1996) plus 1% or (c) the Federal Funds Effective Rate (5.19% as of
August 9, 1996.) plus 1/2%) plus 2% (for that portion of the borrowing base
supported by accounts or contracts receivable) or 3% (for that portion of the
borrowing base supported by unamortized library film costs or for loans made
under the production tranche).
The outstanding credit agreement contains various covenants to which the
Company must adhere. These covenants, among other things, include limitations on
additional indebtedness, liens, investments, disposition of assets, guarantees,
deficit financing, capital expenditures, affiliate transactions and the use of
proceeds and prohibit payment of cash dividends and prepayment of subordinated
debt. In addition, the credit agreement requires the Company to maintain a
minimum liquidity level, limits overhead expenses and requires the Company to
meet certain ratios. The credit agreement also contains a provision permitting
the bank to declare an event of default if either of Messrs. Locke or Kushner
fails to be the Chief Executive Officer of the Company or if any person or group
acquires ownership or control of capital stock of the Company having voting
power greater than the voting power at the time controlled by Messrs. Kushner
and Locke combined (other than any institutional investor able to report its
holdings on Schedule 13G which holds no more than 15% of such voting power).
On July 24, 1996, the Company's registration statement on Form S-2 (the
"Form S-2") was declared effective by the Commission registering (the "Public
Offering") an aggregate of (i) 5,462,500 units (assuming full exercise by the
underwriter of an over-allotment option to acquire 715,000 units (the
"Over-Allotment Option")), each unit consisting of two shares of Common Stock
and one Class C Redeemable Common Stock Purchase Warrant to purchase Common
Stock at $1.14375 per share (a "Unit"), (ii) 427,500 Units issuable upon
exercise of an underwriter's warrant, (iii) 47,500 Units issuable upon exercise
of a consultant's warrant and (iv) 1,486,892 shares of Common Stock which may be
sold from time to time by certain selling security holders named therein. The
Company closed the Public Offering on July 29, 1996 for an aggregate gross
proceeds amount of $9,203,125, prior to any discounts, commissions or expenses
related thereto. The overallotment option, which is exercisable in the
discretion of the underwriter, remains open for a period of 45 days after July
24, 1996.
On May 6, 1996, the Company and Decade Entertainment ("Decade") entered into
an agreement to produce four theatrical action motion pictures. The movies will
be produced, subject to approval by the Company of certain creative aspects of
such movies, by Decade and executive produced by Joel Silver (producer of
EXECUTIVE DECISION and the LETHAL WEAPON and two DIE HARD action pictures) and
Richard Donner (director/producer of THE OMEN and SUPERMAN). Under the
agreement, the Company has agreed to guarantee payment of $3,200,000 per picture
payable upon the delivery of the "mandatory delivery items" (as defined in such
agreement) for each picture in consideration of receipt of foreign distribution
rights. The agreement may be extended, at Decade's option, to include a fifth
picture. The initial two films under the agreement are WHITE ROSE and MADE MEN,
neither of which yet has a scheduled release date.
Effective on April 29, 1996, the Company hired James L. Schwab as its new
Chief Financial Officer replacing its previous Chief Financial Officer after the
term of her employment agreement expired.
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CERTAIN FORWARD LOOKING STATEMENTS
THE ADVENTURES OF PINOCCHIO. The Company's largest theatrical feature film
project to date is titled THE ADVENTURES OF PINOCCHIO. The film had a budgeted
cost of approximately $29 million. Such film was released domestically on July
26, 1996 in a wide theatrical release. The film stars Academy Award winner
Martin Landau as "Geppetto," Jonathan Taylor Thomas, from the hit T.V. series
"Home Improvement," as Pinocchio and a puppet from Jim Henson's Creature Shop.
The film is being distributed domestically through New Line Pictures (a
division of Turner Entertainment Co., "New Line"). The Company's only prior wide
release theatrical feature film, ANDRE, achieved $17 million in domestic box
office receipts (I.E., the total of theatrical ticket sales, which revenue is
allocated among various parties). While the Company has entered into licenses
and pre-sales which substantially cover its portion of the budgeted costs of THE
ADVENTURES OF PINOCCHIO, the film will have to achieve domestic and foreign box
office levels substantially in excess of the levels achieved by ANDRE for the
Company to realize significant profitability on the film. The film achieved
domestic box office receipts of only $10 million through its third weekend of
release. See "Risk Factors -- Dependence on a Limited Number of Projects."
As part of its arrangement with New Line, the Company has retained primarily
the international distribution rights for the film and certain overages on the
picture. As part of its effort to fund its portion of the film's budget, the
Company has pre-sold most of the foreign markets and thus limited its potential
upside in the project above that which it otherwise would have had. The
agreements the Company has entered into for such pre-sales typically allow the
Company to participate in the revenues of the film only after the foreign
distributor has recouped its fees and costs. In addition, the Company will
participate in the domestic gross proceeds of the film in excess of certain
minimum amounts, which may not be exceeded. Further, the Company may participate
in certain other ancillary revenue streams related to the film. If the film does
not reach certain sales levels (domestically, internationally or in the
ancillary markets, including merchandising), including sales which would allow
for the recoupment of costs related to the realization of such revenues,
additional revenues to the Company would be limited or non-existent. In the
event the film is successful, the Company will be required to share its net
profits with certain third parties, including Newmarkt Capital Group L.P.
("Newmarket") the production lender for the film. The Company gave Newmarket a
net profit participation in the film in connection with an amendment to the
production loan agreement in which amendment Newmarket agreed to accept certain
presales of the film made by the Company. The Company has also entered into a
settlement agreement with a third party pursuant to which the Company has paid
$10,000 to such third party and given such third party ten percent of the
Company's net profit participation in connection with the film.
The foregoing are some of the potential issues which could impact the
success of THE ADVENTURES OF PINOCCHIO, and thus the Company. In addition, there
are many other events which could adversely affect this or any film which are
not specifically set forth herein. Any potential investor must be aware that the
production and distribution of feature films is a risky, unpredictable venture.
The actual results may differ materially based upon these or other factors. See
"Risk Factors -- Television and Feature Film Industries."
KLC/NEW CITY TELE-VENTURES; NEW CITY RELEASING. In 1995, the Company formed
KLC/New City Tele-Ventures ("KLC/New City") with New City Releasing, Inc. ("New
City") to acquire films for distribution through the emerging new delivery
systems. The Company has begun preliminary discussions with New City in
connection with the possible acquisition by the Company of the 35% of the
KLC/New City joint venture it does not currently own and/or the possible
acquisition by the Company of all or a portion of New City itself. New City owns
the right to distribute certain third party programs and films through its
distribution channels. The Company and New City have a tentative agreement,
subject to final negotiation and documentation, for the joint venture ownership
to be adjusted so that the Company will own 82.5% of any new titles acquired by
the joint venture and for the Company to have a 30 day option to acquire,
retroactively to the date of formation of the joint
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venture, 50% of New City's interest in any titles acquired by the joint venture
prior to the date of such agreement for $500,000 or for $750,000 worth of Common
Stock, when available and issued. Any such stock for stock exchange may result
in additional dilution of the Common Stock and additional shares which may be
available for public sale and could impact the trading value of the Common
Stock. The parties may determine, for various reasons, including differences in
valuation of the business, differences over control and operational issues and
differences over artistic issues to not proceed with any such transaction.
Accordingly, there is no assurance that any transaction will be consummated with
New City and, if consummated, upon what terms such transaction would be
consummated.
TVFIRST. In fiscal 1995, the Company entered into a partnership with David
Sams Industries, Inc. named TVFirst ("TVFirst") which creates and markets
infomercials. One of TVFirst's current projects is a Christian music
infomercial, in which a recording of Christian music sung by leading gospel
artists is marketed. TVFirst has purchased air time for such infomercial but
neither TVFirst nor either of its partners (including the Company) had the
excess available resources to fund such purchases. Messrs. Locke and Kushner
have loaned to TVFirst $30,000 as of March 31, 1996 to enable TVFirst to
purchase such air time; subsequent loans by Messrs. Locke and Kushner have
totaled an additional $355,000 through June 30, 1996. Such loans, subject to
final documentation, will be guaranteed by the Company, will bear interest at a
rate of prime (8.25% as of August 9, 1996) plus 1% and are anticipated to be
repaid within six months, or possibly earlier based upon the cash flow of
TVFirst. In addition, each lender will also receive an additional amount equal
to 10% of the principal amount loaned by such lender, which amount will be
payable on the repayment date. Furthermore, each lender will receive a profit
participation in the profits, if any, related to the Christian music
infomercial, up to an amount equal to 5% of its principal amount, which amount
will be payable on the first anniversary of such repayment. On August 6, 1996,
an aggregate of $200,000 of such loans, $100,000 to each of Messrs. Locke and
Kushner, have been repaid. There is no assurance that the infomercial will
generate revenues in excess of its programming and media costs. The foregoing
transaction was approved by a majority of the independent directors of the
Company's Board of Directors.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS
WELL AS ALL OF THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING
AN INVESTMENT IN THE SHARES:
1. LIQUIDITY OF FINANCING REQUIREMENTS. The Company's business is capital
intensive. The Company has experienced substantial negative cash flows from
operating activities over the past three fiscal years which have been offset by
equity and debt financings. As the Company expands its production and
distribution activities, it may continue to experience negative cash flows from
operating activities. In such circumstances, the Company may be required to fund
at least a portion of production and distribution costs, pending receipt of
anticipated future licensing revenues, from working capital, including its line
of credit, or from additional debt or equity financings from outside sources.
The Company has a limited number of shares of Common Stock available after the
completion of the Public Offering which may restrict or preclude additional
equity financings. See "-- Limited Number of Shares of Common Stock Available
After Public Offering." The Company had outstanding approximately $4.3 million
of corporate guarantees as of June 30, 1996 on certain productions which project
loans come prior to the end of November 1997. Any required payments on such
guarantees may negatively impact the Company's liquidity. If the funds available
to the Company under its new syndicated revolving credit agreement based upon
the borrowing base formula set forth therein or from other sources prove to be
insufficient or unavailable for any reason, the Company may be required to seek
other sources of financing to meet its working capital requirements during the
next 12 months. There is no assurance that the Company will be able to obtain
such financing or that such financing, if available, will be on terms
satisfactory to the Company.
2. VARIABILITY OF QUARTERLY RESULTS; PRIOR LOSSES. The Company's operating
revenues, cash flow and net earnings historically have fluctuated significantly
from quarter to quarter, depending in large part on the delivery or availability
dates of its programs and product and the amount of production costs incurred
and amortized in the period. Therefore, year-to-year comparisons of quarterly
results may not be meaningful and quarterly results during the course of a
fiscal year may not be indicative of results that may be expected for the entire
fiscal year. In addition, primarily as a result of significant net losses in
fiscal 1993, 1994 and 1995, the Company had an accumulated deficit of
approximately $2.7 million at June 30, 1996.
3. INCREASED INTEREST EXPENSE. Increased borrowing by the Company under
its new syndicated revolving credit agreement with Chemical will most likely
increase interest expense and adversely affect the results of operations of the
Company unless the Company is able to profitably use such increased borrowings.
4. DEPENDENCE ON A LIMITED NUMBER OF PROJECTS. The Company is dependent on
a limited number of television programs, films and other projects that change
from period to period for a substantial percentage of its revenues. The change
in projects from period to period is due principally to the opportunities
available to the Company and to audience response to its programs and films,
which are unpredictable and subject to change. For the nine months ended June
30, 1996, 10 projects accounted for 56% of the total revenue for such period.
For the fiscal year ended September 30, 1995, 6 other projects accounted for
approximately 66% of the total revenue for such fiscal year. The loss of a major
project, unless replaced by new projects, or the failure or less-than-expected
performance of a major project could have a material adverse effect on the
Company's results of operations and financial condition as well as the market
price of the Company's securities. There is no assurance that the Company will
continue to generate the same level of new projects or that any particular
project released by the Company will be successful. See "The Company -- Certain
Forward Looking Statements -- The Adventures of Pinocchio."
5. CERTAIN ACCOUNTING POLICIES; AMORTIZATION OF FILM COST. The Company
generally recognizes revenues when a program or film is either delivered or
available for delivery. Capitalized production
7
<PAGE>
costs are amortized each period in the ratio that the current period's gross
revenues bear to management's estimate of anticipated total gross revenues from
the program or film during its useful life. Accordingly, in the event management
reduces its estimate of the future revenues of a program or film, a significant
write-down and a corresponding decrease in the Company's earnings in the quarter
and fiscal year in which such write-down is taken could result.
6. LIMITED NUMBER OF SHARES OF COMMON STOCK AVAILABLE AFTER PUBLIC
OFFERING. Upon completion of the Public Offering, there will be 79,226,277
shares of Common Stock issued and outstanding or reserved for issuance (in the
event the Over-allotment Option is exercised in full but excluding options to
acquire 1,800,000 shares of Common Stock which the holders thereof have agreed
not to exercise prior to the shareholders of the Company increasing the
authorized number of shares of Common Stock or until such shares otherwise are
available for issuance) out of a total of 80,000,000 shares of Common Stock
authorized under the Company's Articles of Incorporation. See "Description of
Securities -- Shares Eligible for Future Sale." Accordingly, the Company will be
substantially restricted in its ability to issue additional shares of Common
Stock, including issuances to raise capital or acquire assets using Common Stock
as the means of payment. The Company can only increase its authorized capital
stock by amending its Articles of Incorporation. While the Company intends to
increase its authorized but unissued capital stock at its next meeting of
shareholders, such an amendment requires the approval of the shareholders and,
even if approved, any delay in approval could cause the Company to be unable to
raise additional equity required for its operations or to miss an available
opportunity to raise additional capital or to acquire assets or otherwise. In
addition, there can be no assurance that the shareholders of the Company will
vote to increase the authorized capital of the Company.
7. DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts
and abilities of Donald Kushner and Peter Locke, the Company's founders and
principal executive officers, and certain other members of senior management.
The Company has entered into employment agreements with each of Messrs. Kushner
and Locke, which agreements expire in September 1998. The Company is currently
in negotiations with Messrs. Kushner and Locke to extend their employment
agreements through September 2000. There is no assurance that such extension
will be agreed to or as to the terms such extensions will be made, although it
is likely that such executive officers will require increased compensation. The
Company has obtained and is the beneficiary of term life insurance policies on
each of the lives of Messrs. Kushner and Locke in the amount of $5,000,000. The
loss of the services of either Messrs. Kushner or Locke, or of other key
personnel, could have a material adverse effect on the business of the Company
if suitable replacements could not be found quickly. The new syndicated
revolving credit agreement with Chemical also includes as events of default the
failure of either Messrs. Kushner or Locke to be the Chief Executive Officer of
the Company or if any person or group acquires ownership or control of capital
stock of the Company having voting power greater than the voting power at the
time controlled by Messrs. Kushner and Locke combined (other than an
institutional investor able to report its holdings on Schedule 13G which holds
no more than 15% of such voting power). There is no assurance that such event of
default will not occur or that if it occurs, that the bank will waive such
default.
8. PRODUCTION DEFICITS. The revenues from pre-sales, output arrangements
and the initial licensing of television programming or film, particularly in the
case of license fees for network series, may be less than the associated
production costs. The ability of the Company to cover the production costs of
particular programming or films is dependent upon the availability, timing and
the amount of such revenues obtained from third parties, including revenues from
foreign or ancillary markets where available. In any event, the Company
generally is required to fund at least a portion of production costs, pending
receipt of such revenues, out of its lines of credit or its working capital.
Although the Company's strategy generally is not to commence principal
photography without first obtaining commitments which cover all or substantially
all of the budgeted production costs, from time to time the Company may commence
principal photography without having obtained such commitments. In the past, the
Company has commenced principal photography on a limited number
8
<PAGE>
of projects prior to first obtaining commitments which cover substantially all
of the budgeted production costs but was able subsequently to obtain commitments
to cover substantially all of such costs. Each such project was one which the
Company believed would be successful and for which the Company determined it was
necessary to begin principal photography on an expedited basis. There is no
assurance that the Company will be able to cover project costs in the future if
it was to undertake projects prior to obtaining adequate pre-sales.
9. TELEVISION AND FEATURE FILM INDUSTRIES. The production and distribution
of television programs and feature films involves a substantial degree of risk.
The success of an individual television program or feature film depends upon
subjective factors, such as the personal tastes of the public and critics and
alternative forms of entertainment, and does not necessarily bear a direct
correlation to the costs of production and distribution. Therefore, there is a
risk that some or all of the Company's projects will not be successful,
resulting in costs not being recouped and losses being incurred. In addition,
typically for television projects, the networks pay license fees equal to
approximately 80-90% of the production budget as the project is being produced.
The remainder of the production budget is usually covered by foreign sales which
are typically paid when the project is made available or delivered to such
entities. However, with feature film production, approximately 40-50% of the
production budget is covered by domestic sales which are typically paid in
thirds upon the project being available for release in different media. The
remainder of the production budget is usually financed by foreign sales which
are typically paid when the project is made available or delivered to such
entities. Accordingly, as the Company has shifted a significant portion of its
product mix from its traditional base of network-television programming to
feature films (for the first six months of fiscal 1996 approximately 48% of
revenues were from feature film activities versus approximately 34% of revenues
for fiscal 1995 and 21% of revenues for fiscal 1994), the Company has become
subject to the increased risk of feature film activities, including the longer
lead times for completion of new product and receipt of related cash flow from
exploitation of such product.
10. COMPETITION. Competition in the television and motion picture
industries is intense. The Company competes with the major motion picture
studios, numerous independent producers of television programming and feature
films and the major U.S. networks for the services of actors, other creative and
technical personnel and creative material and, in the case of network television
programming, for a limited number of time slots for episodic series,
movies-of-the-week and mini-series. Many of the Company's principal competitors
have greater financial, distribution, technical and creative resources than the
Company.
11. GOVERNMENT REGULATION. The Federal Communications Commission ("FCC")
repealed its financial interest and syndication rules, effective as of September
21, 1995. Those FCC rules, which were adopted in 1970 to limit television
network control over television programming and thereby foster the development
of diverse programming sources, had restricted the ability of the three
established, major U.S. television networks (I.E., ABC, CBS and NBC) to own and
syndicate television programming. The ultimate impact of the repeal of the FCC's
financial interest and syndication rules on the Company's operations cannot be
predicted at the present time, although there has been an increase in in-house
productions of programming for the networks' own use and potentially a decrease
of programming from independent suppliers such as the Company.
Under the Telecommunications Act of 1996 enacted in February 1996 (the "1996
Act"), manufacturers of television set equipment will be required to equip all
new television receivers with a so-called "V-Chip" which would allow for
parental blocking of violent, sexually-explicit or indecent programming based on
a rating for any given program that would be broadcast along with the program.
Unless the television industry establishes a voluntary ratings system by
February 1998, the FCC is directed by the 1996 Act to develop a ratings system
based upon the recommendations of an advisory committee selected by the FCC. A
coalition of various segments of the entertainment industry has announced plans
to devise a voluntary industry ratings code for rating video programming with
respect to violent, sexual or indecent content. The industry coalition has
announced its intent to have these new guidelines in place before February 1997.
Other provisions of the 1996 Act revise the multiple
9
<PAGE>
ownership broadcast rules, allow local exchange telephone companies to offer
multichannel video programming service, subject to certain regulatory
requirements, and allow for cable companies to offer local exchange telephone
service.
The impact on the Company of the changes brought about by the 1996 Act and
by accompanying changes in FCC rules cannot be predicted at the present time,
although it is expected that there will be an increase in the demand for video
programming product as a result of the likelihood that these regulatory changes
will facilitate the advent of additional exhibition sources for such
programming. However, it is possible that recent alliances of certain program
producers and television station group owners, coupled with the recent FCC rule
revisions allowing a single television station licensee to own television
stations reaching up to 35% of the nation's television households, may place
additional competitive pressures on program suppliers, such as the Company, to
the extent they are unaligned with the major networks or any television station
group owners.
12. LABOR RELATIONS. The Company and certain of its subsidiaries are
parties to several collective bargaining agreements. The Company's union
contracts are industry-wide and its labor relations are not entirely dependent
on its activities or decisions alone. Future revenues and earnings could be
adversely affected by a labor dispute or strike.
13. ABSENCE OF CASH DIVIDENDS. The Company has never paid any cash
dividends on the Common Stock and has no present intention to declare or pay
cash dividends.
14. NO ASSURANCE OF PUBLIC MARKET. The Common Stock is currently listed on
the NNM. There can be no assurance that such listing will be maintained or that
an adequate market for the Common Stock will be maintained.
15. SHARES AVAILABLE FOR FUTURE SALE. Substantially all of the 51,658,412
shares of Common Stock outstanding as of August 6, 1996 (excluding the shares of
Common Stock subject to the Over-allotment Option) and, subject to issuance, the
24,948,264 shares of Common Stock issuable upon exercise of outstanding options
or warrants (excluding the warrants subject to the Over-allotment Option, the
warrants being sold to the underwriter and a consultant to the Company and the
options to acquire 1,800,000 shares of Common Stock which the holders thereof
have agreed not to exercise prior to the shareholders of the Company increasing
the authorized number of shares of Common Stock or until such shares otherwise
are available for issuance), or issuable upon conversion of outstanding
convertible securities will be freely tradeable in the public markets, in
certain cases pursuant to a registration statement or available exemption from
registration. Of such shares issuable upon exercise or conversion of outstanding
securities, approximately 16,816,609 shares are issuable at or below $1.27 per
share, 5,706,655 additional shares are issuable at or below $1.58 per share and
2,300,000 additional shares are issuable at or below $2.00 per share.
Approximately, 7,230,779 shares held by affiliates will be subject to a
six-month lock-up in favor of the underwriter of the Public Offering. The
availability of shares for public sale, or the perception of such availability,
may have a depressive effect on the market price of the Common Stock.
USE OF PROCEEDS
The Company will use the proceeds received from the exercise of the Warrants
and/or the Options, if any, for working capital and general corporate purposes.
The Company will receive no proceeds from the conversion to Common Stock, if
any, of the 8% Debentures or the 9% Debentures issued, if at all, upon the
exercise of certain Warrants to purchase such securities. The Company will
receive no proceeds from the sale of the Shares pursuant to this Prospectus.
The Company expects to continue to use a significant amount of its working
capital to finance its development, production and distribution activities,
including those of its feature film division. The amount of working capital
required for production activities will vary depending on, among other things,
actual production costs, the timing of payments from, among others, proceeds
from output
10
<PAGE>
arrangements, the networks and other third parties and the availability of
additional licensing revenue. Additionally, the Company has expanded its
distribution activities and may use a portion of the net proceeds to finance
distribution activities in international or other markets.
The Company from time to time considers the acquisition of assets or
businesses complimentary to its current operations and may do so in the future.
However, as of the date hereof, the Company does not have pending any agreements
for the acquisition of any business (other than as described herein) nor has it
allocated any portion of the net proceeds for any specific acquisitions.
SELLING SHAREHOLDERS
An aggregate of 2,072,809 shares of Common Stock are being registered in
this offering for the account of the Selling Shareholders. The Shares may be
sold by the Selling Shareholders or their respective transferees commencing on
the date of this Prospectus after the prior exercise, if at all, of their
respective Warrants or Options, and, in the case of the Warrants to purchase the
8% Debentures and the 9% Debentures, upon their subsequent conversion to Common
Stock. Sales of the Shares may depress the price of the Common Stock in any
market for the Common Stock.
The following table sets forth certain information with respect to persons
for whom the Company is registering the Shares for resale to the public. The
Company will not receive any of the proceeds from the sale of the Shares to the
public but will receive money upon the exercise, if any, of the Warrants and
Options. See "Use of Proceeds." Each of the Selling Shareholders have acted as
underwriter, placement agent or consultant for the Company in previous
securities offerings or is an assignee of such underwriter, placement agent or
consultant. None of the Selling Shareholders has had any other position, office
or material relationship with the Company or its affiliates since the Company's
inception in 1983.
The Shares being registered pursuant to the registration statement of which
this Prospectus is a part will be sold, if at all, by the Selling Shareholders
listed below:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF
COMMON STOCK SHARES OF AMOUNT OF SHARES
BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK
BEFORE THE BEING OWNED AFTER
NAME OFFERING (1) REGISTERED OFFERING (2)
- -------------------------- -------------------- --------------- -----------------
<S> <C> <C> <C>
RAS Securities Corp. 1,063,775 1,063,775 -0-
Paul Morris 354,591 354,591 -0-
Lawrence G. Williams 354,591 354,591 -0-
Irwin Friedman 328,552 299,852 28,700
</TABLE>
- ------------------------
(1) Assuming full exercise of the Warrants and Options, and as applicable, the
full conversion into Common Stock of the 8% Debentures and the 9% Debentures
issued upon exercise of certain Warrants to purchase such Debentures.
(2) Assuming the full sale of all of the shares of Common Stock registered as
part of the registration statement of which this Prospectus is a part.
PLAN OF DISTRIBUTION
The Shares may be offered by the Selling Shareholders after the exercise of
their respective Warrants or Options, or portions thereof, and, in the case of
the Warrants to purchase the 8% Debentures and the 9% Debentures, upon their
subsequent conversion to Common Stock. There is no assurance that any of the
Warrants or Options will be exercised or that if they are exercised, in the case
of the Warrants to purchase the 8% Debentures and the 9% Debentures, they will
be subsequently converted to shares of Common Stock. The holders of the Warrants
and Options have agreed to not sell or otherwise dispose of their securities of
the Company for a period of six months beginning on July 24, 1996.
11
<PAGE>
The sale of the Shares may be effected from time to time in transactions
(which may include block transactions by or for the account of the Selling
Shareholders) in the over-the-counter market, on the NNM or in negotiated
transactions, through the writing of options on the Shares, through a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. If any Selling Shareholder sells his, her or its Shares,
or options thereon, pursuant to this Prospectus at a fixed price or at a
negotiated price which is, in either case, other than the prevailing market
price or in a block transaction to a purchaser who resells, or if any Selling
Shareholder pays compensation to a broker-dealer that is other than the usual
and customary discounts, concessions or commissions, or if there are any
arrangements either individually or in the aggregate that would constitute a
distribution of the Shares held by a Selling Shareholder, a post-effective
amendment to the registration statement of which this Prospectus is a part would
need to be filed and declared effective by the Commission before such Selling
Shareholder could make such sale, pay such compensation or make such a
distribution. The Company is under no obligation to file a post-effective
amendment to the registration statement of which this Prospectus is a part under
such circumstances.
The Selling Shareholders may effect transactions in their Shares by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Shareholders or to broker-dealers who may purchase the Selling
Shareholder's Shares as principals and thereafter sell such securities from time
to time in the over-the-counter market, on the NNM, in negotiated transactions,
or otherwise. Such broker-dealers, if any, may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers for whom such broker-dealers may act as agents or to whom they
may sell as principals or both.
The Selling Shareholders and broker-dealers, if any, acting in connection
with such sales might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them and any
profit on the resale of such securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
In order to comply with the applicable securities laws of certain states, if
any, the Shares will be offered or sold through registered or licensed
broker-dealers in those states. In addition, in certain states the Shares may
not be offered or sold unless they have been registered or qualified for sale in
such states or an exemption from such registration or qualification requirement
is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of securities may not simultaneously engage in market
making activities with respect to such securities for a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, in
connection with transactions in the Selling Stockholder Shares during the
effectiveness of the registration statement of which this Prospectus is a part.
All of the foregoing may affect the marketability of the Shares.
The Company will pay all of the expenses, including, but not limited to,
fees and expenses of compliance with state securities or blue sky laws, incident
to the registration of the Shares, other than underwriting discounts and selling
commissions, and fees or expenses, if any, of counsel or other advisors retained
by the Selling Shareholders.
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 80,000,000 shares of
Common Stock. At August 6, 1996, the Company had 51,658,412 shares of Common
Stock issued and outstanding.
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<PAGE>
Each share of Common Stock entitles the holder thereof to vote on all
matters submitted to the shareholders; in electing directors, however, each
shareholder is entitled to cumulate votes for any candidate if, prior to the
voting, such candidate's name has been placed in nomination and any shareholder
has given notice of an intention to cumulate votes. The Common Stock is not
subject to redemption or to liability for further calls or assessment. Holders
of Common Stock will be entitled to receive such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefor
and to share pro rata in any distribution to shareholders. The shareholders have
no conversion, preemptive or other subscription rights.
The warrants to purchase up to $1,643,330 aggregate principal amount of the
8% Debentures can be exercised at any time until March 10, 1999, at an exercise
price of 120% of the principal amount of the 8% Debentures so purchased. Upon
exercise, the 8% Debentures are convertible into shares of Common Stock at a
conversion price of $0.975 per share of Common Stock, subject to adjustment
under certain circumstances.
The warrants to purchase up to $454,000 aggregate principal amount of the 9%
Debentures can be exercised at any time until July 24, 1999, at an exercise
price of 120% of the principal amount of the 9% Debentures so purchased. Upon
exercise, the 9% Debentures are convertible into shares of Common Stock at a
conversion price of $1.58 per share of Common Stock, subject to adjustment under
certain circumstances.
The options to purchase 100,000 shares of Common Stock can be exercised at
any time until October 5, 2000, at an exercise price of $0.75 per share of
Common Stock, subject to adjustment under certain circumstances.
TRANSFER AGENT
The Transfer Agent for the Common Stock is Corporate Stock Transfer, Denver,
Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the 51,658,412 shares of Common Stock outstanding as of
August 6, 1996 (excluding the shares of Common Stock subject to the
Over-allotment Option), and, subject to issuance, the 24,948,264 shares of
Common Stock issuable upon exercise of outstanding options or warrants
(excluding the warrants sold to the underwriter of the Public Offering and a
consultant to the Company as part of the Offering and the options to acquire
1,800,000 shares of Common Stock which Messrs. Locke and Kushner have agreed not
to exercise prior to the shareholders of the Company increasing the authorized
number of shares of Common Stock or until such shares otherwise are available
for issuance) or issuable upon conversion of outstanding convertible securities
will be freely tradeable in the public markets, in certain cases pursuant to a
registration statement or available exemption from registration. Of such shares
issuable upon exercise or conversion of outstanding securities, approximately
16,816,609 shares are issuable at or below $1.27 per share, 5,706,655 additional
shares are issuable at or below $1.58 per share and 2,300,000 additional shares
are issuable at or below $2.00 per share. Approximately 7,230779 shares held by
affiliates are subject to a six-month lock-up in favor of the underwriter of the
Public Offering. The availability of shares for public sale, or the perception
of such availability, may have a depressive effect on the market price of the
Common Stock.
EXPERTS
The consolidated financial statements of The Kushner-Locke Company at
September 30, 1995 and 1994, and for each of the three years in the period ended
September 30, 1995, appearing in this Prospectus and Registration Statement have
been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein or incorporated by reference
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY THAT THE
INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents By
Reference..................................... 2
The Company.................................... 3
Risk Factors................................... 7
Use of Proceeds................................ 10
Selling Shareholders........................... 11
Plan of Distribution........................... 11
Description of Securities...................... 12
Shares Eligible for Future Sale................ 13
Experts........................................ 13
</TABLE>
THE KUSHNER-
LOCKE COMPANY
2,072,809 SHARES
OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
AUGUST , 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All amounts are estimates except Securities
and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 447
NASD Listing Fee.................................................. $ 7,500
Blue Sky fees and expenses........................................ $ 7,500
Accounting fees and expenses...................................... $ 2,500
Legal fees and expense............................................ $ 25,000
Miscellaneous..................................................... $ 4,053
---------
Total......................................................... $ 47,000
---------
---------
</TABLE>
- ------------------------
None of the expenses of issuance and distribution of the Shares is to be
borne by the Selling Shareholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to provisions of the California General Corporation Law ("CGCL"),
the Articles of Incorporation of the registrant (the "Company"), as amended,
include a provision which eliminates the personal liability of its directors to
the Company and its shareholders for monetary damage to the fullest extent
permissible under California law. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Company or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Company of its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing his or her duties, of a risk of a serious injury to the Company or
its shareholders, (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Company or its shareholders, (vi) under Section 310 of the CGCL (concerning
contracts or transactions between the Company and a director or (vii) under
Section 316 of the CGCL (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not eliminate or limit the liability
of an officer for any act or omission as an officer, notwithstanding that the
officer is also a director or that his actions, if negligent or improper, have
been ratified by the Board of Directors. Further, the provision has no effect on
claims arising under federal or state securities or blue sky laws and does not
affect the availability of injunctions and other equitable remedies available to
the Company's shareholders for any violation of a director's fiduciary duty to
the Company or its shareholders.
The Company's Articles of Incorporation also authorize the Company to
indemnify its agents (as defined in Section 317 of the CGCL) for breach of duty
to the corporation and its shareholders through bylaw provisions, agreements or
both, in excess of the indemnification otherwise permitted by Section 317 of the
CGCL subject to the limits on such excess indemnification set forth in Section
204 of the CGCL. The general effect of Section 317 of the CGCL and Article V of
the Company's bylaws, as amended, is to provide for indemnification of its
agents to the fullest extent permissible under California law.
The Company maintains insurance coverage for each director and officer of
the Company for claims against such directors and officers for any alleged
breach of duty, neglect, error, misstatement,
II-1
<PAGE>
misleading statement, omission or out in their respective capacities as
directors and officers of the Company, or any matter claimed against them solely
by reason of their status as directors or officers of the Company, subject to
certain exceptions.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
4.1 Indenture between the Company and National City Bank of Minneapolis, as Trustee, dated as of
December 1, 1990 pertaining to 10% Convertible Subordinated Debentures Due 2000, Series A (A)
4.2 First Supplemental Indenture between the Company and National City Bank of Minneapolis, as Trustee,
dated as of March 15, 1991 pertaining to 10% Convertible Subordinated Debentures Due 2000, Series A
(B)
4.3 Indenture between the Company and National City Bank of Minneapolis, as Trustee, dated as of
December 1, 1990 pertaining to 13 3/4% Convertible Subordinated Debentures Due 2000, Series B (A)
4.4 Warrant agreement between the Company and City National Bank, as Warrant Agent, dated as of March
19, 1991 pertaining to Common Stock Purchase Warrants (B)
4.5 Warrant Agreement between the Company and Chatfield Dean & Co., Inc. dated as of November 13, 1992
(C)
4.6 Employment Agreement dated October 1, 1993 between the Company and Lawrence Mortorff (D)
4.7 Fiscal Agency Agreement dated March 10, 1994 between and among the Company, Bank America National
Trust Company and Bank of America National Trust and Savings Association (D)
4.8 Side letter between the Company and BankAmerica Trust Company to the Fiscal Agency Agreement dated
March 10, 1994 between and among the Company, BankAmerica Trust Company and Bank of America
National Trust and Savings Association (D)
4.9 Warrant Agreement dated March 10, 1994 between the Company and RAS Securities Corp. (D)
4.10 Fiscal Agency Agreement dated July 25, 1994 between and among the Company, Bank America National
Trust Company and Bank of America National Trust and Savings Association (E)
4.11 Form of Warrant Agreement with Lew Lieberman & Co. Inc. (F)
4.12 Form of Class C Redeemable Common Stock Purchase Warrants (F)
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
- ------------------------
(A) Incorporated by reference from the Exhibits to the Company's Registration
Statements on Form S-1, as amended, effective November 30, 1990 (File No.
33-37192), and effective December 20, 1990 (File No. 33-37193).
(B) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, effective March 20, 1991.
(C) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective November 12, 1992 (Commission
File No. 33-51541).
(D) Incorporated by reference from the Exhibits to the Company's Report on Form
10-Q for the fiscal quarter ended March 31, 1994.
(E) Incorporated by reference from the Exhibits to the Company's Report on Form
10-Q for the fiscal quarter ended June 30, 1994.
(F) Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective July 24, 1996 (Commission File
No. 333-5089).
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
the securities offered would not exceed that which was registered) and
any deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in its
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Los Angeles, State of California, on August 15, 1996.
THE KUSHNER-LOCKE COMPANY,
By: /s/ DONALD KUSHNER
-----------------------------------
Donald Kushner
CO-CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ PETER LOCKE
------------------------------------------- Co-Chairman of the Board, Co-Chief August 15, 1996
Peter Locke Executive Officer and President
/s/ DONALD KUSHNER
------------------------------------------- Co-Chairman of the Board, Co-Chief August 15, 1996
Donald Kushner Executive Officer and Secretary
/s/ JAMES L. SCHWAB
------------------------------------------- Chief Financial Officer August 15, 1996
James L. Schwab
/s/ RENE ROUSSELET Vice President of Finance and
------------------------------------------- Controller (Chief Accounting August 15, 1996
Rene Rousselet Officer)
/s/ S. JAMES COPPERSMITH
------------------------------------------- Director August 15, 1996
S. James Coppersmith
/s/ STUART HERSCH
------------------------------------------- Director August 15, 1996
Stuart Hersch
/s/ MILTON OKUN
------------------------------------------- Director August 15, 1996
Milton Okun
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
4.1 Indenture between the Company and National City Bank of Minneapolis, as Trustee, dated as of
December 1, 1990 pertaining to 10% Convertible Subordinated Debentures Due 2000, Series A
(A)
4.2 First Supplemental Indenture between the Company and National City Bank of Minneapolis, as
Trustee, dated as of March 15, 1991 pertaining to 10% Convertible Subordinated Debentures
Due 2000, Series A (B)
4.3 Indenture between the Company and National City Bank of Minneapolis, as Trustee, dated as of
December 1, 1990 pertaining to 13 3/4% Convertible Subordinated Debentures Due 2000, Series
B (A)
4.4 Warrant agreement between the Company and City National Bank, as Warrant Agent, dated as of
March 19, 1991 pertaining to Common Stock Purchase Warrants (B)
4.5 Warrant Agreement between the Company and Chatfield Dean & Co., Inc. dated as of November 13,
1992 (C)
4.6 Employment Agreement dated October 1, 1993 between the Company and Lawrence Mortorff (D)
4.7 Fiscal Agency Agreement dated March 10, 1994 between and among the Company, Bank America
National Trust Company and Bank of America National Trust and Savings Association (E)
4.8 Side letter between the Company and BankAmerica Trust Company to the Fiscal Agency Agreement
dated March 10, 1994 between and among the Company, BankAmerica Trust Company and Bank of
America National Trust and Savings Association (D)
4.9 Warrant Agreement dated March 10, 1994 between the Company and RAS Securities Corp. (D)
4.10 Fiscal Agency Agreement dated July 25, 1994 between and among the Company, Bank America
National Trust Company and Bank of America National Trust and Savings Association (E)
4.11 Form of Warrant Agreement with Lew Lieberman & Co. Inc. (F)
4.12 Form of Class C Redeemable Common Stock Purchase Warrants (F)
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
- ------------------------
(A) Incorporated by reference from the Exhibits to the Company's Registration
Statements on Form S-1, as amended, effective November 30, 1990 (File No.
33-37192), and effective December 20, 1990 (File No. 33-37193).
(B) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, effective March 20, 1991.
(C) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective November 12, 1992 (Commission
File No. 33-51541).
(D) Incorporated by reference from the Exhibits to the Company's Report on Form
10-Q for the fiscal quarter ended March 31, 1994.
(E) Incorporated by reference from the Exhibits to the Company's Report on Form
10-Q for the fiscal quarter ended June 30, 1994.
(F) Incorporated by reference from the Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective July 24, 1996 (Commission File
No. 333-5089).
<PAGE>
EXHIBIT 23.1
The Board of Directors
The Kushner-Locke Company:
We consent to the use of our reports incorporated herein by reference from
the September 30, 1995 Annual Report on Form 10-K and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
August 14, 1996
