<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
---------------
AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 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
The aggregate market value based on the closing price of the Registrant's
Common Stock held by nonaffiliates of the Registrant was approximately
$21,194,000 as of December 31, 1995.
There were 35,679,607 shares of outstanding Common Stock of the Registrant
as of December 31, 1995.
Total number of pages 13
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The undersigned registrant (the "Registrant") hereby amends the following
items of its Annual Report on Form 10-K for the fiscal year ended September 30,
1995 (the "Report") as follows:
PART III
The Registrant hereby deletes the information set forth under Items 10, 11,
12 and 13 of the Report and replaces such items in their entirety as set forth
below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
Directors of the Company are elected annually by the stockholders to serve
for a term of one year or until their successors are duly elected and qualified.
Set forth below is certain information concerning each person who is presently
an executive officer or director of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- ---------------------- --- -------- ------------------------------------------------------------
<S> <C> <C> <C>
Peter Locke 52 1983 Co-Chairman, Co-Chief Executive Officer and President;
Director
Donald Kushner+ 50 1983 Co-Chairman, Co-Chief Executive Officer and Secretary;
Director
S. James Coppersmith+ 63 1995 Director
Stuart Hersch 45 1989 Director
Milton Okun+ 72 1995 Director
Lenore Nelson 45 -- Chief Financial Officer, Executive Vice President and
Assistant Secretary
</TABLE>
- ------------------------
+ Member of Audit Committee
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
The business experience, principal occupations and employment of each of the
directors and executive officers of the Company, for at least the past five
years, are as follow:
Peter Locke co-founded the Company with Donald Kushner and currently serves
as Co-Chairman, Co-Chief Executive Officer and President of the Company. Mr.
Locke has served as executive producer on substantially all of the Company's
programming since its inception. Prior to 1983, Mr. Locke produced several
prime-time television programs, including two years of the STOCKARD CHANNING
SHOW and the NBC television mini-series THE STAR MAKER, starring Rock Hudson.
Mr. Locke also produced two made-for-television movies telecast on CBS and the
films THE HILLS HAVE EYES PARTS I and II.
Donald Kushner co-founded the Company with Peter Locke in 1983 and currently
serves as Co-Chairman, Co-Chief Executive Officer and Secretary. Mr. Kushner has
served as executive producer on substantially all of the Company's programming
since its inception. Mr. Kushner was the producer of TRON, a 1982 Walt Disney
theatrical film starring Jeff Bridges, which was nominated for two Academy
Awards.
S. James Coppersmith has served as director of the Company since 1995. Mr.
Coppersmith has been Chairman of the Board of Trustees of Emerson College,
Boston, Massachusetts, since December 1993. Previously, he served as President
of WCVB-TV Boston, a division of the Hearst Corporation, from 1982 to June 1994.
In addition, Mr. Coppersmith has been a member of the Board of Governors of the
Boston Stock Exchange since January 1995. Mr. Coppersmith has been a Director of
Sun America Asset Management Corp., a division of Sun America Corp., since 1985,
of Pizzeria Uno Corp. since 1987 and of Waban Corp. since March 1994.
2
<PAGE>
Stuart Hersch has served as a director of the Company since August 1989. Mr.
Hersch was an executive consultant to the Company on a full-time basis from
August 1989 through August 1990, and on a part-time basis from September 1990
through September 1993. From August 1990 to January 1996, Mr. Hersch was
President of the WarnerVision Entertainment division of Atlantic Records, a
subsidiary of Time-Warner, Inc. From 1988 to August 1989, Mr. Hersch was
Chairman of Hersch Diener & Company, an independent consulting firm. From 1983
to 1987, Mr. Hersch was the Chief Operating and Chief Financial Officer of King
World Productions, Inc.
Milton Okun has served as a director of the Company since 1995. Mr. Okun is
founder and major shareholder of Cherry Lane Music Company, Inc., which is a
privately held company. Mr. Okun has held these positions since 1960.
Lenore Nelson joined the Company in May 1994 and currently serves as Chief
Financial Officer, Executive Vice President and Assistant Secretary. From
December 1989 to May 1994, Ms. Nelson was a Senior Vice President with the
Entertainment Industries Group at Imperial Bank. Prior thereto, Ms. Nelson was a
Vice President of Entertainment Industries at Bank of California. Ms. Nelson has
also acted as a manager of film/television post-production services provided to
various entertainment companies including Columbia Television, The Walt Disney
Company, Warner Brothers, Inc., Paramount Communications, Inc. and NBC
Productions.
Directors who are also executive officers of the Company do not receive any
additional compensation for serving as members of the Board of Directors or any
committee thereof. Peter Locke, Donald Kushner and Milton Okun will receive no
compensation for serving as a member of the Board of Directors. S. James
Coppersmith and Stuart Hersch will receive $20,000 and $25,000, respectively,
payable quarterly for fiscal 1995 for serving on the Board of Directors and any
committees, thereof.
During the 1995 fiscal year, there were two meetings of the Board of
Directors and no meetings of the Option Committee of the Board of Directors. All
other actions of the Board of Directors and Option Committee were taken pursuant
to unanimous written consents. There was no meeting of the Audit Committee apart
from the full meeting of the Board of Directors. Each then-current director
attended the meetings of the Board of Directors and the Option Committee held
during the period for which he has been a director or for which he has served as
an Option Committee member.
OTHER SIGNIFICANT EMPLOYEES
Gregory Cascante, age 46, joined the Company on September 1, 1994 as
President and Chief Executive Officer of Kushner-Locke International, Inc., the
international theatrical distribution subsidiary of the Company. Cascante has
served as President and Chief Executive Officer of August Entertainment, a
foreign sales agency for theatrical film producers, since 1988.
Patricia Clifford, age 45, has served as an Executive Producer for the
Company since January 1993. Prior to joining the Company, Ms. Clifford was
President of Interscope Communications from 1986 through January 1993.
Rob Dwek, age 31, has been with the Company since October 1990 as Vice
President of Development; as Executive Vice President of Development of the
Company since January 1995; and as President of Television since June 1995.
Before joining the Company, Mr. Dwek was employed by Creative Artists Agency
from July 1989 to October 1990 and prior thereto was with Bob Athens
Productions.
Janet Faust, age 41, has served as an Executive Producer for the Company
since March 1992. Prior to joining the Company, Ms. Faust was an Executive
Producer for Spectator Films from June 1989 to March 1992 and from May 1984 to
May 1989 was employed by NBC where she supervised the development and production
of numerous made-for-television movies.
Marvinia Anderson, age 53, has served as President of KL International,
Inc., the Company's international television distribution subsidiary, since June
1995. Prior to joining the Company, she served in various executive sales
positions with World International Network, Inc., Capital Cities/ABC and Times
Mirror Cable.
3
<PAGE>
Lawrence Mortorff, age 48, has served as President of KL Features, Inc., a
subsidiary of the Company responsible for the production of feature films, since
October 1993. From April 1993 to October 1993, Mr. Mortorff served as a
consultant to the Company. Mr. Mortorff was an independent producer of films
from 1987 through the time prior to joining the Company. Additionally, Mr.
Mortorff formed ISO, a company which represents films internationally, in 1989.
From 1985 to 1986, Mr. Mortorff was president of Scotti Bros. Pictures. Prior to
1985, Mr. Mortorff held various executive positions in the entertainment
industry, including vice president of ICM, and as an associate attorney in two
California law firms.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act, requires executive officers and
directors, and persons who beneficially own more than 10% of any class of the
Company's equity securities to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than 10% beneficial owners of any
class of the Company's equity securities are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and certain written representations from executive officers and
directors, the Company believes that each such person has complied with all
Section 16(a) filing requirements applicable to such executive officers,
directors and greater than 10% beneficial owners.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table sets forth the cash compensation paid or accrued by the
Company during the fiscal year ended September 30, 1995 to the Chief Executive
Officer and each executive officer of the Company whose salary and bonus
exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION (1) SECURITIES
-------------------- UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTIONS/SARS COMPENSATION (2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- -------------------------------------------------- --------- --------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Peter Locke 1995 425,000 -- -- 24,000
Co-Chairman, Co-Chief Executive Officer and 1994 400,000 -- 900,000/0 21,000
President 1993 397,000 -- -- 21,000
Donald Kushner 1995 425,000 -- -- 21,000
Co-Chairman, Co-Chief Executive Officer and 1994 400,000 -- 900,000/0 20,000
Secretary 1993 397,000 -- -- 20,000
Lenore Nelson 1995 182,000 -- -- --
Chief Financial Officer, Executive Vice President 1994 78,000 25,000 225,000/0 --
and Assistant Secretary 1993 -- -- -- --
</TABLE>
- ------------------------
(1) Does not include perquisites including non-accountable expense allowances in
the case of Messrs. Locke and Kushner, which do not exceed the lesser of 10%
of annual salary and bonus reported or $50,000.
(2) Term life insurance premiums paid by the Company on behalf of the Named
Executive Officer in respect of a $3,500,000 policy and disability insurance
premiums paid by the Company on behalf of the Named Executive Officer.
EMPLOYMENT AGREEMENTS
MESSRS. KUSHNER AND LOCKE. In March 1994, Messrs. Kushner and Locke each
agreed to an amendment to his respective employment agreement with the Company
to (i) extend the term of the
4
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agreement to September 1998 and (ii) reduce the maximum annual performance bonus
that each may receive to 4% of pre-tax earnings for the applicable period up to
a maximum of $200,000 in fiscal 1994, $220,000 in fiscal 1995, $250,000 in
fiscal 1996, $270,000 in fiscal 1997 and $290,000 in fiscal 1998. Under the
revised employment agreements, Messrs. Kushner and Locke each received a base
salary of $400,000 in fiscal 1994 (which increased to $425,000 in fiscal 1995)
and will receive a base salary of $425,000 in fiscal 1996 through fiscal 1998,
subject to potential increase upon review of such salaries by the Company's
Board of Directors.
In order to induce Messrs. Kushner and Locke to enter into the amended
employment agreements, the Company granted to each as of March 7, 1994 options
to purchase 900,000 shares of Common Stock at an exercise price per share equal
to $0.84. The options vest over a five year period, with 20% vesting at each
anniversary of the date of grant (subject to possible acceleration following a
"change-in-control"). Options to purchase up to 180,000 shares have vested to
each officer as of December 31, 1995. Options granted to Messrs. Kushner and
Locke were approved by the shareholders of the Company at the Annual Meeting of
Shareholders held on May 17, 1994.
The Company also provides Messrs. Kushner and Locke with certain fringe
benefits, including payment of an amount equal to the premiums in respect of
$3,500,000 of term life insurance (Messrs. Kushner and Locke have designated the
other person as the beneficiary) and disability insurance for each person. The
agreements permit Messrs. Kushner and Locke to collect outside compensation to
which they may be entitled and to provide incidental and limited services
outside of their employment with the Company and to receive compensation
therefor, so long as such activities do not materially interfere with the
performance of their duties under the agreements. Each of Messrs. Kushner and
Locke also may require the Company to change its name to remove his name within
one year after the expiration or termination of the term of his employment,
except for product released prior to such termination, and except that the
Company may continue to use such name for a period of one year after such
notice.
MS. NELSON. In April 1994, Ms. Nelson entered into a two-year employment
contract with the Company providing for a base salary of $175,000 per year,
subject to annual increases of 7 1/2% commencing in the second year of the
agreement. Ms. Nelson received a signing bonus equal to $25,000 and is entitled
to an annual incentive bonus equal to 1/2% of the Company's pre-tax earnings,
which incentive bonus cannot exceed 50% of Ms. Nelson's base salary for such
year. As of April 25, 1994, the Company granted Ms. Nelson options to acquire an
aggregate of 225,000 shares of Common Stock at an exercise price of $0.75 per
share; such options vest in installments of 75,000 shares over a three year
period on each anniversary of the date of the grant.
STOCK INCENTIVE PLAN
The Stock Incentive Plan adopted by the Board of Directors in October 1988
(the "Plan") authorizes the granting of stock incentive awards ("Awards") to
qualified officers, employee directors, key employees and third parties
providing valuable services to the Company, e.g., independent contractors,
consultants and advisors to the Company. In May 1994, the stockholders of the
Company voted to increase the authorized number of shares available under the
Plan from 1,500,000 to 4,500,000. The Plan may be administered by a committee
appointed by the Board and consisting of three or more members, each of whom
must be disinterested. The Plan is currently administered by S. James
Coppersmith, Stuart Hersch and Milton Okun (for purposes hereof, the
administering body is referred to as the "Committee"). The Committee determines
the number of shares to be covered by an Award, the term and exercise price, if
any, of the Award and other terms and provisions of Awards.
The Plan is designed to help the Company attract and retain qualified
persons for positions of substantial responsibility and to provide certain key
employees and consultants with an additional incentive to contribute to the
success of the Company. As of December 31, 1995, options to purchase 3,860,000
shares of the Company's Common Stock were outstanding under the Plan, options to
purchase 215,000 shares had been exercised, 199,500 options had expired or been
canceled and 425,000 shares remained available for granting options under the
Plan.
5
<PAGE>
Awards can be Stock Options ("Options"), Stock Appreciation Rights ("SARs"),
Performance Share Awards ("PSAs") and Restricted Stock Awards ("RSAs"). The
number and kind of shares available under the Plan are subject to adjustment in
certain events. Shares relating to Options or SARs which are not exercised,
shares relating to RSAs which do not vest and shares relating to PSAs which are
not issued will again be available for issuance under the Plan.
An Option may be an incentive stock option ("ISO") or a nonqualified Option.
The exercise price for Options is to be determined by the Committee, but in the
case of an ISO is not to be less than fair market value on the date the Option
is granted (110% of fair market value in the case of an ISO granted to any
person who owns more than 10% of the Common Stock). The purchase price is
payable in any combination of cash, shares of Common Stock already owned by the
participant for at least six months or, if authorized by the Committee, a
promissory note secured by the Common Stock issuable upon exercise. In addition,
the award agreement may provide for "cashless" exercise and payment. Subject to
early termination or acceleration provisions, an Option is exercisable, in whole
or in part, from the date specified in the related award agreement (which may be
six months after the date of grant) until the expiration date determined by the
Committee.
An SAR is the right to receive payment based on the appreciation in the fair
market value of Common Stock from the date of grant to the date of exercise. In
its discretion, the Committee may grant an SAR concurrently with the grant of an
Option. An SAR is only exercisable at such time, and to the extent, that the
related Option is exercisable. Upon exercise of an SAR, the holder receives for
each share with respect to which the SAR is exercised an amount equal to the
difference between the exercise price under the related Option and the fair
market value of a share of Common Stock on the date of exercise of the SAR. The
Committee in its discretion may pay the amount in cash, shares of Common Stock,
or a combination thereof.
An RSA is an award of a fixed number of shares of Common Stock subject to
restrictions. The Committee specifies the prices, if any, the recipient must pay
for such shares. Shares included in an RSA may not be sold, assigned,
transferred, pledged or otherwise disposed of or encumbered until they have
vested. These restrictions may not terminate earlier than six months after the
award date. The recipient is entitled to dividend and voting rights pertaining
to such RSA shares even though they have not vested, so long as such shares have
not been forfeited.
A PSA is an award of a fixed number of shares of Common Stock, the issuance
of which is contingent upon the attainment of such performance objectives, and
the payment of such consideration, if any, as is specified by the Committee.
Issuance shall in any case not be earlier than six months after the award date.
The Plan also provides for certain stock depreciation protections,
tax-offset bonuses and tax withholding using shares of Common Stock instead of
cash.
Upon the date a participant is no longer employed by the Company for any
reason, shares subject to the participant's RSAs which have not become vested by
that date or shares subject to the participant's PSAs which have not been issued
shall be forfeited in accordance with the terms of the related Award agreements.
Options which have become exercisable by the date of termination of employment
or of service on the Committee must be exercised within certain specified
periods of time from the date of termination, the period of time to depend on
the reason for termination. Options which have not yet become exercisable on the
date the participant terminates employment or service on the Committee for a
reason other than retirement, death or total disability shall terminate on that
date.
The Board of Directors may, at any time, terminate, amend or suspend the
Plan. In addition, the Committee may, with certain exceptions, amend any
provision of the Plan.
All employees, officers and directors of, and consultants to, the Company
are eligible to participate in the Plan. The Committee determines which persons
shall be granted options, the extent of such grants and, consistent with the
Plan, the terms and conditions thereof. As of December 31, 1995,
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approximately 64 employees of the Company, and no directors of the Company who
are not also employees of the Company, are eligible to receive option grants
under the Plan. Options granted under the Plan may be either ISOs or options
which are not intended to qualify as ISOs, except that ISOs may only be granted
to employees of the Company.
The aggregate fair market value (determined on the date of grant) of the
shares of Common Stock for which ISOs may be granted to any participant under
the Plan and any other plan by the Company or its affiliates which are
exercisable for the first time by such participant during any calendar year may
not exceed $100,000.
The options granted under the Plan become exercisable on such dates as the
Board determines in the terms of each individual option. Options are subject to
termination in the event of a disposition of all or substantially all of the
assets or capital stock of the Company by means of a sale, merger,
consolidation, reorganization, liquidation or otherwise; unless the Committee
arranges for a continuation of the Plan or for the optionee to receive payment
or new options covering shares of the corporation purchasing or acquiring the
assets or stock of the Company, in substitution of the options granted under the
Plan. The Committee in any event may, on such terms and conditions as it deems
appropriate, accelerate the exercisability of options granted under the Plan. An
ISO to a holder of more than 10% of the total combined voting power of all
classes of stock of the Company must expire no later than five years from the
date of grant. A nonqualified stock option must expire no later than ten years
from the date of the grant.
The options granted under the Plan are not transferable other than by will
or the laws of descent and distribution. Unexercised options generally lapse 3
months after termination of employment other than by reason of retirement,
disability or death in which case it terminates one year thereafter.
The Plan provides for anti-dilution adjustments which are applicable in the
event of a reorganization, merger, combination, recapitalization,
reclassification, stock dividend, stock split or reverse stock split; however,
no such adjustment need be made if it is determined that the adjustment may
result in the receipt of federally taxable income to optionees or the holders of
Common Stock or other classes of the Company's securities. Upon the dissolution
or liquidation of the Company, or upon a reorganization, merger or consolidation
of the Company as a result of which the Company is not the surviving entity, the
Plan shall terminate, and any outstanding awards shall terminate and be
forfeited unless assumed by the successor corporation.
The Plan currently provides that the Board may amend the Plan at any time;
provided, however, that no amendment may operate to increase the maximum number
of aggregate shares issuable, materially increase the benefits accruing to
participants or change the classes of eligible persons under the Plan without
the approval of the holders of a majority of the shares of Common Stock.
During fiscal 1995, the Company committed, subject to final documentation,
to reprice options to purchase 200,000 shares and 400,000 shares previously
granted to Gregory Cascante and Lawrence Mortorff, respectively, to the then
current market price of the Company's common stock. The determination was made
to reprice such options in connection with obtaining the agreement of such
employees to certain amendments to their employment contracts. See "Certain
Relationships and Related Transactions."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
VALUE OPTIONS/SARS AT FY- IN-THE-MONEY OPTIONS/
SHARES ACQUIRED REALIZED END (#) EXERCISABLE/ SARS AT FY-END ($)
NAME ON EXERCISE (#) ($) UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------- ------------------- ----------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Peter Locke -0- N/A 180,000/720,000 0/0
Donald Kushner -0- N/A 180,000/720,000 0/0
Lenore Nelson -0- N/A 75,000/150,000 0/0
</TABLE>
7
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the most recently completed fiscal year, the Board of Directors did
not have a compensation committee. Rather, the full Board of Directors of the
Company participates in deliberations and decisions regarding executive
compensation. Other than Messrs. Kushner and Locke, no member of the Board of
Directors was, during the fiscal year, or formerly, an officer or employee of
the Company or any of its subsidiaries. During fiscal year 1995, Mr. Locke
served as Co-Chairman of the Board , Co-Chief Executive Officer and President of
the Company, and Mr. Kushner served as Co-Chairman of the Board, Co-Chief
Executive and Secretary of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS
The following table sets forth certain information as of December 31, 1995
concerning the beneficial ownership of Common Stock, by (i) each person who is
known to the Company to be a beneficial owner of more than 5% of the outstanding
Common Stock; (ii) each of the current Directors of the Company; (iii) each of
the Named Executive Officers; and (iv) all current Directors and Executive
Officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (8)
- ------------------------------------------------------------------------- --------------------------- -----------
<S> <C> <C>
Peter Locke.............................................................. 3,346,017(1) 9.28%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Donald Kushner........................................................... 3,346,942(1)(2) 9.28%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Stuart Hersch............................................................ 536,288(3) 1.49%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Milton Okun.............................................................. 512,820(4) 1.42%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 275-7618
Lenore Nelson............................................................ 75,000(5) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
S. James Coppersmith..................................................... 25,000 *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(617) 631-2097
Froley, Revy Investment Co., Inc......................................... 4,393,054(6) 10.96%
10900 Wilshire Boulevard
Suite 1050
Los Angeles, CA 90024
FMR Corp................................................................. 3,076,923(7) 7.94%
82 Devonshire Street
Boston, Massachusetts 02109
All directors and executive officers as a group
(six individuals)....................................................... 7,842,067(1)(2)(3)(4)(5) 20.96%
</TABLE>
8
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- ------------------------
* Less than 1%
(1) Includes 360,000 shares subject to options which are currently exercisable
or exercisable within 60 days of the date hereof, and excludes 540,000
options which are not currently exercisable or exercisable within 60 days of
the date hereof.
(2) Includes 200,000 shares owned by a corporation controlled by Mr. Kushner.
(3) Includes 427,096 shares subject to options currently exercisable.
(4) Represents shares of Common Stock issuable upon conversion of the Company's
8% Convertible Subordinated Debentures ("8% Debentures") due December 15,
2000 beneficially owned by Mr. Okun.
(5) Includes 75,000 shares subject to options which are currently exercisable or
exercisable within 60 days of the date hereof, and excludes 150,000 options
which are not currently exercisable or exercisable within 60 days of the
date hereof.
(6) Represents shares of Common Stock issuable upon conversion of the Company's
8% and the Company's 9% Convertible Subordinated Debentures due July 1, 2002
beneficially owned by Froley, Revy Investment Co., Inc. The information
provided herein is based on information contained in a Schedule 13G dated
February 27, 1995 as filed by Froley, Revy Investment Co., Inc. with the
Securities and Exchange Commission and information provided from a
representative of the beneficial owner.
(7) Represents shares of Common Stock issuable upon conversion of the Company's
8% Debentures beneficially owned by FMR Corp. The information provided
herein is based on information contained in a Schedule 13G dated March 31,
1995 as filed by FMR Corp. with the Securities and Exchange Commission and
information provided from a representative of the beneficial owner.
(8) As a percentage of the 35,679,607 shares outstanding on December 31, 1995
plus certain shares issuable upon conversion of convertible securities or
subject to options held by such person or persons.
Messrs. Kushner and Locke have entered into an agreement dated October 1,
1988 (the "Cross-Purchase Agreement"), which provides that (i) upon the death of
either party, the surviving party is obligated to purchase the number of the
decedent's shares in the Company the aggregate value of which equals $3,500,000
(a $3,500,000 life insurance policy has been taken out by the Company for the
benefit of each of Messrs. Kushner and Locke on the life of the other person),
the surviving party shall have the option, but not the obligation, to purchase
the remaining shares at the same price per share if the insurance proceeds are
less than the aggregate purchase price for all of the decedent's shares, (ii) if
either party desires to sell his shares of Common Stock, other than a market
transaction, the other party shall have a right of first negotiation with
respect to such shares; and (iii) if either of Messrs. Kushner or Locke is no
longer employed by the Company by reason of termination (A) by such person, (B)
for cause, (C) on account of disability or (D) by expiration of such person's
employment agreement, and the other party is employed, the employed party will
have the right to purchase the other party's shares for an amount equal to 90%
of the average of the bid and ask price per share for the 30 days prior to the
date on which such option is exercised. The option must be exercised no sooner
than three months nor later than six months from the date employment is
terminated and must be accompanied by payment equal to 10% of the aggregate
purchase price. The balance of the purchase price is to be paid in cash no later
than six months from the date of exercise. Messrs. Kushner and Locke have
entered into a Trust Agreement to effectuate the provisions of the
Cross-Purchase Agreement.
9
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In fiscal 1993, the Company entered into a domestic home video distribution
agreement with WarnerVision for the feature film DEADLY EXPOSURE. Stuart Hersch,
a Director of the Company, was president of WarnerVision at this time. The
distribution agreement provides for payment by WarnerVision to the Company of an
advance in exchange for certain domestic home video rights, subject to certain
back-end participation rights of the Company, and payments by the Company to
WarnerVision of 30% of the Company's net revenues derived from Canadian home
video and broadcast television exploitation of DEADLY EXPOSURE. Through
September 30, 1995, the Company has paid approximately $27,800 to WarnerVision
pursuant to such agreement.
In fiscal 1994, the Company entered into certain motion picture financing
arrangements with WarnerVision whereby WarnerVision and the Company share
production costs and expenses and any resulting revenues with respect to certain
motion pictures. The Company has also entered into domestic home video
distribution agreements with WarnerVision for the feature films LADY-IN-WAITING
and LAST GASP. These agreements provide for the payment by WarnerVision to the
Company of $510,000 and $530,000 in exchange for WarnerVision receiving
participation rights with the Company in the revenues derived from the
exploitation of LADY-IN-WAITING and LAST GASP, respectively. The Company also
agreed to license to WarnerVision domestic distribution rights to WES CRAVEN
PRESENTS: MIND RIPPER for a recoupable minimum guaranty payment against
revenues.
In fiscal 1995, the Company entered into a $696,000 net revenue arrangement
with WarnerVision similar to DOUBLE EXPOSURE, LADY-IN-WAITING and LAST GASP for
a fourth film entitled SERPENT'S LAIR. Through September 30, 1995, the Company
had received approximately $1,986,000 from WarnerVision towards the production
costs and expenses of these films pursuant to such financing and distribution
arrangements. The Company believes that the terms of the forgoing transactions
are no less favorable to the Company than those that could have been obtained in
transactions with unaffiliated third parties.
Following the conclusion of fiscal 1994, the Company agreed to advance
August Entertainment, Inc. ("August") up to $1,000,000 of which $650,000 was
advanced and which bears interest at the lesser of (a) Prime (8.5% as of
December 31, 1995) + 2% and (b) 10%. Gregory Cascante, President and Chief
Executive Officer of Kushner-Locke International, Inc., is also President and
Chief Executive Officer of August Entertainment. The Company's outstanding
advance is secured by all of the assets of August, including a pledge of all
sales commissions due to August from the films SLEEP WITH ME, LAWNMOWER MAN II
and NOSTRADAMUS from which the Company has been paid approximately $170,000
against this advance. As of September 30, 1995 the outstanding balance of
principal and accrued interest was approximately $676,500. In addition, pursuant
to an agreement between the Company and August, August receives producer fees,
profit participations and overrides on domestic and international sales for
films which are being packaged by August in conjunction with Kushner-Locke
International, Inc. Films which may generate such fees to August are FREEWAY and
MANSLAYER.
Mr. Cascante manages the international film sales of the Company through a
separate subsidiary of the Company. Under his employment agreement entered into
in September 1994, Mr. Cascante was to receive a percentage of pre-tax profit of
Kushner-Locke International, Inc. ranging from 2.5% to 10% based on a sliding
scale related to certain profit thresholds, with an aggregate of compensation
and pre-tax profit payments not to exceed 200% of his $187,500 base salary. In
September 1995, Mr. Cascante and the Company agreed in principle, and subject to
documentation, to amend his employment agreement to, among other things, remove
his pre-tax profit participation in Kushner-Locke International, Inc. Mr.
Cascante's base salary for fiscal 1996 is $243,750.
Lawrence Mortorff, President of KL Features, Inc., manages the feature film
division of the Company through this subsidiary of the Company which is 95%
owned by the Company, and 5% owned by Mr. Mortorff. Mr. Mortorff has personally
received loans from the Company payable on demand which bear interest at Prime
(8.5% as of December 31, 1995) + 1 1/2%. As of September 30, 1995, the
outstanding amount of such loans was approximately $74,000, which will be repaid
through an
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assignment of production bonuses. Pursuant to an October 1993 employment
agreement with the Company, Mr. Mortorff received a salary of $198,000 in fiscal
1995 and additional compensation in bonuses for each film that KL Features, Inc.
produced based on the amount of the production budget of each such film. Under
an amendment to his employment agreement, subject to final documentation, it is
contemplated that Mr. Mortorff will receive an annual salary of $325,000; his
ownership interest in KL Features, Inc. will be capped at 5% and the definition
and terms of his production bonuses will be modified.
Cherry Lane Music Company, Inc. ("Cherry Lane"), which is owned by Board of
Directors member Milton Okun, has entered into an agreement to become the music
administrator for The Kushner-Locke Company effective August 15, 1994. Cherry
Lane will receive specified fees for the collection of revenues derived from
music publishing and record contracts.
The Company believes that the terms of the foregoing transactions are no
less favorable to the Company than those that could have been obtained in
transactions with unaffiliated third parties.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: January 24, 1996
THE KUSHNER-LOCKE COMPANY
(Registrant)
By: /s/ PETER LOCKE
-----------------------------------
Peter Locke
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND
PRESIDENT
By: /s/ DONALD KUSHNER
-----------------------------------
Donald Kushner
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND
SECRETARY
By: /s/ LENORE NELSON
-----------------------------------
Lenore Nelson
CHIEF FINANCIAL OFFICER, EXECUTIVE
VICE PRESIDENT AND ASSISTANT
SECRETARY
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
Co-Chairman of the Board
/s/ PETER LOCKE and Co-Chief Executive
- ----------------------------------- Officer and President; January 24, 1996
Peter Locke Director
Co-Chairman of the Board,
/s/ DONALD KUSHNER Co-Chief Executive
- ----------------------------------- Officer and Secretary; January 24, 1996
Donald Kushner Director
- ----------------------------------- Director January , 1996
Stuart Hersch
/s/ MILTON OKUN
- ----------------------------------- Director January 24, 1996
Milton Okun
/s/ S. JAMES COPPERSMITH
- ----------------------------------- Director January 25, 1996
S. James Coppersmith
/s/ LENORE NELSON Chief Financial Officer,
- ----------------------------------- Executive Vice President January 24, 1996
Lenore Nelson and Assistant Secretary
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