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
Filed by the Registrant 1
Filed by a Party other than the Registrant 0
Check the appropriate box:
<TABLE>
<S> <C>
0 Preliminary Proxy Statement 0 Confidential. For Use of the Com-
mission Only (as permitted by
Rule 14a-6 (e) (2))
</TABLE>
1 Definitive Proxy Statement
0 Definitive Additional Materials
0 Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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 April 29, 1999
___________________
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
Luxe Summit Hotel Bel-Air, 11461 Sunset Boulevard, Los Angeles, California on
Thursday, April 29, 1999, at 2:30 P.M., local time, to consider and vote upon
the following:
1. The election of directors;
2. To amend the Company's 1988 Stock Incentive Plan to increase the number
of shares of Common Stock reserved for issuance from 1,250,000 to
1,820,000; and
3. To transact such other business as properly may come before the Annual
Meeting.
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 March 16, 1999 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 applicable vote 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, 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 proxies presumptively determine
the order of execution, regardless of the postmark dates on the envelopes in
which they are mailed.
By Order of the Board of Directors
/S/ DONALD KUSHNER
Donald Kushner
Co-Chairman, Co-Chief Executive Officer and Secretary
March 17, 1999
Los Angeles, California
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN (DO NOT PRINT) YOUR NAME AND DATE THE ENCLOSED PROXY CARD(S) AS PROMPTLY
AS POSSIBLE AND RETURN IT (THEM) IN THE ENCLOSED PRE-ADDRESSED ENVELOPE. IF
YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN
DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED
AND RETURNED.
<PAGE>
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 Luxe Summit Hotel Bel-Air, 11461 Sunset Boulevard, Los Angeles,
California on Thursday April 29, 1999, at 2:30 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 1998 Annual Report
are being first mailed to Shareholders on or about April 5, 1999. 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 proxy cards will vote for the election of the director nominees
listed in this Proxy Statement (the "Nominees"), for the amendment to the
Company's 1988 Stock Incentive Plan to increase the number of shares reserved
for issuance from 1,250,000 to 1,820,000, 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 applicable vote such proxy pertains
to. 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, 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
proxies 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 March 16, 1999 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 of the close
of business on March 16, 1999, 11,453,165 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
<PAGE>
purposes of determining the presence or absence of a quorum for the
transaction of business if such proxies are properly executed and present at
the meeting.
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 amendment to the
Company's 1988 Stock Incentive Plan to increase the number of shares reserved
for issuance from 1,250,000 to 1,820,000 (the "Plan amendment"), the approval
of such amendment 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
Plan Amendment. As to the election of the members of the Board of Directors,
abstentions would have no effect on the vote. Abstentions are counted in
tabulations of the votes cast on the Plan Amendment and have the same legal
effect as a vote against such proposal. Broker non-votes are not taken into
account for purposes of determining whether a proposal has been approved by
the requisite shareholder vote as to the election of the members of the Board
of Directors and as to the Plan Amendment.
In the election of directors, a Shareholder may cumulate its 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 its intention to so cumulate its 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.
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:
Peter Locke Stuart Hersch
Donald Kushner John Lannan
Irwin Friedman
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.
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.
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INFORMATION CONCERNING NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
Director Term
Name Age Since Expires Position
- --------------------- --- ------ ------ -------------------------------
<S> <C> <C> <C> <C>
Peter Locke 55 1983 1999 Co-Chairman, Co-Chief Executive
Officer; Director
Donald Kushner 54 1983 1999 Co-Chairman, Co-Chief Executive
Officer and Secretary; Director
Irwin Friedman* 65 1998 1999 Director
Stuart Hersch* 47 1989 1999 Director
John Lannan* 52 1998 1999 Director
</TABLE>
- ----------------------
* Member of Compensation and Audit Committees
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. Mr. Locke is President and
Co-Chairman of the board of directors of 800-U.S. Search ("Search"), a
majority-owned subsidiary of the Company.
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. Mr. Kushner is Co-Chairman of the board of directors of
Search.
Irwin Friedman has served as a director of the Company since June 1998. 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., including advising and assisting the Company in
connection with various financings and other corporate transactions. 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 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.
John Lannan has served as a director of the Company since June 1998. Since
May 1998 Mr. Lannan has been the President of Brentwood Partners, Inc.,
a mortgage banking company. From May 1995 to May 1998 Mr. Lannan was Vice
President of Westco Real Estate Finance Corp., a mortgage banking company.
From February 1992 through April 1995 he was Vice-Chairman of Hollingsworth &
Lord, a mortgage banking company. Mr. Lannan is a director of
3
<PAGE>
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 receive no compensation for serving as a
member of the Board of Directors.
Irwin Friedman and Stuart Hersch receive $25,000, respectively, and John
Lannan receives $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 of Common Stock at an exercise price of $1.875 per
share in August 1997. Each of Messrs. Friedman and Lannan were granted
options to purchase 16,667 shares of Common Stock at an exercise price of
$2.84 per share in June 1998. Each of Messrs. Friedman, Hersch and Lannan
were also granted options to purchase 13,333 shares of Common Stock at an
exercise price of $7.19 per share in February 1999, subject to Shareholder
approval of the Plan Amendment. The exercise prices of each of these options
correspond to the closing sale price of the Company's Common Stock as reported
by the NASDAQ National Market on the trading day immediately preceeding the
grant date. See "Related Party Transactions." Mr. Hersch is also a consultant
to the Company and, effective April 1, 1999, Mr. Friedman will be a consultant
to the Company.
From October 1, 1997 through June 18, 1998 the Compensation Committee and
the Audit Committee each consisted of Messrs. Hersch, Braun and Coppersmith.
On June 18, 1998, at the Company's annual shareholders meeting, Messrs. Braun
and Coppersmith did not stand for reelection and Messrs. Friedman and Lannan
were elected to the Board of Directors. In a Board meeting immediately
following the annual shareholders meeting, Messrs. Friedman and Lannan were
appointed to both the Compensation Committee and the Audit Committee. The
Compensation Committee participated in deliberations and decisions regarding
executive compensation, however the entire Board of Directors participates in
decisions regarding grants of new options. 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. The Company
does not have a Nominating Committee.
During the 1998 fiscal year, there were six meetings of the Board of
Directors, five meetings of the Compensation Committee and two meetings of the
Audit Committee of the Board of Directors. 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE ELECTION OF EACH OF THE NOMINEES DESCRIBED ABOVE.
INDEPENDENT ACCOUNTANTS
Upon unanimous recommendation of the Audit Committee, the Board of Directors
of the Company has appointed PricewaterhouseCoopers LLP ("PWC") as the
Company's independent accountants for the fiscal year ending September 30,
1999. PWC has served as the Company's independent accountants since October
1998. PWC audited the Company's consolidated financial statements for fiscal
year ended September 30, 1998.
As more fully described in the Company's Current Report on Form 8-K, filed
on October 27, 1998, on October 20, 1998, the Company selected PWC to audit
the consolidated financial statements of the Company for the fiscal year ended
September 30, 1998. The Company's prior fiscal year end financial statements
were audited by KPMG LLP ("KPMG"). The decision to change auditors was
approved by the Audit Committee of the Board of Directors. PWC serves as
independent accountants for Search and the change to PWC as the Company's
independent accountants will centralize review of related financial
statements.
4
<PAGE>
During the two fiscal years ended September 30, 1997 and 1996, and any
subsequent interim period prior to October 20, 1998, the Company believes that
there were no disagreements with KPMG on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of KPMG, would have
caused them to make reference to the subject matter of the disagreements in
connection with their report. KPMG's report on the financial statements of
the Company for each of fiscal years ended 1997 and 1996 did not contain any
adverse opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
During the two fiscal years ended September 30, 1997 and 1996, and any
subsequent interim period prior to October 20, 1998, the Company believes that
there was no disagreement or difference of opinion with KPMG regarding any
"reportable event" as that term is defined in Item 304(a)(1)(v) of Regulation
S-K promulgated by the Securities and Exchange Commission. In its report to
the Board of Directors of the Company in connection with its audit of the
fiscal year ended September 30, 1997 financial statements of the Company, KPMG
advised the Company as to the existence of certain reportable conditions in
the Company's system of internal control which KPMG believes are reportable
events. These reportable conditions related to (1) improving communication
among the finance department and senior management regarding the accounting
for several 1997 projects, (2) improving tracking of distributions due to the
Company from third parties on certain projects and (3) improving estimates of
certain information utilized in preparation of and adjustments to the
Company's financial statements. The Company's consolidated financial
statements for the fiscal year ended September 30, 1997 reflected any
adjustments the Company and KPMG deemed necessary with respect to the
foregoing. The Company believes that such reportable conditions have been
corrected to the extent practicable. The Board of Directors of the Company
discussed the above reportable conditions with representatives of KPMG
following receipt of such advice from KPMG.
During the two fiscal years ended September 30, 1997 and 1996 and through
October 20, 1998, the Company (or anyone on the Company's behalf) did not
consult PWC in connection with the Company's financial statements regarding
either the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements or any matter that was the
subject of any reportable event as described above.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting to respond to appropriate questions and to make such statement as they
may desire.
PROPOSED AMENDMENT TO 1988 STOCK INCENTIVE PLAN
General
The Board of Directors proposed that the shareholders ratify an amendment
(the "Plan Amendment") to the Company's 1988 Stock Incentive Plan, as amended
(the "Plan"), in order to increase the number of shares of the Company's
Common Stock issuable pursuant to the Plan from 1,250,000 shares to 1,820,000
shares. The Board of Directors believes the proposed Plan Amendment will aid
the Company in attracting, retaining and motivating key employees and certain
third parties by assuring the continuing availability of stock incentives in
the appropriate circumstances. The closing price of the Common Stock as
reported on the NASDAQ National Market was $10.875 on March 17, 1999.
Summary of Existing Plan
The Plan, as currently established, authorizes the granting of awards to
qualified officers, employee Directors, key employees and third parties
providing valuable services to the Company, e.g., independent contractors,
consultants and advisors to the Company (individually an "Award"). At March
15, 1999 approximately 170 employees of the Company and its subsidiaries were
eligible to receive Awards. The Plan is administered by a committee appointed
by the Board of Directors and currently consisting of two or more members,
each of whom must be a Non-Employee Director (as defined in Rule 16b-3
promulgated by the Securities and Exchange Commission) or, in the absence of
a committee, the Board of Directors (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.
5
<PAGE>
The Plan currently provides for the grant of Awards to purchase or transfer
up to an aggregate of 1,250,000 shares of Common Stock of the Company, of
which only 8,752 shares are available as of March 15, 1999 for future grant.
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 determined by the Committee, but in the case
of an ISO may not be less than the 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 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 on the date of grant or
on a specified vesting schedule) until the expiration date determined by the
Committee. 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
Committee determines the terms of each individual Option. Options become
immediately exercisable in full 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 the optionee to receive 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 (which Options shall
thereupon terminate). 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 must expire no later than 10 years from the
date of grant, unless it is granted to a holder of more than 10% of the total
combined voting power of all classes of stock of the Company, in which case it
must expire no later than five years from the date of grant. A nonqualified
stock Option must expire no later than ten years and one day 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
three months after termination of employment other than by reason of
retirement, disability or death in which case it terminates one year
thereafter.
An SAR is the right to receive payment based on the appreciation in the fair
market value of Common Stock from the date of the 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.
The Plan also permits the Committee to grant certain tax-offset bonuses and
tax withholding using shares of Common Stock or a promissory note 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
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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 exercisability of all outstanding Awards may be accelerated, subject to
the discretion of the Board of Directors, upon the occurrence of an "Event,"
defined in the Plan to include approval by the shareholders of the
dissolution or liquidation of the Company, certain mergers, consolidations,
sale of substantially all of the Company's business and/or assets and a
"change in control." The Plan defines a change in control to have occurred if
(i) a "person" as defined in Section 13(d) and 14(d) under the Exchange Act
acquires 20% or more of the outstanding shares of Common Stock of the Company
unless waived in advance by Committee, and (ii) during any two consecutive
year periods there has been a change of a majority of the members of the Board
of Directors, unless the election or nomination of the new Directors has been
approved by at least three-fourths of the members still in office from the
beginning of the two year period.
The Plan provides for anti-dilution adjustments 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 of Directors may terminate, amend,
modify or suspend the Plan at any time without obtaining shareholder approval
to the fullest extent permitted by law. In addition, the Committee may, with
certain exceptions, amend or modify the Plan or, with the consent of the
holder of any Award, may amend such Award as the Committee shall deem
adviseable.
Plan Amendment
There are presently only 8,752 available shares of Common Stock authorized
for purposes of granting Awards under the Plan. The Board of Directors
believes that such amount is insufficient to meet the Plan's objectives of
attracting, retaining and motivating key employees and certain third parties.
The Plan Amendment, if approved by shareholders, will increase the number of
shares of Common Stock available under the Plan from 1,250,000 shares to
1,820,000 shares.
The text of the Plan Amendment is set forth in full on Exhibit A to this
Proxy Statement, and the foregoing description is qualified in its entirety by
reference to Exhibit A.
If the Plan Amendment is approved by Shareholders, 50,000 restricted shares
of Common Stock will be granted to each of Messrs. Locke and Kushner. In
addition, nonqualified options to purchase 13,333 shares of Common Stock will
be granted to each of Messrs. Friedman, Hersch and Lannan, and nonqualified
options to purchase 45,000 shares of Common Stock will be granted to Nicholas
Matzorkis, all at an exercise price of $7.19 per share. The grants to Messrs.
Friedman, Hersch and Lannan will be immediately exerciseable and will expire
ten years from grant date. Of the total grant to Mr. Matzorkis, options
pertaining to 15,000 shares will immediately be exerciseable, and 15,000 each
will become exerciseable on the first and second anniversaries of the date of
grant. Following such grants and assuming no forfeitures or additional grants
occur in the interim, a total of 313,753 shares of Common Stock will remain
available for future grant as of April 29, 1999.
7
<PAGE>
Certain Federal Income Tax Matters
The tax consequences with respect to Awards are quite complex and subject to
change. Thus, the following discussion is general in nature and does not
purport to be complete. We recommend that each eligible participant contact
his, her or its advisor as to the potential tax consequence for them.
Generally, Options granted under the Plan will not result in the recognition
of income by the recipient at the time of the grant. However, upon the
exercise of an Option, the recipient will recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the Stock purchased upon such exercise, and the Company will
generally be entitled to a deduction of a like amount. Recipients of RSAs
will not ordinarily recognize income upon receipt of the Award absent an
election under the Code to recognize income upon the date of grant. Income
will be recognized in an amount equal to the difference between the purchase
price of the Stock and the fair market value of the Stock on the date of
vesting (or grant, if the above-referenced election has been made), and the
Company will generally be entitled to a deduction of a like amount. For a
discussion of the impact of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), see "Report on Executive Compensation-
Compliance with Internal Revenue Code Section 162(m)."
Each Director and executive officer of the Company who is eligible to
receive Awards under the Plan can be considered to have an interest in the
vote on this proposal.
The affirmative vote of a majority of shares of Common Stock voting at the
Annual Meeting if a quorum is present will be necessary for the approval of
the Plan Amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE PLAN AMENDMENT
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
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, 1998.
<TABLE>
<CAPTION>
Director
Name Age Since Position
- ----------------------- --- --------- --------------------------
<S> <C> <C> <C>
Peter Locke 55 1983 Co-Chairman and Co-Chief Executive
Officer; Director
Donald Kushner 54 1983 Co-Chairman, Co-Chief Executive
Officer and Secretary; Director
Bruce St. J. Lilliston 47 - Chief Operating Officer and
President
Robert Swan 51 - Senior Vice President and Chief
Financial Officer
</TABLE>
Background of Executive Officers
See "Information Concerning Nominees for Directors" above for information
concerning executive officers who are also directors. The business
experience, principal occupations and employment of each of the non-director
executive officers of the Company for at least the past five years are as
follows:
Bruce St. J. Lilliston has served as President and Chief Operating Officer
of the Company since October 1996. Prior to joining the Company, Mr.
Lilliston practiced entertainment law for 19 years. He represented the
Company in various transactions for the two years preceding his appointment as
Company President and Chief Operating Officer. Mr. Lilliston served as an
arbitrator for the American Film Marketing Association, and also served a
special master for
8
<PAGE>
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 has served as Senior Vice President and Chief Financial Officer
since May 1, 1998. Mr. Swan previously served as Chief Financial Officer of
the Company from May 1997 to May 1998 and Controller of the Company from
October 1996 to May 1997. 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. Mr. Swan is
a Certified Public Accountant.
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:
D'Arcy Conrique, age 34, has served as Senior Vice President, Operations of
Kushner-Locke International, Inc., the international theatrical distribution
subsidiary of the Company, since April 1997. Mr. Conrique joined
Kushner-Locke International, Inc. as Vice President in January 1995. Prior
to joining Kushner-Locke International, Inc., Mr. Conrique was Manager,
Contracts Administration at August Entertainment, Inc., a producer and
distributor of feature films, from September 1994 to January 1995. From 1986
through 1994 Mr. Conrique was Managing Director at Koritain Entertainment, a
producer and distributor of feature films.
Chris Perry-Melish, age 31, has served as President, Film and Television
Sales of Kushner-Locke International, Inc., the international theatrical
distribution subsidiary of the Company, since October 1998. In May 1998 Mr.
Perry-Melish was appointed Vice President, International Sales of Kushner-
Locke International. Mr. Perry-Melish joined Kushner-Locke International,
Inc. as Director, International Distribution in April 1997. From January 1996
to April 1997 Mr. Perry-Melish was Director, International Distribution for
Conquistador Entertainment, Inc., a distributor of feature films. From May
1992 through December 1995 Mr. Perry-Melish was Manager of International
Distribution for Prism Entertainment, a producer and distributor of feature
films and television programs.
Richard Marks, age 50, has served as Executive Vice President and General
Counsel of the Company since 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 48, has served as Executive Vice President -
Production since joining the Company in January 1998. From April 1992 through
December 1997 Mr. Hildebrand was an independent producer and produced
numerous films, among them two films for the Company, Freeway and the 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.
Philip Mittleman, age 28, has served as Executive Vice President, Feature
Films since March 1996. Previously, Mr. Mittleman served as Vice President,
Feature Films from March 1994 to March 1996 and as President of Development,
Feature Films from January 1993 to March 1994. Prior to January 1993 Mr.
Mittleman served as production coordinator, script coordinator and writer's
assistant on various Company projects.
9
<PAGE>
Andrew Steinberg, age 34, has served as Executive Vice President-Television
since 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.
C. Nicholas Keating, Jr., age 57, has served as President, Chief Executive
Officer and director of Search since February 1999. Mr. Keating has served as
an independent business advisor since 1993 to a number of companies principally
in the networking, software, semiconductor and imaging industries. From 1987
to 1993, Mr. Keating was Vice President of Network Equipment Technologies, a
wide-area networking company. Mr. Keating currently serves on the boards of
directors of MCMS, Inc., a leading advanced electronics manufacturer serving
original equipment manufacturers in the networking, telecommunications,
computer systems and other rapidly growing sectors of the electronics
industry, E-Net Corporation, an enterprise software supplier to the financial
services industry, and LIC Energy, a European simulation systems company
serving the oil and gas transmission market.
Nicholas Matzorkis, age 36, has served as the Chief Strategist of Search
since September 1998. Mr. Matzorkis co-founded 800-U.S Search in November
1994 and served as its President from inception to September 1998. From 1992
to 1994, Mr. Matzorkis was founder and President of U.S. Bell Long Distance,
an aggregator and reseller of telecommunications services. In addition, from
1992 through 1997 Mr. Matzorkis consulted with companies in the entertainment
industry on Web site development, and promoted a variety of music and
entertainment ventures.
Alan Mazursky, age 40, has served as Chief Financial Officer of 800-U.S.
Search since May 1998 as part of his duties as a consultant to the Company.
Mr. Mazursky has served as consultant to the Company since February 1998.
From July 1996 to January 1998 Mr. Mazursky was an independent financial
consultant. From June 1988 to June 1996 Mr. Mazursky was Chief Financial
Officer of Hard Rock Cafe America, the owner, operator and franchisor of Hard
Rock Cafe restaurants in the western United States and certain international
territories.
Robert Zakari, age 28, has served as Vice President-Legal and Business
Affairs of Search since August 1996. Previously Mr. Zakari attended
New York Law School where he received a Juris Doctorate degree in 1996.
Mr. Zakari is a member of the California state bar.
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The following table sets forth certain information as of March 15, 1999
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; (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.
10
<PAGE>
<TABLE>
<CAPTION>
Common Stock Percent of
Beneficial Owner Beneficially Owned Class (8)
- ---------------------------------- ----------------- ---------
<S> <C> <C>
Peter Locke (Director) 747,679 (1) 6.37%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Donald Kushner (Director) 747,824 (1)(2) 6.37%
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Irwin Friedman (Director) 91,389 (3) *
375 Park Avenue, Suite 2608
New York, NY 10152
Stuart Hersch (Director) 82,295 (4) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
John Lannan (Director) 18,888 (5) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Bruce St. J. Lilliston 41,667 (6) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Robert Swan 15,000 (6) *
11601 Wilshire Blvd., 21st Floor
Los Angeles, CA 90025
Gruber & McBaine Capital Management, LLC 1,009,000 (7) 8.78%
50 Osgood Place
San Francisco, CA 94133
All directors and executive officers as a 1,744,742 14.28%
group (seven individuals) (1)(2)(3)(4)(5)(6)
</TABLE>
- --------------------------
* Less than 1%
(1) Includes 250,000 shares subject to options which are currently
exercisable or exercisable within 60 days of the date hereof, and
excludes 66,666 options which are not currently exercisable or
exercisable within 60 days of the date hereof. Does not include a grant
of 50,000 shares of restricted Common Stock approved by the Board of
Directors in February 1999, subject to approval of the Plan Amendment by
the Shareholders.
(2) Includes 33,333 shares owned by a corporation controlled by Mr. Kushner.
(3) Includes 88,889 shares subject to options and warrants currently
exerciseable, and excludes 27,778 shares subject to options and warrants
which are not currently exercisable or exercisable within 60 days of the
date hereof. Does not include a grant of options to purchase 13,333
shares of Common Stock granted by the Board of Directors in February
1999, subject to approval of the Plan Amendment by the Shareholders.
11
<PAGE>
(4) Includes 82,295 shares subject to options currently exercisable, and
excludes 5,555 shares subject to options which are not currently
exercisable or exercisable within 60 days of the date hereof. Does not
include a grant of options to purchase 13,333 shares of Common Stock
granted by the Board of Directors in February 1999, subject to approval
of the Plan Amendment by the Shareholders
(5) 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 of the date hereof. Does not
include a grant of options to purchase 13,333 shares of Common Stock
granted by the Board of Directors in February 1999, subject to approval
of the Plan Amendment by the Shareholders
(6) Represents shares subject to options currently exercisable or exercisable
within 60 days of the date hereof.
(7) Based upon Form 3 and Form 13D filings by Gruber & McBaine Capital
Management, LLC dated December 30, 1999, as updated by Gruber & McBaine
Capital Management, LLC as of March 16, 1999.
(8) As a percentage of the 11,453,165 shares outstanding on March 16, 1999
plus certain shares issuable upon conversion of convertible securities or
subject to options held by such person or persons.
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, 1998 to the Chief
Executive Officer and each executive officer of the Company whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual ------
Compensation(1) Securities All Other
------------- Underlying Compensation
Fiscal Salary Bonus Options/SARs (1,4)
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Peter Locke (2)(3) 1998 425,000 -- -- 30,856
Co-Chairman, Co-Chief 1997 425,000 -- 166,666/0 36,293
Executive Officer 1996 425,000 -- -- 34,313
Donald Kushner (3) 1998 425,000 -- -- 27,989
Co-Chairman, Co-Chief 1997 425,000 -- 166,666/0 33,878
Executive Officer 1996 425,000 -- -- 30,415
and Secretary
Bruce Lilliston (5) 1998 400,000 80,049 8,333/0 --
President and Chief Operating 1997 400,000 -- 20,834/0 --
Officer 1996 N/A N/A N/A N/A
Robert Swan (5) 1998 172,558 -- -- --
Senior Vice President and 1997 124,154 -- 25,000/0 --
Chief Financial Officer 1996 N/A N/A N/A N/A
</TABLE>
- ----------------------
(1) Does not include perquisites including automobile allowances and $25,000
annual non-accountable expense allowances in the case of Messrs. Locke,
Kushner and Lilliston.
12
<PAGE>
(2) Does not include payments by Search, prior to January 30, 1998, when the
Company acquired such subsidiary.
(3) Does not include (a) options to purchase shares of the common stock of
Search which were approved by the Company and Search, but subsequently
were terminated prior to full documentation pursuant to a waiver of any
rights to receive such options executed by Messrs. Kushner and Locke, or
(b) options to purchase 24,850 shares of Search which were granted to all
Search board members in February 1999.
(4) Includes 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.
(5) Commenced employment in fiscal 1997.
EMPLOYMENT AND COMPENSATION ARRANGEMENTS
Messrs. Kushner and Locke. In March 1994, Messrs. Kushner and Locke each
amended his respective employment agreement with the Company to (i) extend the
term of the agreement to March 1999 and (ii) reduce the maximum annual
performance bonus that each may receive to 4% of pre-tax earnings for the
applicable period up to a maximum of $200,000 in fiscal 1994, $220,000 in
fiscal 1995, $250,000 in fiscal 1996, $270,000 in fiscal 1997 and $290,000 in
fiscal 1998. Under the revised employment agreements, Messrs. Kushner and
Locke each have a base salary of $425,000 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's employment agreements were further amended
to revise the annual pre-tax earnings performance bonus so that no bonus would
be payable under the yearly test for fiscal 1996 if the Company's annual
pre-tax earnings were less than $1,250,000, and with an increase of the bonus
rate to 6% of annual pre-tax earnings of the Company for fiscal 1996 in excess
of $1,250,000 and up to $3,166,666. The amendments left unchanged both the
bonus rate of 4% of pre-tax earnings of the Company for subsequent fiscal
years and the maximum performance bonus of $250,000 for fiscal 1996. No bonus
was accrued or paid in fiscal 1996, 1997 or 1998.
In order to induce Messrs. Kushner and Locke to enter into the March 1994
amended employment agreements, the Company granted to each, in March 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 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 (the "Plan")). All such options have
vested as of March 15, 1999.
In October 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 1, 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, in
August 1997, options to purchase 83,333 adjusted 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 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.
13
<PAGE>
Kushner and
Locke options to purchase an additional 83,333 adjusted shares of Common Stock
at an exercise price of $1.875 per share, 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. Since all of the foregoing public
trading price targets have been reached, these performance options now are
exerciseable pursuant only to the vesting schedule noted above. The
performance options are also subject to accelerated vesting and exercisability
under the circumstances described above for the time-vesting options.
In February 1999 the Compensation Committee of the Board of Directors
further amended the employment contracts of Messrs. Kushner and Locke with the
Company to extend the term of the agreements to October 2003. Under the
revised employment agreements, Messrs. Kushner and Locke each will be entitled
to an annual base compensation of $550,000 in fiscal 2003, and were granted
50,000 shares of restricted Common Stock, subject to Shareholder approval of
the Proposed Amendment to the 1988 Stock Incentive Plan, as described above.
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 the 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. In September 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
and as part of such agreement, the Company loaned him $100,000 in September
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"). Subject to an initial offset of $150,000 plus interest
as described below, beginning in October 1997, so long as Mr. Lilliston is
then employed by the Company (including the renewal of his employment
agreement if applicable), he is 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 $9.972. 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
additional $100,000 bonuses the first time the Average Closing Price is
$15.972 and each additional whole six-dollar increment above such price
through and including $63.972, as adjusted, (each such bonus, a "Stock
Bonus"). The aggregate of such bonuses shall not exceed $1,000,000. The
Stock Bonuses shall be offset by an amount equal to the Employment Bonus up to
$150,000 plus interest payable thereon from September 3, 1996. As of
September 30, 1998 Mr. Lilliston had received an Employment Bonus of $80,049
but no Stock Bonus. During January and February 1999 Mr. Lilliston earned a
$100,000 Stock Bonus, subject to the aforementioned initial offset which
reduced said bonus to zero.
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
14
<PAGE>
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 such bonus was
earned or paid for fiscal 1997 or fiscal 1998.
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. Options to purchase an additional 8,333 shares of Common Stock and
12,500 shares of Common Stock were granted and vested on October 1, 1997 and
October 1, 1998, respectively, as Mr. Lilliston reached the performance
criteria established by the Board of Directors or a committee thereof. 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
employed Mr. Swan as the Chief Financial Officer of the Company for a three-
year term. Mr. Swan was paid a base annual salary of $160,000 for the first
year, $175,000 for the current year and is to be paid $200,000 for the
subsequent year. 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 vesting on each of the first and second anniversaries of the
agreement.
RELATED PARTY TRANSACTIONS
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, former President of the Company's
international film distribution division. The loan bears interest at the
lesser of (a) Prime (7.75% at December 24, 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
September 30, 1998 the Company had been repaid $577,000 toward interest and
principal and approximately $230,000 principal amount remains outstanding.
The loan matured on December 31, 1998 but was not repaid. The Company is
seeking alternative means to enforce collection.
In fiscal 1995 the Company became a general partner in TVFirst, which sells
contemporary Christian recorded music. The Company's investment in TVFirst on
the equity basis amounted to $503,000 as of September 30, 1998, which is
included in other assets. Messrs. Locke and Kushner loaned TV First $355,000
during 1996 to enable TVFirst to purchase infomercial airtime. Such loans bore
interest at Prime (8.25% during the loan period) plus 1% and were repaid
within fiscal year 1996. In addition, each lender received an additional
amount equal to 10% of the principal amount
15
<PAGE>
loaned by such lender when the
loans were repaid. The foregoing transaction was approved by a majority of
the independent directors of the Company's Board of Directors.
In fiscal 1996 the Company acquired from New City Releasing ("New City"),
one half of New City's interest in the KLC/New City Tele-Ventures joint
venture (representing a 17.5% ownership interest in the joint venture as to
which the Company previously held a 65% ownership interest) for 227,500 shares
of Common Stock as adjusted.
During fiscal 1989, the Company entered into a consulting agreement with Mr.
Stuart Hersch to engage his services through September 1994 as an executive
consultant. Pursuant to the consulting agreement the Company granted Mr.
Hersch stock options to purchase 142,365 shares of common stock as adjusted
at $9.33 per share, the adjusted fair market value on the date the Company
committed to make the grant. During fiscal 1990, the consulting agreement was
amended, reducing the options granted to 71,183 shares as adjusted. All of
those options are vested. Mr. Hersch sold 8,333 shares of the Company's
common stock in December 1997 at $3.625 per share.
In consideration of the elimination of certain demand registration rights,
the Company indemnified Mr. Hersch in the event Mr. Hersch sold 85,000 shares
of the Company's common stock as adjusted to third parties at an adjusted
price less than $10.50 per share. The Company paid Mr. Hersch a total of
$275,000 during the three-year period ended September 30, 1994 related to such
indemnification and has no further indemnification obligation.
Mr. Hersch became a consultant to the Company effective April 1996 for which
he was paid $90,000 per year. Effective March 8, 1999, Mr. Hersch's
consulting agreement was amended to reduce his annual consulting fee to
$59,000. 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 as needed by the Company.
Since 1991 Mr. Irwin Friedman has rendered financial consulting services to
the Company through the firm I. Friedman Equities, Inc. That firm was paid
$96,000 annually for such services through February 1998, and is to be paid
$96,000 per year commencing April 1999 for ongoing 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 warrants
exercisable for 50,000 shares of common stock at $2.06 per share.
In August 1997, Mr. Locke acquired an option to purchase 45% of the
outstanding shares of common stock of Search from Robert L. Rich pursuant to
an option agreement (the "Rich Option"). In November 1997, Mr. Locke exercised
the Rich Option in exchange for Mr. Locke's entering into an indemnification
agreement whereby he agreed to personally indemnify Mr. Rich against certain
liabilities to which Mr. Rich may have been subject in connection with Search
(the "Indemnified Liabilities"). Mr. Locke subsequently transferred the shares
to Dayton Way V, Inc., a California corporation and affiliate of the Company
("Dayton Way"), in exchange for indemnification by Dayton Way from the
Indemnified Liabilities. In October 1997, the Company purchased 35% of the
outstanding shares of common stock of Search from Nicholas Matzorkis in
exchange for the Company's agreement to indemnify Mr. Matzorkis against
certain liabilities to which Mr. Matzorkis may have been subject in
connection with the Indemnified Liabilities. The indemnification obligation
included substantially the same liabilities as the Indemnified Liabilities
under the Rich Option. Subsequently, the Company assigned its rights under
this agreement to Dayton Way, and Dayton Way acquired the shares, bringing its
total ownership to 80% of the outstanding common stock of Search. In
connection with these transactions, Dayton Way granted to the Company an
option to purchase the 80% interest for $100 and the Company's agreement to
indemnify Dayton Way against the Indemnified Liabilities. The Company
exercised this option in January 1998.
From May 1997 to October 1997, Mr. Locke personally loaned Search $187,000,
bearing interest at 10% per annum, payable upon demand. This loan was
subsequently repaid in full. In addition, Search paid $40,000 in consulting
fees to Mr. Locke for services rendered from May 1997 through December 1997.
OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1998
The Company granted options to acquire 16,667 shares of common stock to each
of Messrs. Friedman and Lannan in June 1998. The Company granted options to
acquire 8,333 shares of common stock to Bruce Lilliston in October 1997.
16
<PAGE>
The
following tables contain information with respect to options granted in
fiscal 1998 to either of the Company's Chief Executive Officers or the two
executive officers earning more than $100,000 per year and with respect to
option exercises and aggregate holdings of said officers.
OPTION / SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential realizeable
value at
assumed annual
rates of stock
appreciation
Individual grants for option term
- -----------------------------------------------------------------------
Percent of
total
Number of options/
Securities SARs
underlying granted to Exercise
options/SARs employees or base
granted in fiscal price Expiration 5% 10%
Name (#) year ($/Sh) date ($) ($)
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce
Lilliston 8,333 6.8% 3.875 9/30/2007 20,307 51,463
</TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR ENDED SEPTEMBER 30,
1998 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 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
- ---------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Peter Locke -- N/A 183,334/133,332 $44,794/$179,177
Donald Kushner -- N/A 183,334/133,332 $44,794/$179,177
Bruce Lilliston -- N/A 29,167/0 $8,465/$0
Robert Swan -- N/A 16,667/8,333 $22,397/$11,198
</TABLE>
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 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
17
<PAGE>
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 "Executive Compensation - Employment and Compensation
Arrangements" 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 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
"Executive Compensation - Employment and Compensation Arrangements." 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 incentives 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 "Executive Compensation - Employment and
Compensation Arrangements" 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.
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From October 1, 1997 through June 18, 1998 the Compensation Committee
consisted of Messrs. Hersch, Braun and Coppersmith. On June 18, 1998, at the
Company's annual shareholders meeting, Messrs. Braun and Coppersmith did not
stand for reelection and Messrs. Friedman and Lannan were elected to the Board
of Directors. In the Board meeting immediately following the annual
shareholders' meeting, Messrs. Friedman and Lannan were appointed to the
Compensation Committee. The Compensation Committee participated in
deliberations and decisions regarding executive compensation, however the
entire Board of Directors participated in decisions regarding grants of new
options. 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.
Mr. Hersch became a consultant to the Company effective April 1996 for which
he was paid $90,000 per year. Effective March 8, 1999, Mr. Hersch's
consulting agreement was amended to reduce his annual consulting fee to
$59,000. 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 as needed by the Company.
Since 1991 Mr. Irwin Friedman has rendered financial consulting services to
the Company through the firm I. Friedman Equities, Inc. That firm was paid
$96,000 annually for such services through February 1998, and is to be paid
$96,000 for the year starting April 1, 1999 for ongoing 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
warrants exercisable for 50,000 shares of common stock at $2.06 per share.
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 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, 1994, 1995, 1996,
1997 and 1998. The graph assumes that $100 was invested on September 30, 1993
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.
19
<PAGE>
<TABLE>
<CAPTION>
Total Return Analysis
9/30/93 9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kushner-Locke $100 $76.74 $48.84 $48.84 $44.96 $39.92
Dow Jones Equity $100 $102.86 $133.70 $160.90 $225.58 $245.36
D.J. Entertainment $100 $91.59 $118.19 $136.50 $153.30 $176.68
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. 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, as amended (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") beginning on page 17 and the
Corporate Performance Graph on page 20 shall not be incorporated by reference
into any such filings.
MISCELLANEOUS
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Exchange Act requires executive officers and directors,
and persons who beneficially own more than 10% of any class of the Company's
equity securities to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and 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.
20
<PAGE>
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 officers, directors and greater than 10%
beneficial owners, except that Irwin Friedman inadvertently failed to file one
report on a timely basis, covering one small sale of securities in December
1998, and Bruce Lilliston inadvertently failed to file one report on a timely
basis, covering one transaction reflecting the receipt by Mr. Lilliston of
stock options granted pursuant to the 1988 Stock Incentive Plan.
PROPOSALS OF SHAREHOLDERS
In order to be eligible for inclusion in the Company's proxy statement for
the 2000 Annual Meeting of Shareholders, Shareholder proposals must be
received by the Secretary of the Company at its executive offices by December
7, 1999. Any Shareholder proposals received after such date will be
considered untimely and may be excluded from the proxy statement and form of
proxy. Proxies received in respect of Common Stock to be voted at the 2000
Annual Meeting will be voted in accordance with the best judgement of the
persons appointed by such proxies with respect to any matters properly before
such meeting submitted by Shareholders after February 20, 2000.
OTHER BUSINESS
It is not intended that any business other than that set forth in the Notice
of Annual Meeting and more specifically described in this Proxy Statement will
be brought before the Annual Meeting. However, if any other business should
properly come before the Annual Meeting, it is the intention of the persons
named on the enclosed proxy card to vote the signed proxies received by them
in accordance with their sole discretion on such business and any matters
dealing with the conduct of the Annual Meeting.
COST OF SOLICITING PROXIES
The expense of preparing, assembling and mailing the Notice of Annual
Meeting, the Proxy Statement, the proxy card(s) and the Company's 1998 Annual
Report will be paid by the Company and is expected to be minimal. Additional
solicitation by mail, telephone, telegraph or by personal solicitation may be
done by directors, officers and other employees of the Company, for which they
will receive no compensation. 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>
21
<PAGE>
EXHIBIT A
THIRD AMENDMENT TO THE 1988 STOCK INCENTIVE PLAN
OF THE KUSHNER-LOCKE COMPANY
The following is the third amendment to the 1988 Stock Incentive Plan (the
"Plan") of The Kushner-Locke Company (the "Company"), dated as of April 29,
1999.
WHEREAS, the following amendment to the Plan (the "Amendment") is deemed to
be in the best interest of the Company; and
WHEREAS, the Amendment has been duly approved by the Board of Directors by
unanimous written consent dated as of January 20, 1999 and by the affirmative
vote of the holders of the majority of the Company's stock present or
represented and entitled to vote at the Annual Meeting of Shareholders held on
April 29, 1999;
NOW, THEREFORE, in accordance with Section 7.7 of the Plan, the Plan is
hereby amended as follows, effective as of April 29, 1999:
# # # #
The second sentence of Section 2.4 is hereby amended in its entirety to read
as follows:
"The aggregate amount of Common Stock that may be issued or transferred
pursuant to Awards granted under this Plan shall not exceed 1,820,000 shares,
subject to adjustment as set forth in Section 7.2."
# # # #
Except as otherwise amended by this Amendment, the Plan is hereby ratified
and approved, and shall continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on
its behalf by its duly authorized officer as of the date first set forth
above.
<TABLE>
<S> <C>
THE KUSHNER-LOCKE COMPANY
By:
Name: Peter Locke
Title: Co-Chief Executive Officer
Attest:
Name: Donald Kushner
Title: Secretary
</TABLE>
22
