SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant 1
Filed by a Party other than the Registrant 0
Check the appropriate box:
0 Preliminary Proxy Statement 0 Confidential. For Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
1 Definitive Proxy Statement
0 Definitive Additional Materials
0 Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
THE KUSHNER-LOCKE COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
1 No fee required.
0 Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transactions:
(5) Total fee paid:
0 Fee paid previously with preliminary materials:
0 Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
THE KUSHNER-LOCKE COMPANY
11601 Wilshire Boulevard, 21st Floor
Los Angeles, CA 90025
___________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 18, 1998
___________________
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of THE KUSHNER-LOCKE COMPANY (the "Company") will be held at the
Beverly Hilton Hotel. 9876 Wilshire Boulevard, Beverly Hills, California on
June 18, 1998, at 2:00 P.M., local time, to consider and vote upon the
following:
1. The election of directors; and
2. To approve the appointment of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ending September 30, 1998.
Information concerning these matters, including the names of the nominees
for the Company's Board of Directors, is set forth in the attached Proxy
Statement, which is a part of this Notice.
The Board of Directors has fixed May 20, 1998 as the record date for
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. Accordingly, only those shareholders of record at the close of
business on that date are entitled to vote at the Annual Meeting or any
adjournment(s) thereof.
The Company's Board of Directors urges that all shareholders of record
exercise their right to vote at the meeting personally or by proxy.
Your proxy will continue in full force and effect unless and until you
revoke such proxy prior to the votes such proxy pertains to. You may revoke
your proxy by a writing delivered to the attention of the Company's Corporate
Secretary stating that such proxy is revoked, or by a subsequent proxy
executed by you and presented at the meeting, or by attending the meeting and
voting in person. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark dates on the
envelopes in which they are mailed.
<TABLE>
<S> <C>
By Order of the Board of Directors
/s/ DONALD KUSHNER
___________________
Donald Kushner
Co-Chairman,
Co-Chief Executive Officer and Secretary
May 15, 1998
Los Angeles, California
</TABLE>
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN (DO NOT PRINT) YOUR NAME AND DATE THE ENCLOSED PROXY CARD(S) AS PROMPTLY
AS POSSIBLE AND RETURN IT (THEM) IN THE ENCLOSED PRE-ADDRESSED ENVELOPE. IF
YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN
DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE
COMPLETED AND RETURNED.
<PAGE>
THE KUSHNER-LOCKE COMPANY
11601 Wilshire Boulevard, 21st Floor
Los Angeles, CA 90025
___________________
PROXY STATEMENT
___________________
This Proxy Statement is furnished to the shareholders of the Company (the
"Shareholders") in connection with the solicitation by the Board of Directors
of The Kushner-Locke Company (the "Company") of proxies to be used at
the Annual Meeting of Shareholders of the Company (the "Annual Meeting") to
be held at the Beverly Hilton Hotel. 9876 Wilshire Boulevard, Beverly Hills,
California on June 18, 1998, at 2:00 P.M., local time, and any
adjournment(s) thereof.
The Company's principal executive offices are located at 11601 Wilshire
Boulevard, 21st Floor, Los Angeles, California 90025, and its telephone
number is (310) 481-2000.
This Proxy Statement, the accompanying Notice of Annual Meeting, the
accompanying proxy card(s) and the accompanying Company's 1997 Annual Report
are being first mailed to Shareholders on or about May 22 1998. The Annual
Report is not to be regarded as proxy soliciting material or as a
communication by means of which any solicitation of proxies is to be made.
Each proxy will be voted in accordance with the instructions contained
therein. In the absence of such instructions, the persons designated as
proxies in the accompanying proxy card(s) will vote for the election of the
director nominees listed in this Proxy Statement (the "Nominees"), for the
appointment of KPMG Peat Marwick LLP as the Company's independent accountants
for the fiscal year ending September 30, 1998, and in their discretion as to
any other business that may properly come before the Annual Meeting or any
adjournment(s) thereof. The Board of Directors does not know of any other
business to be brought before the Annual Meeting. Shares held by banks,
custodians, nominees and fiduciaries not voted in person or by proxy will be
deemed not present at the Annual Meeting. The votes of the holders of shares
of the common stock of the Company (the "Common Stock") will be counted by a
representative of the Company's stock transfer agent or another inspector of
elections appointed by the Company.
Each proxy will continue in full force and effect unless and until revoked
by the person executing it prior to the votes pursuant thereto. Such
revocation may be effected by a writing delivered to the Company to the
attention of the Corporate Secretary at the address indicated above stating
that such proxy is revoked, or by a subsequent proxy executed by the person
executing the prior proxy and presented at the meeting, or by attendance at
the meeting and voting in person. The dates contained on the forms of proxy
presumptively determine the order of execution regardless of the postmark
dates on the envelopes in which they are mailed.
General Information
The Board of Directors has fixed May 20, 1998 as the record date (the
"Record Date") for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting or any adjournment(s) thereof. As ofthe
end of business on May 14, 1998, 9,199,482 shares of Common Stock were
issued, outstanding and entitled to vote at the meeting.
Shareholders who own shares of Common Stock registered in different names or
at different addresses will receive more than one proxy card. A Shareholder
must sign and return each of the proxy cards received to ensure
that all of the shares of Common Stock owned by such Shareholder are
represented at the Annual Meeting.
The presence at the Annual Meeting, either in person or by proxy, of the
holders of a majority of the shares of Common Stock outstanding on the Record
Date is necessary to constitute a quorum for the transaction of business.
Abstentions and broker non-votes (which occur if a broker or other nominee
does not have discretionary authority and has not received voting
instructions from the beneficial owner with respect to the particular item)
are counted for purposes of determining the presence or absence of a quorum
for the transaction of business. Abstentions are counted in tabulations of
the votes cast on proposals presented to the Shareholders and have the same
legal effect as a vote against a particular proposal. Broker non-votes are
not taken into account for purposes of determining
<PAGE>
whether a proposal has been approved by the requisite shareholder vote as to
the election of the Board of Directors and the approval of the appointment of
KPMG Peat Marwick LLP.
Each share of Common Stock entitles the holder thereof to one vote on each
matter to be voted on at the Annual Meeting. With respect to the election of
Directors, the five nominees receiving the highest number of affirmative
votes will be elected. With respect to the approval of the appointment of
KPMG Peat Marwick LLP as the Company's independent accountants for the fiscal
year ending September 30, 1998, the approval of such appointment by a
majority of the shares of Common Stock present at the Annual Meeting, either
in person or by proxy, will constitute approval of such appointment.
In the election of directors, a Shareholder may cumulate his votes for one
or more nominees, but only if the names of nominees were placed in nomination
prior to the voting and any Shareholder has given notice at the meeting
prior to the voting of his intention to so cumulate his votes. If any one
Shareholder has given such notice, all Shareholders may cumulate their votes
in such election of directors. If the voting for directors is conducted by
cumulative voting, each share will be entitled to a number of votes equal to
the number of directors to be elected, which votes may be cast for a single
nominee or distributed among two or more nominees in such proportions as the
Shareholder or proxy holder deems fit.
Dissenters' rights of appraisal will not be available under California law
with respect to any proposal to be submitted by the Board of Directors at the
Annual Meeting.
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The table on the following page sets forth certain information as of
May 15, 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 of the Company; (iv) each
person who has been nominated to be a Director of the Company; and (v) all
current Directors and executive officers of the Company as a group.
<PAGE>
<TABLE>
<CAPTION>
Common Stock Percent of
Beneficial Owner Beneficially Owned Class (6)
- ---------------- ------------------ ---------
<S> <C> <C> <C>
Peter Locke 617,679 (1) 6.63%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Donald Kushner 617,824 (1)(2) 6.63%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Irwin Friedman 103,990 (3) 1.08%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Stuart Hersch 76,739 (4) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
John Lannan 13,332 *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Bruce St. J. Lilliston 29,168 (5) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Robert Swan 16,667 (6) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
David Braun 5,556 (7) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
S. James Coppersmith 9,723 (7) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
All directors and executive officers as
a group (seven individuals) 1,490,677 (8) 15.41%
</TABLE>
___________________
* Less than 1%
(1) Includes 120,000 shares subject to options which are currently
exercisable or exercisable within 60 days of the date hereof, and excludes
196,666 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 3,990 shares beneficially owned and warrants to purchase 100,000
shares of Common Stock issued to a company of which Mr. Friedman is a
principal.
(4) 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.
(5) Represents options to purchase shares which are currently exercisable.
<PAGE>
(6) Represents options to purchase shares which are currently exercisable or
exercisable within 60 days of the date hereof, and excludes 8,333 options
which are not currently exercisable or exercisable within 60 days of the
date hereof.
(7) 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.
(8) As a percentage of the 9,199,482 shares outstanding on May 14, 1998 plus
certain shares issuable upon conversion of convertible securities or
subject to certain options held by such person or persons.
ELECTION OF DIRECTORS
An entire Board of Directors consisting of 5 directors is proposed to be
elected at the Annual Meeting. Directors are to be elected at the Annual
Meeting to serve until the next Annual Meeting and until their successors
are duly elected and qualified. The Board of Directors may be increased to
not more than a total of 7 directors by action of the Board of Directors.
The Board of Directors has voted to recommend the following persons for
election as directors:
<TABLE>
<S> <C>
Peter Locke Stuart Hersch
Donald Kushner John Lannan
Irwin Friedman
</TABLE>
All of the nominees for director named above (the "Nominees") have consented
to being named herein and have indicated their intention to serve as directors
of the Company, if elected. Two current directors, David Braun and S. James
Coppersmith, will conclude their service as of the Annual Meeting and are not
nominated for re-election.
Unless authority to do so is withheld, the persons named as proxies will
vote the shares represented by such proxies for the election of the Nominees.
In case any of the Nominees shall become unavailable for election to the
Board of Directors, which is not anticipated, the persons named as proxies
shall have full discretion and authority to vote or refrain from voting for
any other nominees in accordance with their judgment.
The following table contains certain biographical information with respect
to the Nominees:
INFORMATION CONCERNING NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Director Term
Name Age Since Expires Position
- ---- --- ----- ------- --------
<S> <C> <C> <C> <C>
Peter Locke 54 1983 1998 Co-Chairman, Co-Chief Executive
Officer; Director
Donald Kushner 53 1983 1998 Co-Chairman, Co-Chief Executive
Officer and Secretary; Director
Irwin Friedman(1)(2) 68 N/A N/A Director nominee
Stuart Hersch (1)(2) 47 1989 1998 Director
John Lannan (1)(2) 51 N/A N/A Director nominee
</TABLE>
________________________________________
(1) Member or prospective member of Audit Committee
(2) Member or prospective member of the Option Committee
The business experience, principal occupations, and employment of each of
the Nominees 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.
<PAGE>
Donald Kushner co-founded the Company with Peter Locke in 1983 and currently
serves as Co-Chairman, Co-Chief Executive Officer and Secretary of the
Company. 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.
Irwin Friedman is a director nominee. Mr. Friedman is President of I.
Friedman Equities, Inc., a corporate financial services firm, which he
founded more than twenty years ago. Since 1991 Mr. Friedman has rendered
financial consulting services to the Company through I. Friedman Equities,
Inc. and was responsible for introducing the Company to investment banking
firms which managed four separate securities offerings for the Company. Mr.
Friedman is a director of Recoton Corporation, a consumer electronics company.
Stuart Hersch has served as a director of the Company since August 1989.
Since June 1996, Mr. Hersch has been a consultant at Eyemark Entertainment, a
subsidiary of CBS Inc. in the syndicated television business. In April 1996,
Mr. Hersch became a consultant to the Company. From August 1990 to January
1996, Mr. Hersch was President of the WarnerVision Entertainment division of
Atlantic Records, a subsidiary of Time-Warner, Inc. ("WarnerVision" -
formerly "A*Vision"). 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.
John Lannan is a director nominee. Since January 1996 Mr. Lannan has been
Vice President of Westco Real Estate Finance Corp., a mortgage banking
company. Previously he was Vice-Chair of Hollingsworth & Lord, a mortgage
banking company. Mr. Lannan is a director of Centennial Bank and of Orange
County Bancorp., treasurer of the Lannan Foundation, a not-for-profit
organization, and is a member of the California Bar.
COMPENSATION OF DIRECTORS
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 will receive no compensation for serving as a
member of the Board of Directors. Irwin Friedman and Stuart Hersch will
receive $25,000, respectively, and John Lannan will receive $15,000, payable
quarterly for serving on the Board of Directors and any committees thereof.
Mr. Hersch was granted options to purchase 16,667 shares at an exercise price
of $1.875 in August 1997. Mr. Hersch and Mr. Friedman are also consultants
to the Company. See "Certain Relationships and Related Transactions."
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE NOMINEES DESCRIBED ABOVE.
The Company does not have compensation or nominating committees. The Audit
Committee was comprised during the 1997 fiscal year of three independent
directors, including Stuart Hersch. The Audit Committee's functions
include reviewing with the independent auditors the plan and results of the
auditing engagement, reviewing the scope and results of the Company's
procedures for internal auditing, reviewing the independence of the auditors,
considering the range of audit and non-audit services and reviewing the
adequacy of the Company's system of internal accounting controls.
During the 1997 fiscal year, there were 12 meetings of the Board of
Directors, 3 meetings of the Option Committee of the Board of Directors (the
Option Committee was comprised of three directors including Stuart
Hersch, each of which were outside directors), and one meeting of the Audit
Committee of the Board of Directors. All other actions of the Board of
Directors and Option Committee were taken pursuant to unanimous written
consents. During the 1997 fiscal year, each incumbent director attended all
meetings of the Board of Directors (held during the period for which he has
been a director) and meetings held by all committees of the board on which he
served.
INDEPENDENT ACCOUNTANTS
Upon unanimous recommendation of the Board of Directors, the Company has
appointed KPMG Peat Marwick LLP ("KPMG") as the Company's independent
accountants for the fiscal year ending September 30, 1998. KPMG
has served as the Company's independent accountants since 1987.
<PAGE>
Services provided to the Company by KPMG during fiscal year 1997 included
the examination of the Company's consolidated financial statements,
preparation of various corporate income tax returns and consultation on
various tax matters.
In the event shareholders do not approve the appointment of KPMG as the
Company's independent accountants for the forthcoming fiscal year, such
appointment will be reconsidered by the Board of Directors.
Representatives of KPMG will be present at the Annual Meeting to respond to
appropriate questions and to make such statements as they may desire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The executive officers of the Company are chosen by the Board of Directors
and serve at the pleasure of the Board of Directors, subject to the rights,
if any, of an executive officer under any contract of employment.
The following table contains certain biographical information with respect
to the executive officers of the Company:
<TABLE>
<CAPTION>
Executive Officers (1)
Name Age Principal Occupation
---- --- --------------------
<S> <C> <C>
Bruce St. J. Lilliston 46 President and Chief Operating Officer
Robert Swan 50 Chief Financial Officer
</TABLE>
_________________
(1) Information with respect to Messrs. Kushner and Locke is set forth above
under Information Concerning Nominees for Directors.
Bruce St. J. Lilliston became President and Chief Operating Officer of the
Company on October 1, 1996. Prior to joining the Company, Mr. Lilliston
practiced entertainment law for nineteen years. Mr. Lilliston practiced law
from May 1991 through September 1996, through the Law Offices of Bruce St. J.
Lilliston. From April 1989 to May 1991 he was a partner in the Los Angeles
based firm of Paul, Hastings, Janofsky & Walker, where he was managing
partner of that firm's entertainment finance and transactions practice. He
had represented the Company in various transactions over the two years prior
to joining the Company. Mr. Lilliston 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 B.A. degree with honors fr
om Brown University in 1974. Mr. Lilliston practiced law in London from 1982
to 1987.
Robert Swan joined the Company as Controller on October 28, 1996. On May 1,
1997 Mr. Swan assumed the role of Chief Financial Officer. From September
1994 to April 1997, Mr. Swan was Chief Financial Officer of AVI Entertainment
Group, Inc., a music publishing and distribution company. From 1991 to April
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. He obtained an MBA degree with honors from the University
of California at Los Angeles in 1976. He received his BS degree with high
distinction from Arizona State University in 1969.
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
<PAGE>
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 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 held that
same position with 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. Mr. Marks is an attorney and a
real estate broker licensed to practice in California.
Frank Hildebrand, age 47, joined the Company in January 1998 as Executive
Vice President - Production. From 1992 through 1997 Mr. Hildebrand was ann
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 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, Andrew 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1993, the Company entered into a domestic home video distribution
agreement with WarnerVision for a feature film. Stuart Hersch, a Director of
the Company, was president of WarnerVision at such time. The 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 the film. Through
March 31, 1998, the Company had made no payments of net revenues 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 two feature films. 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 the respective films. The Company also
agreed to license to WarnerVision domestic distribution rights to another
film for a recoupable minimum guaranty payment against revenues. In fiscal
1994, the Company also entered into a five-picture joint venture with
WarnerVision similar to the above arrangements. In fiscal 1995, the Company
entered into a net revenue arrangement with WarnerVision for a fourth film.
Through March 31, 1998, the Company had received approximately $924,193 from
WarnerVision towards the production costs and expenses of these films, and
the Company had paid approximately $1,003,068 to WarnerVision towards the
production costs and expenses of these films, all pursuant to such joint
venture agreements and a litigation settlement agreement.
Since 1991 Mr. Friedman has rendered financial consulting services to the
Company through the firm I. Friedman Equities, Inc. That firm is paid
$96,000 annually for such services. During 1997 in connection with rendering
certain services, that firm was granted warrants exercisable for 50,000
shares of common stock at $1.69 per share and for 50,000 shares of common
stock at $2.06 per share.
In April 1996, Mr. Hersch became a consultant to the Company for which he is
paid $7,500 per month. Mr. Hersch is assisting the Company in analyzing
potential strategic acquisitions and is providing the Company consulting
services in connection with the Company's involvement in infomercials. This
agreement is on a month-to-month basis.
<PAGE>
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
May 1997 through November 1997 Mr. Locke personally loaned Search $397,000.
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. On January 31, 1998, the Company exercised
its option. Through May 14, 1998 the Company has advanced Search $681,000
and Search has repaid Mr. Locke the principal in full plus an additional
$40,000 in consideration for such advances.
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.
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 Co-Chief
Executive Officers and each executive officer of the Company whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual ------
Compensation(1) Securities All Other
Fiscal ------------- Underlying Compen-
Name and Principal Position Year Salary Bonus Options/SARs sation(2)
- --------------------------- ---- ------ ----- ------------ ---------
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Peter Locke, 1997 425,000 --- 166,666/0 48,793
Co-Chairman, and Co-Chief 1996 425,000 --- 34,313
Executive Officer 1995 425,000 --- 32,057
Donald Kushner, 1997 425,000 --- 166,666/0 44,253
Co-Chairman, Co-Chief 1996 425,000 --- 30,415
Executive Officer and 1995 425,000 --- 29,255
Secretary
Bruce Lilliston (3) 1997 400,000 --- 41,667/0 ---
President and Chief
Operating Officer
Robert Swan (3) 1997 124,154 --- 25,000/0 ---
Chief Financial Officer
</TABLE>
_______________
(1) Does not include perquisites including expense allowances in the case of
Messrs. Kushner and Locke, 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 life insurance policy and
disability insurance premiums paid by the Company on behalf of the
Named Executive Officer. Effective February 1997 the life insurance
policies were replaced with universal life insurance policies with split
dollar ownership structures and with the same aggregate values.
(3) Commenced employment in fiscal 1997.
Employment and Compensation Arrangements
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
<PAGE>
fiscal 1997 and $290,000 in fiscal 1998. In fiscal 1992, Messrs. Kushner and
Locke elected to forego certain executive production and incentive bonuses.
Under the revised employment agreements, Messrs. Kushner and Locke each have
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. As approved by the Board of Directors in February 1996 and
May 1996, Messrs. Kushner and Locke amended their employment agreements to
waive their pre-tax earnings performance bonus in the event that the
Company's annual net income in fiscal 1996 was less than $1,250,000. They
would have received 6% of pre-tax earnings of the Company for fiscal 1996 in
excess of $1,250,000 but up to $3,166,666 or 4% of pre-tax earnings of the
Company in excess of $3,166,666, but in no event was either one of them be
entitled to receive greater than $250,000 of performance bonus with respect
to fiscal 1996. The Company's net income totaled $730,000 for fiscal
1996 and, accordingly, no bonus was paid or accrued.
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 shares of Common Stock at an exercise
price per share equal to $5.04 (the last reported sale price of the Common
Stock on the date of the sale and insurance by the Company of its 8%
Convertible Subordinated 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 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 120,000 shares of common
stock have vested to each officer as of May 15, 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 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). 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). As of August 1, 1997, the Company also granted to each of
Messrs. Kushner and Locke options to purchase an additional 83,333 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
average 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 by such executive for "cause," as defined therein, including
termination following a change of control, as such term is defined
therein,
<PAGE>
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 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 100% greater than 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 to Mr. Lilliston
options to purchase up to 41,667 adjusted shares of Common Stock, with 29,168
of such options having been granted and vested and 12,500 of such options to
be granted and vested two years after the commencement of the term (the
"Term") of the employment agreement (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 $200,000, respectively, for the subsequent two years. Mr. Swan has the
right to receive a bonus equal to 10% of his base annual salary to the extent
that net earnings for each fiscal year are greater than that of the
immediately preceding fiscal year. The Company
<PAGE>
agreed to grant Mr. Swan options to purchase up to 25,000 shares of Common
Stock, with options exercisable for 8,334 shares immediately vesting and for
8,333 shares vesting on each of the first and second anniversaries of the
Effective Date. The agreement is subject to early termination by the Company
in its discretion on the second anniversary date of the Effective Date.
<TABLE>
<CAPTION>
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexerciseable Unexerciseable
- ---- -------------- ----------- -------------- --------------
<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 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 participated in deliberations and decisions regarding executive
compensation. The option committee, comprised of Board members Stuart
Hersch, S. James Coppersmith and David Braun, voted by Unanimous Written
Consent to grant new options to certain employees in connection with
agreements to amend or extend their employment agreements with the Company.
In addition, the option committee approved Messrs. Kushner's, Locke's and
Swan's employment agreements, including the grants of options contained
therein. 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 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.
REPORT ON EXECUTIVE COMPENSATION
The Board of Directors has furnished the following report on executive
compensation:
Compensation Overview
Executive compensation consists of three key elements: base salary, cash
bonus and periodic grants of stock options under the Company's 1988 Stock
Incentive Plan, as amended (the "Plan"), or outside of the Plan. Additional
benefits, including retirement and insurance benefits, are provided to
executives and other key employees that the Company believes are similar to
those provided by other similar companies. The Company draws most of its
executives and other key employees from the entertainment industry where
creative talent is crucial and commands a significant premium, where
decisions made by a relatively small number of employees with an in-depth
knowledge of creative businesses can have a major impact on the performance
of the Company. Persons with such unique qualifications are rare and are
being pursued by other companies both in and out of the entertainment
industry, many of whom have greater available resources than the Company.
The goal of the Company is to attract and retain the services of qualified
executives in part through its executive compensation programs. The Company
believes its compensation program for executives benefits the Company through
the continuation of growth expansion and new opportunities designed to enhance
shareholder value.
Salary
Salaries paid to the Company's executive officers were based upon agreements
described in "Employment and Compensation Arrangements --Employment
Agreements" or employment agreements then in effect.
Bonus
Following each fiscal year, the Co-Chairmen develop individual bonus
recommendations based on the subjective assessment of the Company's overall
performance and each executive's contribution to such performance. No
specific formula is used; however, factors may include selected financial
goals (e.g., operating
<PAGE>
performance), project development, long-term objectives and the executive's
leadership role in any of the foregoing factors. Such factors are not
necessarily linked to any specific performance related targets or given any
particular weight. Bonus arrangements in employment contracts are quantified
and measurable. Each of the executive officers' and certain other employment
contracts include provisions for non-discretionary bonuses based on certain
operating results of the Company as described under "Employment and
Compensation Arrangements -- Employment Agreements." No other bonuses have
been paid to the executive officers.
Option Grants
The Company uses non-qualified stock options and other available forms of
compensation under the Plan which are intended to provide additional long
term incentive to key employees, including the Company's executive officers,
and have the intent of aligning the executive officers' interests with the
Shareholders' interest. The Plan under which awards have been made was
approved by the Company's Shareholders. Grants under the Plan generally
require the executive officer to be employed by the Company on the exercise
date and vest over a period of years following the date of grant. The
exercise price of such grants is generally equal to the market price of the
Common Stock on the grant date; therefore grants will only benefit an
executive officer if the market price of the Common Stock is greater than on
the date of the option grant. Under the plan, no specific formula is used to
determine grants made to any particular employee, including executive
officers, but grants are generally based on factors such as employment
agreements, and subjective factors such as promotion, contribution to Company
performance, and individual criteria. The Co-Chairmen make recommendations
to the Option Committee with respect to option grants and vesting. While
options typically vest over a five-year period, options granted to certain
executive officers may have different vesting periods. The option committee
has utilized performance criteria in certain of the grants of options to be
made to the President under his employment agreement. The Board of Directors
established such criteria. See "Executive Compensation."
Co-Chairmen Compensation
Messrs. Kushner and Locke, as Co-Chairmen, are compensated pursuant to
employment agreements described under "Employment and Compensation
Arrangements -- Employment Agreements" above. In entering into the
Amended and Restated Employment Agreements, the Board of Directors considered
various factors and corporate objectives, including the need to extend the
term of the employment contracts of the Co-Chairmen consistent with
the requirements of the Company's senior credit agreement, and the Board's
desire to align the chief executives' compensation and incentives with the
interests of the shareholders and the desire to compensate the chief executives
based upon the achievement of certain financial performance targets and stock
price targets. In addition, the Board of Directors considered information
provided by certain compensation and benefits consultants with respect to
compensation packages offered to executives in other entertainment companies.
The Board of Directors believes that the employment agreements entered into
with Messrs. Kushner and Locke fell within the competitive norm for other
entertainment companies and is commensurate with the Company's goals of
providing payment for performance and incentives for long-term shareholder
returns.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
allows tax deductions to public companies for compensation over $1,000,000
paid to the corporation's chief executive officer and four other most highly
compensated executive officers. Qualifying performance-based compensation
will not be subject to the deduction limit if certain requirements are met.
The Company intends to consider the provisions of Section 162(m) in
connection with the performance based portion of the compensation of its
executives (which currently consists of stock option grants and annual
bonuses described above). However, the board does not necessarily intend to
structure compensation to its executives to avoid disallowance of any tax
deductions in the future.
Corporate Performance
Set forth on the following page is a line graph comparing the stock price of
the Company with that of the Dow Jones Equity Market Index and the Dow Jones
Entertainment and Leisure -- Recreational Products and Services Index as of
the last trading date for each of the Company's fiscal years ending
September 30, 1993, 1994, 1995, 1996 and 1997. The graph assumes that $100
was invested on September 30, 1992 in the Company's Common Stock and each
index, and that all dividends were reinvested. No dividends have been
declared or paid on the Company's Common Stock during such period. The
historical price performance data shown on the graph is not necessarily
indicative of future price performance.
<PAGE>
<TABLE>
<CAPTION>
Total Return Analysis
9/30/92 9/30/93 9/30/94 9/29/95 9/30/96 9/30/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kushner-Locke $100 $143 $110 $70 $70 $64
Dow Jones Equity $100 $114 $117 $153 $184 $258
D.J. Entertainment $100 $133 $122 $157 $182 $204
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472. Data
from Bloomberg Financial Markets
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934 (the "Exchange Act") that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
report of the Board of Directors Regarding Executive Compensation (entitled
"Report on Executive Compensation") on pages 11 and 12 and the Corporate
Performance Graph on pages 12 and 13 shall not be incorporated by reference
into any such filings.
MISCELLANEOUS
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 ("the SEC").
Executive officers, directors and greater than 10% beneficial owners of any
class of the Company's equity securities are required by the 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 who held such positions during the fiscal year, 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. Each of Messrs. Kushner, Locke, Hersch and Swan
filed one Form 5 reporting the grant of options in fiscal 1997 after the
required filing date.
<PAGE>
Proposals of Shareholders
To be considered for inclusion in the Company's proxy statement for the next
Annual Meeting, proposals of Shareholders intended to be present at such
meeting must be received by the Corporate Secretary, The Kushner-Locke
Company, 11601 Wilshire Boulevard, 21st Floor, Los Angeles, California 90025
no later than February 20, 1999.
Cost of Soliciting Proxies
The expense of preparing and mailing the Notice of Annual Meeting, the Proxy
Statement, the proxy card(s) and the Company's 1997 Annual Report will be
paid by the Company and is expected to be minimal. It is anticipated that
banks, custodians, nominees and fiduciaries will forward proxy soliciting
material to beneficial owners of the Company's Common Stock and that the
Company will reimburse them for their reasonable expenses.
Annual Report to Securities and Exchange Commission
The Company files each year with the SEC an Annual Report on Form 10-K as
prescribed by the rules of the SEC. Copies of the Form 10-K will be
provided, without charge, to any Shareholder of the Company. Written
requests for a copy of the Form 10-K should be directed to Donald Kushner,
11601 Wilshire Boulevard, 21st Floor, Los Angeles, California 90025.
<TABLE>
<S> <C>
By Order of the Board of Directors
/s/ DONALD KUSHNER
_________________
Donald Kushner
Co-Chairman, Co-Chief Executive Officer
and Secretary
</TABLE>
<PAGE>
PROXY THE KUSHNER-LOCKE COMPANY
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE KUSHNER-LOCKE COMPANY FOR
1998 MEETING OF SHAREHOLDERS
The undersigned, revoking any previous proxies for such stock, hereby
appoints each of Donald Kushner, Bruce St.J Lilliston and Jerry Rubin, as
attorney and agent, acting individually or by a majority of those present,
with full power of substitution, to vote as proxy in the name, place and
stead of the undersigned at the Annual Meeting of shareholders of THE
KUSHNER-LOCKE COMPANY to be held on June 18, 1998 and at any and all
adjournments thereof, according to the number of votes that the undersigned
would be entitled to vote if personally present. Without limiting the
generality hereof, each of such persons is authorized to vote as hereinafter
specified upon the proposals listed on this proxy and described in the Proxy
Statement for the meeting.
The shares represented by this proxy shall be voted as specified. IF NO
SPECIFICATION IS MADE, THE SHARES SHALL BE VOTED AS RECOMMENDED BY THE BOARD
OF DIRECTORS. The Board of Directors has proposed the matters set forth
below for the vote of the shareholders of THE KUSHNER-LOCKE COMPANY.
The Board of Directors recommends a vote FOR the items below.
1. Approval of the following nominees to the Board of Directors:
<TABLE>
<S> <C> <C> <C>
Peter Locke FOR 0 AGAINST 0 ABSTAIN 0
Donald Kushner FOR 0 AGAINST 0 ABSTAIN 0
Irwin Friedman FOR 0 AGAINST 0 ABSTAIN 0
Stuart Hersch FOR 0 AGAINST 0 ABSTAIN 0
John Lannan FOR 0 AGAINST 0 ABSTAIN 0
</TABLE>
2. Approval of the appointment of KPMG Peat Marwick LLP as the Company's
independent accountants:
<TABLE>
<S> <C> <C> <C>
FOR 0 AGAINST 0 ABSTAIN 0
</TABLE>
<PAGE>
<TABLE>
<S> <C>
IMPORTANT: Please sign your name or names
exactly as stenciled on this proxy. When signing
as attorney, executor or administrator, trustee or
guardian, please give your full title as such.
____________________________________
Signature
____________________________________
Signature
Date: _______________, 1998
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY. A STAMPED AND
ADDRESSED ENVELOPE HAS BEEN PROVIDED FOR YOUR USE.
