SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
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, 199 Commission File No. 0-17295
THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
California 95-4079057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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11601 Wilshire Blvd., 21st Floor, Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 481-2000
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, Class C
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes 1 No 0
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. 0
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The aggregate market value based on the closing price of the Registrant's
Common Stock held by nonaffiliates of the Registrant was approximately $###
as of January 26, 1998.
There were 9,132,815 shares of outstanding Common Stock of the Registrant as
of January 26, 1998.
Total number of pages: 16. Exhibit 21 begins on page: 16.
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, 1997 (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 as well as an updated Exhibit 21 of subsidiaries and
affiliates of the Company.
Item 10. Directors and Executive Officers of Registrant
Executive Officers and Directors
Directors of the Company are elected annually by the shareholders to serve
for a term of one year or until their successors are duly elected and
qualified. Set forth below is certain information concerning each person
who was an executive officer or director of the Company as of
September 30, 1997.
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Director
Name Age Since Position
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Peter Locke 54 1983 Co-Chairman and Co-Chief Executive Officer;
Donald Kushner 52 1983 Co-Chairman, Co-Chief Executive Officer
and Secretary; Director
David A. Braun+ 66 1997 Director
S. James Coppersmith+ 64 1995 Director
Stuart Hersch+ 47 1989 Director
Bruce St. J. Lilliston 46 - Chief Operating Officer and President
Robert Swan 50 - Chief Financial Officer
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______________________
+ 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 follows:
Peter Locke co-founded the Company with Donald Kushner in 1983 and currently
serves as Co-Chairman and Co-Chief Executive Officer 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.
<PAGE>
David Braun became a director in January 1997. Mr. Braun, who has practiced
law in the entertainment industry for over 39 years, has had his own practice
since 1994. Mr. Braun was special counsel to Proskauer, Rose, Goetz and
Mendelsohn from 1990 to 1992 and became counsel in 1992 and left in 1993 to
form his own law firm, Monash Plotkin and Braun, and now David A. Braun, PC.
Mr. Braun is a member of the Board of Directors of AVI Entertainment Group,
Inc., a music publishing and distribution company, and the Board of Visitors
of Columbia University Law School.
S. James Coppersmith has served as a director of the Company since May 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 is
a director of Sun America Asset Management Corp., a division of Sun
America Corp., Pizzeria Uno Corp., Chyron Corp., Metro Services Group, Inc.,
and BJ's Wholesale Club (formerly Waban Corp.).
Stuart Hersch has served as a director of the Company since August 1989.
Since February 1996, Mr. Hersch has been a consultant to several
entertainment companies. In April 1996, Mr. Hersch became a consultant to
the Company. Mr. Hersch assists the Company in analyzing potential strategic
acquisitions and provides the Company consulting services in connection with
the Company's infomercial operations. 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.
Bruce St. J. Lilliston became President and Chief Operating Officer of the
Company in October 1996. Prior to joining the Company, Mr. Lilliston
practiced entertainment law for 19 years. He represented the Company in
various transactions over the preceding two years. Mr. Lilliston served as
an arbitrator for the American Film Marketing Association, and also served a
special master for the Los Angeles Superior Court. He graduated from the
University of Chicago Law School in 1977, where he was an associate editor of
the University of Chicago Law Review. He received his bachelor of arts
degree with honors from Brown University in 1974. Mr. Lilliston was a
partner in the law firm of Paul, Hastings, Janofsky & Walker from
1989 to 1991, where he was managing partner of that firm's entertainment
finance and transactions practice.
Robert Swan joined the Company as Controller on October 28, 1996. On
May 1, 1997 Mr. Swan was appointed Chief Financial Officer. Prior to
assuming the Chief Financial Officer role for the Company, Mr. Swan had been
Chief Financial Officer of AVI Entertainment Group, Inc., a music publishing
and distribution company since 1994. From 1991 to 1994 Mr. Swan was Chief
Financial Officer of Global Releasing Corporation and several affiliated
companies which produced and distributed feature films. One affiliated
company, Cannon Television, Inc., was placed in voluntary bankruptcy several
months after Mr. Swan left its employ. From 1986 to 1991 Mr. Swan was an
audit partner at KPMG Peat Marwick. Mr. Swan is a Certified Public
Accountant.
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 and Donald Kushner receive no compensation
for serving as a member of the Board of Directors. David A. Braun, S. James
Coppersmith and Stuart Hersch receive $25,000 each, for serving on the Board
of Directors and any committees thereof. Each of Messrs. Braun, Coppersmith
and Hersh were granted options to purchase 16,667 shares at an exercise
price of $1.875 in August 1997.
During the 1997 fiscal year, there were 12 meetings of the Board of
Directors, three meetings of the Option Committee and one meeting of the Audit
Committee of the Board of Directors. The Board of Directors and Option
Committee took action three times by unanimous written consent. Each director
attended all of the meetings of the Board of Directors and the committees
held during the period for which he was a director or for which he had served
as a committee member.
<PAGE>
Other Significant Employees
The business experience, principal occupations and employment for at least
the past five years of certain other significant employees who have made or
are expected to make significant contributions to the business
of the Company are as follows:
Pascal Borno, age 37, joined Kushner-Locke International, Inc., the
international theatrical distribution subsidiary of the Company, as President
in April, 1997. Prior to joining the Company, Mr. Borno was President and
sole shareholder of Conquistador Entertainment, Inc., a producer and
distributor of feature films, which he started in September 1994. From 1991
through August 1994 Mr. Borno was Senior Vice President, International
Distribution, at Dino De Laurentis Communications, a producer and distributor
of feature films and television programs. From 1990 to 1991 Mr. Borno was
Vice President, International Distribution, of ITC Entertainment Group, a
producer and distributor of feature films.
Marvinia Anderson, age 54, has served as President of International
Television for Kushner-Locke International, Inc., the Company's international
distribution subsidiary, since June 1995. Prior to joining the Company, she
served as Vice President of World International Network, Inc. from 1983 to
June 1995, and has held executive sales positions at Capital Cities/ABC,
Valley Cable TV Inc. and Times Mirror Cable Television, Inc.
Richard Marks, age 49, was appointed Executive Vice President and General
Counsel of the Company in April 1997. Prior to that, he served as the
Company's Senior Vice President in charge of Legal and
Business Affairs since joining the Company in October 1993. From 1991 to
October 1993, Mr. Marks served as Senior Vice President in charge of Business
and Legal Affairs for Media Home Entertainment, an independent film producer
and video distributor. From 1983 to 1991 Mr. Marks held similar legal and
business affairs positions with Walt Disney Pictures, Paramount Pictures and
Weintraub Entertainment Group.
Frank Hildebrand, age 47, joined the Company in January 1998 as Executive
Vice President - Production. From 1992 through 1997 Mr. Hildebrand was an
independent producer and produced numerous films, among them two films for
the Company, Freeway and the soon to be released special effects film Beowulf.
From 1988 to 1991 he was Executive Vice President at NOVA Entertainment, where
he was responsible for the production of all features and television,
including the Disney film Firebirds and Triumph of the Spirit, among others.
From 1985 to 1987, Mr. Hildebrand was a producer and executive with The Samuel
Goldwyn Co., where he produced the successful comedy Once Bitten.
Andrew Steinberg, age 33, joined the Company as Executive Vice
President-Television in April, 1997. Before joining the Company, Mr.
Steinberg was a Senior Packaging Agent at International Creative Management
("ICM") beginning in April 1990, where he represented many producers, writers
and authors. Mr. Steinberg also worked with ICM's chairman, Jeff Berg, on
building a corporate consulting business. While at ICM, Mr. Steinberg worked
closely with the Company and packaged four television projects for
the Company, including the CBS made-for-television movie "Unlikely Angel"
starring Dolly Parton.
Section 16(a) Beneficial Ownership Reporting Compliance
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 beneficial owners of more than 10% 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 during or with respect to fiscal 1997, 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, except that (i) Robert Swan inadvertently failed
to timely file one report on a timely basis, covering zero transactions, (ii)
Bruce Lilliston inadvertently failed to file one report on a timely basis,
covering one transaction,, and (iii)) each of Peter Locke, Donald Kushner,
Bruce Lilliston, Robert Swan, David Braun, S. James Coppersmith and Stuart
Hersch failed to file one report covering one transaction, reflecting the
receipt by each such officer or director of stock options granted pursuant to \
the 1988 Stock Incentive plan.
<PAGE>
officers, directors and greater than 10% beneficial owners, except that
Robert Swan, Chief Financial Officer of the Company, inadvertently filed one
report late, covering zero transactions, and Bruce Lilliston, President and
Chief Operating Officer of the Company, inadvertently filed one report late,
covering one transaction.
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, 1997 to the Chief E
xecutive Officer and each executive officer of the Company whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
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<CAPTION>
Long-Term
Compensation
Awards
Annual Securities
Compensation (1) Underlying All Other
Name and Principal Fiscal Salary Bonnus Options/SARs Compensation (2)
Position Year ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Peter Locke 1997 425,000 -- 166,666/0 48,793
Co-Chairman, Co- 1996 425,000 -- -- 34,313
Chief Executive 1995 425,000 -- -- 32,057
Officer
Donald Kushner 1997 425,000 -- 166,666/0 44,253
Co-Chairman, Co- 1996 425,000 -- -- 30,415
Chief Executive 1995 425,000 -- -- 29,255
Officer and
Secretary
Bruce Lilliston (3) 1997 400,000 -- 41,667/0 --
President and Chief 1996 -- -- -- --
Operating Officer 1995 -- -- -- --
Robert Swan (3) 1997 124,154 -- 25,000/0 --
Chief Financial 1996 -- -- -- --
Officer 1995 -- -- -- --
</TABLE>
______________________
(1) Does not include perquisites including $25,000 annual non-accountable
expense allowances in the case of Messrs. Locke, Kushner and Lilliston.
(2) Term life insurance premiums paid by the Company on behalf of the Named
Executive Officers in respect of a $3,500,000 policy and disability
insurance premiums paid by the Company on behalf of the Named Executive
Officers.
(3) Commenced employment in fiscal 1997.
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 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 then revised employment
agreements, Messrs. Kushner and Locke each were entitled to a base salary of
$425,000 in fiscal 1996 through fiscal 1998, subject to potential increase
upon review by the Company's Board of Directors after fiscal 1995.
In order to induce Messrs. Kushner and Locke to enter into the March 1994
amended employment agreements, the Company granted to each, as of
March 7, 1994, options to purchase 150,000 adjusted shares of Common Stock at
an adjusted exercise price per share equal to $5.04 (the last reported sale
price of the Common Stock on the date of the initial closing of the 8%
Debentures). The options vest over a five year period, with 20% vesting
respectively on each of the next five annual anniversary dates following the
date of
<PAGE>
the grant (subject to possible acceleration following a "change-in-control"
as defined in the Company's 1988 Stock Incentive Plan). Options to purchase
up to 90,000 shares of Common Stock have vested to each officer as of
January 17, 1998.
As of October 1, 1997, Messrs. Kushner and Locke each agreed to a further
amendment to his respective employment agreement with the Company to extend
the term of the agreement to October 2002. Under the revised employment
agreements, Messrs. Kushner and Locke each continue to be entitled to an
annual base compensation of $425,000 in fiscal 1997, and are entitled to
$25,000 annual increases beginning with the second employment year (commencing
October 1998) under the amended agreement up to a maximum of $525,000. In the
event the Company achieves earnings before income taxes prior to the profit
bonuses in excess of $2,000,000, each of Messrs. Kushner and Locke are
entitled to certain profit bonuses at graduated rates ranging from 5% of such
annual earnings before income taxes (from the first dollar of earnings before
income taxes) up to $4,000,000 to increasing percentages up to 7.5% of annual
earnings before income taxes in excess of $8,000,000, but not to exceed two
times annual base compensation.
In addition, the Company granted to each of Messrs. Kushner and Locke, as of
August 1, 1997, options to purchase 83,333 (post reverse split) shares of
Common Stock at an exercise price per share equal to $1.875 (the last
reported sale price of the Common Stock on the date prior to the award date,
as adjusted). These options (time vesting options) vest over a five year
period, with 20% vesting respectively on each of the next five annual
anniversary dates following the date of the grant (subject to acceleration in
the event of termination of optionee's employment agreement by such optionee
for "cause" (as defined therein) or wrongfully by the Company or upon certain
"Events" (as defined under the Plan), including termination following a
"change-in-control" as defined in the Plan). The Company also granted to
each of Messrs. Kushner and Locke options to purchase an additional 83,333
(post reverse split) shares of Common Stock at an exercise price per share
equal to $1.875, vesting at the rate of 20% per year, but exercisable only
upon (i) the achievement of at least 85% of certain annual earnings before
income tax targets to be set by the board of directors or (ii) the Company's
Common Stock reaching certain public trading prices ranging from $3.00 to
$6.00 per share. Such performance options are also subject to accelerated
vesting and exercisability under the circumstances described above for the
time-vesting option tranche.
The Company also provides Messrs. Kushner and Locke with certain fringe
benefits, including $3,500,000 of term life insurance with a split dollar
ownership structure and disability insurance for each person. If the
employment agreement is terminated by employee for "cause" or wrongfully by
the Company, the Company is required to pay the present value of all unpaid
premiums on the split dollar policy for the ten (10) year period ending
February 2007. The Company also agreed to assign any key-man life insurance
policy to the employee after certain terminations of the employment
agreement. 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 his
employment agreement, except that the Company may continue to use such name
for a period of one year after such notice, or for such longer period
of time as is reasonably necessary to cause the Company not to default under
any indebtedness for borrowed money or other material agreement. In the
event Messrs. Kushner's or Locke's employment agreement is terminated
following a change of control, as such term is defined therein, such
executive would be entitled to a lump sum payment equal to all compensation
and benefits provided for in the agreement for the remainder of the term,
discounted at the rate of 10% per annum.
Mr. Lilliston. On September 14, 1996, the Company entered into an
employment agreement with Bruce St. J. Lilliston pursuant to which the
Company employed Mr. Lilliston as the President and Chief Operating Officer
of the Company effective October 1, 1996 for a three year term. As part of
the agreement, Mr. Lilliston will be paid a base salary of $400,000 per year.
In addition, the Company loaned him $100,000 on September 3, 1996 and
$200,000 in October 1996. The loan was made to assist Mr. Lilliston in the
transition from his private law practice to his duties as Chief Operating
Officer of the Company. The loan accrues
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simple interest at the rate of 8% per annum and will be repaid over a five
year period at certain specified dates ending October 1, 2001. Mr. Lilliston
has the right to receive bonuses equal to the amount of the payments,
including interest, due for such loan if Mr. Lilliston is still employed by
the Company (including the renewal of his employment agreement if applicable)
on certain dates (the "Employment Bonus"). Beginning October 1, 1997, so
long as Mr. Lilliston is then employed by the Company (including the renewal
of his employment agreement if applicable), he shall be entitled to receive a
bonus of $100,000 the first time the adjusted "Average Closing Price" (the
average closing price of the common stock over a thirty calendar day period)
is $6.00 or more greater than the "First Day Price" (the average closing price
of the Common Stock, as adjusted, over the thirty calendar day period
immediately prior to October 1, 1996). Thereafter, if Mr. Lilliston is still
employed by the Company (including the renewal of his employment agreement if
applicable), he shall be entitled to receive an additional $100,000 bonus the
first time the Average Closing Price exceeds the First Day Price by $12.00 or
more, as adjusted, and each whole six-dollar amount through and including
$60.00, as adjusted, (each such bonus, a "Stock Bonus"). The aggregate of
such bonuses shall not exceed $1,000,000. The Stock Bonuses shall be reduced
by an amount equal to the Employment Bonus up to $150,000 plus interest
payable thereon from September 3, 1996. As of October 1, 1997 Mr. Lilliston
had not received any Employment Bonus or Stock Bonus.
If the Company realizes pre-tax operating profits or earnings per share for
any fiscal year during Mr. Lilliston's employment greater than 100% of the
Company's largest pre-tax operating profit or earnings per share amount for
any of the preceding years of Mr. Lilliston's employment under his employment
agreement or in any of the five fiscal years immediately preceding the
commencement of such agreement, and if Mr. Lilliston is still employed by the
Company at the end of the applicable fiscal year, then Mr. Lilliston shall be
entitled to receive a bonus of $50,000 for each such event. No bonus was
earned or paid for fiscal 1997.
As part of the agreement, the Company agreed to grant Mr. Lilliston options
to purchase up to 41,667 adjusted shares of Common Stock, with 20,834 of such
options having been granted and vested upon the authorization by the
shareholders of the Company of additional shares of common stock in November
1996, 8,334 and 12,500 of such options to be granted and vested one and two
years, respectively, after the commencement of the term (the "Term") of the
employment agreement (in each case, subject to Mr. Lilliston reaching
certain performance criteria to be established by the Board of Directors or a
committee thereof). Mr. Lilliston met the performance criteria for the 8,334
share option grant for fiscal 1997, and such options were granted. If Mr.
Lilliston's employment is extended for a second term pursuant to such
agreement (the "Second Term"), the Company has agreed to grant Mr. Lilliston
options to purchase up to an additional 83,334 shares of Common Stock,
41,667, 16,667, and 25,000 of such options to be granted upon commencement
and one, and two years, respectively, after the commencement of the Second
Term with one-half of each such grant to vest immediately upon grant and the
remainder thereof to vest upon Mr. Lilliston reaching certain performance
criteria to be established by the Board of Directors or a committee thereof.
If Mr. Lilliston's employment is extended beyond a Second Term, the Company
has agreed to grant Mr. Lilliston options to purchase up to an additional
41,667 shares of Common Stock as adjusted, with such options granted in full
upon such employment extension with one-half of such grant to vest
immediately upon grant and the remainder thereof to vest upon Mr. Lilliston
reaching certain performance criteria to be established by the
Board of Directors or a committee thereof. In the event the performance
goals are not met, such options vest at a fixed date in the future,
contingent solely on future employment. The exercise price for such options
shall be equal to the closing price of the Common Stock on the applicable
date of grant. Finally, as part of Mr. Lilliston's agreement, he is allowed
to maintain not more than two independent outside legal consultancy client
relationships, subject to approval by the Co-Chief Executive Officers, with
earnings from such consultancies limited to $150,000 per year.
Mr. Swan. Effective May 1, 1997 ("the Effective Date") the Company entered
into an employment agreement with Robert Swan pursuant to which the Company
hired Mr. Swan as the Chief Financial Officer for a three year term. Mr.
Swan is paid a base annual salary of $160,000 for the first year and $175,000
and $200,000, respectively, for the subsequent two years. Mr. Swan has the
right to receive a bonus equal to 10% of his base annual salary to the extent
that net earnings for each fiscal year are greater than that of the
immediately preceding fiscal year. The Company agreed to grant Mr. Swan
options to purchase up to 25,000 shares of Common Stock, with options
exercisable for 8,334 shares immediately vesting and for 8,333 shares
<PAGE>
vesting on each of the first and second anniversaries of the agreement. The
agreement is subject to early termination by the Company in its discretion
on each of the first and second anniversary dates, respectively, of the
Effective Date.
1998 Stock Incentive Plan
The 1998 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, employees, directors, key employees and
third parties providing valuable services to the Company, e.g., independent
contractors, consultants and advisors to the Company. In November 1996, the
shareholders of the Company voted to increase the adjusted authorized number
of shares available under the Plan from 750,000 to 1,250,000. The Plan may be
administered by a committee appointed by the Board and consisting of two or
more members, each of whom must be disinterested. The Plan is currently
administered by S. James Coppersmith, Stuart Hersch and David Braun (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 January 26, 1998, options to purchase
1,095,359 shares of the Company's Common Stock were outstanding under the
Plan. Of this amount, options to purchase 111,722 shares had been exercised,
294,611 options had expired or been canceled and 154,641 shares remained
available for granting options under the Plan.
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. 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.
<PAGE>
The Plan also provides for certain 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, 1997,
approximately 60 employees of the Company, and three 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 (except in the case of ISOs) 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
without obtaining shareholder approval to the fullest extent permitted by
applicable law or regulation, and, in the event the Board determines that
shareholder approval is required by applicable law or regulation, than such
amendments would be effective once approved by the Board and the holders of
a majority of the shares of Common Stock.
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
realizable
value at
assumed
rates of
stock price
appreciation
for
Individual Grants option term
Percent of
total
Number of options/
securities SARs
underlying granted to Exercise
Options/ employees or base
SARs in fiscal price ($/ Expiration
Name granted (#) year Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
Peter Locke 166,666 40% 1.875 8/1/07 468,748 624,998
Donald
Kushner 166,666 40% 1.875 8/1/07 468,748 624,998
Bruce
Lilliston 20,834 5% 2.8125 11/21/06 87,894 117,191
Robert
Swan 25,000 6% 1.875 4/30/07 70,312 93,750
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARS Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired Value Exerciseable/ Exerciseable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Peter Locke -0- N/A 90,000/226,666 453,600/614,902
Donald Kushner -0- N/A 90,000/226,666 453,600/614,902
Bruce Lilliston -0- N/A 20,834/0 58,596/0
Robert Swan -0- N/A 8,334/16,666 15,626/31,249
</TABLE>
Compensation Committee Interlocks and Insider Participation
During fiscal 1997, the Board of Directors did not have a compensation
committee. Rather, the full Board of Directors of the Company participated in
deliberations and decisions regarding executive compensation. The option
committee, comprised of Board members Stuart Hersch, David Braun and S. James
Coppersmith, did vote by Unanimous Written Consent to grant new options to
certain directors and certain employees in connection with new employment
agreements and amendments and extensions of employment agreements with the
Company. 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
<PAGE>
its subsidiaries, however Stuart Hersch, a director, is paid $7,500 per month
pursuant to a consulting contract. During fiscal year 1997, Mr. Locke served
as Co-Chairman of the Board and Co-Chief Executive Officer of the Company,
and Mr. Kushner served as Co-Chairman of the Board, Co-Chief Executive
Officer 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 January 26, 1998
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 (7)
<S> <C> <C>
Peter Locke 587,679 (1) 6.44%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 481-2000
Donald Kushner 587,824 (1)(2) 6.44%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 4891-2000
Stuart Hersch 76,739 (3) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310)) 481-2000
David Braun 5,556 (4) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 481-2000
S. James Coppersmith 11,806 (4) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 481-2000
Bruce Lilliston 20,834 (5) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 481-2000
Robert Swan 8,334 (6) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
(310) 481-2000
All directors and executive officers
as a group (seven individuals) 1,298,772 13.77%
(1)(2)(3)(4)(5)(6)
</TABLE>
- -------------------------
* Less than 1%
(1) Includes 90,000 shares subject to options which are currently exercisable
or exercisable within 60 days of the date hereof, and excludes 226,666
options which are not currently exercisable or exercisable within 60 days
of the date hereof.
(2) Includes 33,333 shares owned by a corporation controlled by Mr. Kushner.
(3) Includes 76,739 shares subject to options currently exercisable, and
excludes 11,111 shares subject to options which are not currently
exercisable or exercisable within 60 days.
(4) Includes 5,556 shares subject to options currently exercisable, and
excludes 11,111 shares subject to options which are not currently
exercisable or exercisable within 60 days.
(5) Represents options to purchase 20,834 shares of Common Stock vested
immediately as part of Mr. Lilliston's employment agreement.
(6) Represents options to purchase 8,334 shares of Common Stock vested
immediately as part of Mr. Swan's employment agreement.
(7) As a percentage of the 9,132,815 shares outstanding on January 26, 1998
plus certain shares issuable upon conversion of convertible securities or
subject to options held by such person or persons.
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 that
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, 1997, no payments had been made by the Company
to WarnerVision pursuant to such agreement.
In fiscal 1994, the Company entered into certain joint ventures 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 1994, the Company entered into a five picture joint venture with
WarnerVision similar to the Lady-in-Waiting and Last Gasp joint ventures.
Through September 30, 1997, the Company had received approximately
$924,000 from WarnerVision towards the production costs and expenses of
these films pursuant to such joint ventures.
In December 1994, the Company loaned August Entertainment, Inc. ("August")
$650,000 against distribution rights to third party product. August is
majority owned by Gregory Cascante, who subsequently joined the Company as
President of its new international film distribution division. The loan
bears interest at the lesser of (a) Prime (8.5% at January 26, 1998) plus 2%
or (b) 10%. The distribution agreement is secured by all assets of August,
including a pledge of all sales commissions due to August from the producers
of the films Sleep With Me, Lawnmower Man II and Nostradamus. While the
right of August to receive such commissions with respect to the film
Lawnmower Man II is subordinate to the interests of the production lenders,
The Allied Entertainment Group PLC, and its subsidiaries which produced the
film have guaranteed payment of such commissions to the extent they would be
payable had there been no production loan on that film. Repayment of
principal and interest is by collection of commissions assigned as collateral.
As of January 26, 1998 the Company has been repaid $519,000 toward interest
and principal and approximately $297,000 principal amount remains outstanding.
The loan matured in December 1997, and has been extended by agreement of the
parties until December 1998.
Through April 1997 Mr. Cascante managed the international film sales of the
Company through a separate subsidiary of the Company. Under his employment
agreement entered into in September 1994, which terminated in April 1997, 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 October
1995, Mr. Cascante and the Company agreed to amend his employment agreement
to remove his pre-tax profit participation in Kushner-Locke International,
Inc. Mr. Cascante's base salary for fiscal 1997 was $243,750.
On September 14, 1996, the Company entered into an employment agreement with
Bruce St. J. Lilliston pursuant to which the Company agreed to hire Mr.
Lilliston as the President and Chief Operating Officer of the Company
effective October 1, 1996. As part of such agreement, Mr. Lilliston is
allowed to maintain not more than two independent outside legal consultancy
client relationships, subject to approval by the Chief Executive Officers.
Prior to his employment, Mr. Lilliston provided various legal services to the
Company through the Law Offices of Bruce St. J. Lilliston. During fiscal
1996, the Company paid Mr. Lilliston $180,000 for such legal services. In
addition, Mr. Lilliston had provided various legal services to certain of
Kushner-Locke International's distributing licensees as well as August
Entertainment. See Item II, Executive Compensation - Employment Agreement -
Mr. Lilliston for a further description of Mr. Lilliston's employment
arrangement with the Company.
Cherry Lane Music Company, Inc. ("Cherry Lane"), which is owned by Milton
Okun, a member of the Board of Directors during fiscal 1996, entered into an
agreement to become the music administrator for the Company effective
August 15, 1994. Cherry Lane receives specified fees for the collection of
revenues derived from music publishing and record contracts.
In April 1996, the Company entered into a month-to-month consulting
agreement with Stuart Hersch which provides for a monthly fee of $7,500 to be
paid to Mr. Hersch. Mr. Hersch assists the Company in analyzing potential
strategic acquisitions and provides the Company consulting services in
connection with the Company's infomercial operations.
In August 1997, Mr. Locke obtained an option to acquire 45% of the common stock
of 800-U.S.Search ("Search"), a company which conducts public records searches
to locate individuals sought to be located, in exchange for indemnifications
of the optionor against certain potential liabilities. From August 1997
through November 1997, Mr. Locke personally loaned Search $175,000. In
November 1997, an entity owned by a third party but controlled by the Company
acquired 80% of the outstanding common stock of Search, and issued to the
Company an option at a nominal exercise price to acquire such 80% interest in
exchange for the assumption of certain liabilities. At such time, Mr. Locke's
option was cancelled. Through January 23, 1998 the Company has advanced Search
$495,000 and Search has repaid Mr. Locke $147,000 of his loan. In addition
the Company is assisting Search with its fee spot marketing efforts.
<PAGE>
Search conducts public records searches to locate individuals with whom the
consumer has lost contact for a low fixed fee.
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.
<PAGE>
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 28, 1998
THE KUSHNER-LOCKE COMPANY
(Registrant)
By: /s/ PETER LOCKE
Peter Locke
Co-Chairman of the Board,
Co-Chief Executive Officer
By: /s/ DONALD KUSHNER
Donald Kushner
Co-Chairman of the Board
Co-Chief Executive Officer and Secretary
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ PETER LOCKE Co-Chairman of the Board January 28, 1998
Peter Locke and Co-Chief Executive
Officer; Director
/s/ DONALD KUSHNER Co-Chairman of the Board, January 28, 1998
Donald Kushner Co-Chief Executive Officer
and Secretary; Director
/s/ BRUCE ST.J LILLISTON President and Chief January 28, 1998
Bruce St.J Lilliston Operating Officer
/s/ ROBERT SWAN Chief Financial Officer January 28, 1998
Robert Swan
/s/ ADELINA VILLAFLOR Controller (Chief Accounting January 28, 1998
Adelina Villaflor Officer)
/s/ DAVID BRAUN Director January 28, 1998
David Braun
/s/ S. JAMES COPPERSMITH Director January , 1998
S. James Coppersmith
Director January , 1998
Stuart Hersch
<//Table>
EXHIBIT 21
SUBSIDIARIES AND AFFILIATES OF THE COMPANY
THE KUSHNER-LOCKE COMPANY
KL INTERNATIONAL, INC.
(formerly known as AKL Distributing, Inc., AKL Distribution, Inc. and KL
Distribution, Inc.)
ACME PRODUCTIONS, INC.
(formerly Acme Game Shows, Inc.)
KL PRODUCTIONS, INC.
(formerly AKL Productions, Inc. and Kushner/Locke Company, Inc.)
KUSHNER-LOCKE PRODUCTIONS, INC.
(formerly Brave Little Co. and Atlantic/Kushner-Locke Productions, Inc.)
THE RELATIVES COMPANY
POST AND PRODUCTION SERVICES, INC.
(formerly Post Production Services, Inc., KW Acquisitions Corporation and KL
Acquisition Corp.)
L-K ENTERTAINMENT, INC.
FAMILY PICTURES, INC.
INTERNATIONAL COURTROOM NEWS SERVICE
TROPICAL HEAT, INC.
KL SYNDICATION, INC.
(formerly D.I., Inc.)
ANDRE PRODUCTIONS, INC.
TKLC NO. 2, INC.
TWILIGHT ENTERTAINMENT, INC.
(formerly Gentox Films, Inc.)
KLC FILMS, INC.
KL FEATURES, INC.
(formerly KLC, Inc.)
KLF GUILD COMPANY
(formerly KLF Guild Co., Inc.)
KLF DEVELOPMENT CO.
KLTV GUILD CO.
KLTV DEVELOPMENT CO.
KUSHNER-LOCKE INTERNATIONAL, INC.
(formerly KLC Worldwide, Inc.)
KL INTERACTIVE MEDIA, INC.
DAYTON WAY PICTURES, INC.
DAYTON WAY PICTURES II, INC.
F.W. COLD CO., INC.
DAYTON WAY PICTURES IV, INC.
KLC/NEW CITY
BLT VENTURE
MDP/KLC
KLC/M3D
TVFIRST
KLC/MOVIE SCREEN ENTERTAINMENT
KL FEATURES, INC./WARNERVISION
KL/7 VENTURE
VADO MOUNTAIN PRODUCTIONS
OUTPOSTS PRODUCTIONS
NEA PRODUCTIONS, INC.
KUSHNER-LOCKE INTERNATIONAL (U.K.) LIMITED
800-U.S.SEARCH
</TABLE>
