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As filed with the Securities and Exchange Commission on February 22, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4079057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11601 WILSHIRE BOULEVARD, 21ST FLOOR
LOS ANGELES, CALIFORNIA 90025
(310) 481-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DONALD KUSHNER
THE KUSHNER-LOCKE COMPANY
11601 WILSHIRE BOULEVARD, 21ST FLOOR
LOS ANGELES, CALIFORNIA 90025
(310) 481-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, without par value 2,596,879 shares(2) $7.1875 $18,471,005 $5,449
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Class C Redeemable Common Stock 71,250(3) $3.00 $213,750 $63
Purchase Warrants
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(1) Estimated solely for purpose of calculating the registration fee based
upon the average of the high and low prices of the Common Stock
reported on the Nasdaq National Market on February 17, 1999 and
calculated in accordance with Rule 457(c) promulgated under the
Securities Act of 1933, as amended. No fee is included herein with
respect to an indeterminate number of shares of common stock issuable
upon exercise of certain options and warrants in the event that certain
anti-dilutive provisions therein become operative.
(2) Includes (i) 791,667 shares of Common Stock issuable upon exercise of
outstanding Class C Redeemable Common Stock Purchase Warrants, (ii)
142,500 shares of Common Stock issuable upon exercise of warrants (the
"Unit Warrant") to purchase 71,250 units, each consisting of two shares
of Common Stock and one Class C Redeemable Common Stock Purchase
Warrant, (iii) 71,250 shares of Common Stock issuable upon exercise of
the Class C Redeemable Common Stock Purchase Warrants issuable upon
exercise of the Unit
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Warrant, and (iv) 391,462 shares of Common Stock issuable upon exercise
of outstanding options and warrants, plus an indeterminate number of
shares of Common Stock issuable upon exercise of any of such options or
warrants in the event that certain anti-dilutive provisions thereof
become operative. No additional fee is included herein with respect
to such indeterminate number of shares of Common Stock.
(3) Issuable upon exercise of the Unit Warrant plus an indeterminate number
of Class C Redeemable Common Stock Purchase Warrants issuable upon the
exercise of such warrants in the event that certain anti-dilutive
provisions thereof become operative. No additional fee is included
herein with respect to such indeterminate number of shares of
Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 1999
PROSPECTUS
2,596,879 SHARES
COMMON STOCK, NO PAR VALUE
71,250 CLASS C REDEEMABLE COMMON STOCK PURCHASE WARRANTS
THE KUSHNER-LOCKE COMPANY
The shareholders of The Kushner-Locke Company listed below may offer
and sell up to 2,596,879 shares of Kushner-Locke Common Stock and 71,250 Class C
Redeemable Common Stock Purchase Warrants under this prospectus. We will not
receive any part of the proceeds from any such sale.
Upon exercise of the 791,667 Class C Redeemable Common Stock Purchase
Warrants currently outstanding, the holders of such warrants may offer and sell
up to 791,667 shares of Common Stock under this Prospectus. We will receive
gross proceeds of approximately $5,433,000 if all of such warrants are
exercised. In addition, upon exercise of 71,250 Class C Redeemable Common Stock
Purchase Warrants issuable upon exercise of an outstanding warrant, we will
receive additional gross proceeds of approximately $489,000.
Upon exercise of certain warrants and options and/or upon conversion of
certain convertible securities currently outstanding, the holders thereof may
offer and sell up to 537,295 shares of Common Stock under this Prospectus. We
will receive gross proceeds of approximately $5,213,000 if all such warrants and
options are exercised.
The selling shareholders may offer their stock through public or
private transactions, on or off a United States exchange, at prevailing market
prices, or at privately negotiated prices.
Our Common Stock is listed on the NASDAQ National Market under the
symbol "KLOC" and on the Pacific Stock Exchange under the symbol "KLO."
Our Class C Redeemable Common Stock Purchase Warrants are listed on the NASDAQ
National Market under the symbol "KLOCZ."
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 5 FOR A DISCUSSION OF SOME OF THESE RISKS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February ___, 1999
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ABOUT KUSHNER-LOCKE
GENERAL
The Kushner-Locke Company is a leading independent entertainment
company which principally develops, produces, and distributes original feature
films and television programming. Our feature films are developed and produced
for the theatrical, made-for-video and pay cable motion picture markets. Our
television programming has included television series, mini-series,
movies-for-television, animation, reality and game show programming for the
major networks, cable television, first-run syndication and international
markets.
We established our feature film production operations in 1993. In 1994,
we established an international theatrical film subsidiary to expand into
foreign theatrical distribution. In 1995, we formed KLC/New City Tele-Ventures
("KLC/New City"), a joint venture 82.5% owned by us, to acquire films for
distribution through emerging new delivery systems, including pay cable,
pay-per-view, basic cable, video-on-demand and satellite systems. In late 1997,
we acquired control of 800-U.S. Search, a leading provider of fee-based public
record search and other customized individual reference services. In February
1998, we established KL/Phoenix, an 80% owned entity, which distributes feature
films, television and video product throughout Latin America and to launch a 24
hour Spanish language movie channel called Gran Canal Latino.
In 1997 we entered into an agreement in principle with Universal
Studios, Inc., whereby we have the right to distribute in international
territories up to nine moderate to high-budget motion pictures over a three-year
period.
Our feature film activities can be grouped into three areas: production
and distribution of a limited number of higher-budget films intended for
wide-screen domestic theatrical release, production and distribution of
low-to-moderate budget films released direct-to-video or on pay cable
television, and distribution licensing of acquired film rights. In certain
cases, our low-to-moderate budget films may have a limited theatrical release or
a pay cable premiere before being released in home video.
In addition, we continue to acquire domestic cable rights for films for
distribution through KLC/New City, including over 125 low budget feature films
which are distributed to the pay-per-view, pay cable, basic cable and other
ancillary markets. We also continue to acquire the international distribution
rights to films for distribution through Kushner Locke International, Inc.
Since we commenced our business in 1983, we have produced or
distributed over 1,000 hours of original television programming, including
various television series, movies-for-television and mini-series.
We own 50% of TV First, a partnership that purchases media time for
Christian music infomercials and commenced retail marketing of compact discs and
audio and video cassettes in fiscal 1999.
Our executive offices are located at 11601 Wilshire Boulevard, Suite
2100, Los Angeles, California 90025, and our telephone number is (310) 481-2000.
800-U.S. SEARCH
General. 800-U.S. SEARCH (referred to in this prospectus as "Search"),
an 80% owned subsidiary, is a leading provider of fee-based public record search
and other customized individual reference services. Search uses a wide variety
of public records and other publicly available information pertaining to
individuals.
Search's services are marketed through its branded "Public Records
Portal" Internet Website 1800USSEARCH.COM and through its direct response 1
(800) US-SEARCH telephone number. In January 1999, Search introduced Internet
based "Instant Searches," which instantly displays the results of people locate
searches and national death certificate searches. Search operates a 24 hour,
seven days a week sales and service
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center, where its employees research, aggregate and cross-check data from a wide
variety of sources. Research results are placed in a pre-formatted template and
then delivered to Search's customers via e-mail, fax or U.S. mail.
Search continues to develop new technologies to provide access to
public record information databases in a convenient, cost-saving and valuable
way.
Search's executive offices are located at 9107 Wilshire Blvd., Suite
700, Beverly Hills, California 90210, and its telephone number is (310)
553-7000.
GRAN CANAL LATINO
In November 1998, we launched Gran Canal Latino, our first satellite
channel, through KL/Phoenix. KL/Phoenix is a newly-formed 80%-owned subsidiary.
Gran Canal Latino broadcasts 24 hours a day, with a selection of Spanish
language films mostly from Spain. Gran Canal Latino's satellite transmission
reaches the United States and all of Latin America including Mexico. Under a
distribution arrangement with Enrique Cerezo, we are broadcasting selections
from 1,500 Spanish language movie titles.
CERTAIN DEVELOPMENTS
In December 1998, we sold and issued to certain accredited investors
1,200,000 shares of Common Stock in a $6,000,000 private placement with Allen &
Company, Incorporated as placement agent. We received net proceeds of
approximately $5,673,000 after deducting a 5% placement agency fee and certain
reimbursable expenses of Allen & Company. The Common Stock was issued pursuant
to exemptions from the registration requirements of the Securities Act of 1933
and the related regulations. All of such shares of Common Stock are being
registered for resale in the registration statement of which this Prospectus is
a part.
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In January 1999, we agreed to provide up to $5,500,000 of bridge
financing to Search for working capital in the form of convertible subordinated
notes (the "Notes"). The Notes will be convertible in whole or in part into
Search common stock at the rate of one share of Search common stock per $2,000
of principal amount of the Notes. Search will pay us an origination fee of 10%
of the amount loaned to Search, issue warrants to purchase up to 500 shares of
Search common stock at an exercise price of $2,500 per share, and issue warrants
to purchase up to an additional 500 shares of Search common stock at an exercise
price of $3,000 per share. The warrants will be proportionately reduced in the
event we do not loan at least $5,000,000 to Search. As a result of this
financing, our percentage ownership in Search may increase above 80% (as of
February 22, 1999).
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RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below, that may affect our
business, financial condition and results of operations. We caution you,
however, that this list of risk factors may not be exhaustive, particularly with
respect to future filings.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
You should be aware that this prospectus contains forward-looking
statements. Forward looking statements discuss future expectations, contain
projections of results of operations or financial condition, or general business
prospects. Words such as "expects," "may," "will," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions often
identify forward-looking statements. The forward-looking statements in this
prospectus reflect the good faith judgment of our management. However,
forward-looking statements can only be based on facts and factors currently
known. Consequently, actual results and outcomes may differ materially from the
results and outcomes discussed in the forward-looking statements. You should
carefully consider the risk factors described below together with all of the
other information included or incorporated by reference in this prospectus
before you decide to purchase any securities.
LIQUIDITY AND FINANCING REQUIREMENTS.
In December 1998, our banks increased our maximum syndicated revolving
credit facility to $75 million from $60 million. As of February 18, 1999, the
balance of such credit facility was approximately $60.6 million, leaving
approximately $7.4 million available out of a $68 million borrowing base.
We require substantial working capital to fund our current business and
potential future growth. We have experienced negative cash flow from operations
over the past three fiscal years and expect to continue to experience
significant negative cash flow from operations in the future. We currently
believe that our existing capital resources may not be sufficient to fund all
activities in our current business plan for the next 12 months. We will seek
other sources of financing during the next 12 months. We will need to raise
additional funds in order to (1) support more rapid production and distribution,
(2) develop new or enhanced products or services, (3) respond to competitive
pressures, (4) acquire complementary businesses or technologies, (5) provide
additional working capital to fund the operations of Search or (6) respond to
unanticipated events. Our future liquidity and capital requirements will depend
upon numerous factors, many of which are outside our control, including the
success of our existing and new products or service offerings and competing
technological and market developments.
Any additional equity financing may dilute existing shareholders. If
new equity securities are issued, the percentage ownership of our shareholders
prior to such issuance will be reduced and the net book value of their shares
may be diluted. Any possible debt financing, including further increases of our
syndicated revolving credit agreement, if available, may involve covenants
limiting or restricting our operations or future opportunities.
We may be unable to raise additional funds when needed on terms we
consider to be favorable or acceptable. If such funds are unavailable when
required or on acceptable terms, we may be unable to (1) develop or enhance our
products or services, (2) take advantage of future opportunities or (3) respond
to competitive pressures or unanticipated requirements. Any of such limitations
could materially and adversely effect on our business, financial condition,
results of operations and prospects.
VARIABILITY OF QUARTERLY RESULTS; PRIOR LOSSES.
Our operating revenues, cash flow and net earnings historically have
fluctuated significantly from quarter to quarter, depending in large part on the
delivery or availability dates of our programs and product and the amount of
production costs incurred and amortized in the period. Therefore, year-to-year
comparisons of quarterly results may not be meaningful and quarterly results
during the course of a fiscal year may not be indicative of results expected for
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the entire fiscal year. In addition, primarily as a result of significant net
losses in fiscal 1993, 1994, 1995, 1997, 1998 and 1999, we had an accumulated
deficit of approximately $20,080,000 at December 31, 1998.
DEPENDENCE ON A LIMITED NUMBER OF PROJECTS.
We depend on a limited number of films, television programs and other
projects that change from period to period for a substantial percentage of our
revenues. The change in projects from period to period is due principally to the
opportunities available to us and to audience response to our films and programs
which are unpredictable and subject to change. During fiscal 1998, we recognized
approximately 35% of revenues from the delivery and/or availability of 25
feature films, and approximately 24% of revenues from the delivery and/or
availability of a network series and two first run syndication television
series. During fiscal 1997, we recognized approximately 35% of revenues from the
delivery and/or availability of 18 feature films and approximately 40% of
revenues from the delivery and/or availability of two network series and two
first run syndication television series.
The loss of a major project, unless replaced by new projects, or the
failure or less-than-expected performance of a major project could have a
material adverse effect on our results of operations and financial condition as
well as the market price of our securities. We may be unable to generate the
same level of new projects as we have in the past. Further, the projects we
release may be unsuccessful.
CERTAIN ACCOUNTING POLICIES; AMORTIZATION OF FILM COST.
We generally recognize program or film revenues when a program or film
is either delivered or available for delivery. Capitalized production costs are
amortized each period based upon the current period's gross revenues versus
management's estimate of anticipated total gross revenues from the program or
film during its useful life. Accordingly, if management reduces its estimate of
the future revenues of a program or film, a significant write-down and a
corresponding decrease in earnings could result in the quarter and fiscal year
in which such write-down is taken.
DEPENDENCE ON KEY PERSONNEL.
KUSHNER-LOCKE. We are dependent on the efforts and abilities of Donald
Kushner and Peter Locke, our founders and principal executive officers, and
certain other members of senior management. We have obtained and we are the
beneficiary of term life insurance policies on each of the lives of Messrs.
Kushner and Locke in the amount of $5,000,000 each. Our business may be
materially adversely affected if Messrs. Kushner or Locke, or one or more other
key personnel were to leave. The syndicated revolving credit agreement with
Chase Manhattan Bank, as agent, includes as events of default (1) the failure of
either Messrs. Kushner or Locke to be our Chief Executive Officer or (2) any
person or group acquiring ownership or control of our capital stock having
voting power greater than the voting power at the time controlled by Messrs.
Kushner and Locke combined (other than an institutional investor able to report
its holdings on Schedule 13G which holds no more than 15% of such voting power).
Such an event of default could occur and if it occurs, the bank may not
waive such default.
SEARCH. Search's success also depends to a significant degree upon the
continued contributions of its executive management team, including Peter Locke
and Donald Kushner. Search's success will also depend upon its technical,
marketing and sales personnel. Search's employees, including its senior
management, generally may voluntarily terminate their employment with Search at
any time and competition for qualified employees is intense. Search's success
also depends upon its ability to attract and retain additional highly qualified
senior management and technical, sales and marketing personnel to supplement
existing personnel. The process of locating and hiring such personnel with the
combination of skills and attributes required to carry out Search's strategy is
often lengthy and potentially costly. The loss of the services of key personnel
or the inability to attract additional qualified personnel to supplement or, if
necessary, to replace existing personnel, could have a material adverse effect
on our business, financial condition, results of operations and prospects.
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PRODUCTION DEFICITS.
The revenues from pre-sales, output arrangements and the initial
licensing of television programming or films may be less than the associated
production costs. Our ability to cover the production costs of particular
programs or films is dependent upon the availability, timing and the amount of
such revenues obtained from third parties. In any event, we are generally
required to fund at least a portion of production costs, pending receipt of such
revenues, out of our lines of credit or working capital. Although our strategy
generally is not to commence principal photography without first obtaining
commitments which cover all or substantially all of the budgeted production
costs, from time to time we may commence principal photography without having
such commitments. In the past, we have commenced principal photography on a
limited number of projects prior to obtaining commitments which cover
substantially all of the budgeted production costs but were able subsequently to
obtain commitments to cover substantially all of such costs. Each such project
was one which we believed would be successful and for which we determined it was
necessary to begin principal photography quickly. We may be unable to cover
project costs in the future if we were to undertake projects prior to making
adequate pre-sales.
TELEVISION AND FEATURE FILM INDUSTRIES.
The production and distribution of feature films and television
programs involves a substantial degree of risk. The success of an individual
feature film or television program depends upon subjective factors, such as the
personal tastes of the public and critics, and alternative forms of
entertainment. These factors do not necessarily bear a direct correlation to the
costs of production and distribution. There is a risk that some or all of our
projects will not be successful, resulting in costs not being recouped and
losses being incurred.
The networks typically pay license fees for television projects equal
to approximately 70-90% of the production budget as the project is being
produced. Foreign sales, which are typically paid when the project is made
available or delivered to broadcasters, usually cover the remainder of the
production budget. However, with feature film production, approximately 80-100%
of the production budget is covered by foreign and domestic sales which are
typically payable when the project is available for release in different media.
We have become increasingly subject to the risk of the longer lead times for
completion of new product and receipt of related cash flow from feature films as
we have shifted our product mix to more network television and feature films
from exclusively network television programs.
COMPETITION.
KUSHNER-LOCKE. Competition in the motion picture, television and
satellite distribution industries is intense. We compete with the major motion
picture studios, numerous independent producers of feature films and television
programming and the major U.S. networks for the services of actors, other
creative and technical personnel, creative material and, in the case of network
television programming, for the limited number of time slots for episodic
series, movies-of-the-week and mini-series. Many of our principal competitors
have greater financial, distribution, technical and creative resources than we
do.
SEARCH. The individual reference service industry is highly competitive
and highly fragmented. Search's primary current competitors in the area of
person locator searches include major telephone companies and other third
parties who publish free printed or electronic directories and private
investigation firms. Search's primary competitors for individual background
searches include such companies and firms, as well as LEXIS-NEXIS, a division of
Reed Elsevier Inc., The Dun & Bradstreet Corporation, Reuters Limited, Avert,
Inc., and a significant number of companies operating on either a national scale
or a local or regional basis. Many of these companies have greater financial and
marketing resources than Search and may have significant competitive advantages
through other lines of business and existing business relationships.
Search also competes with online services and other Web site operators,
as well as traditional media such as television, radio and print, for a share of
advertisers' total advertising space or programs. Furthermore, additional major
Internet and other companies with financial and other resources greater than
those of Search may introduce
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new Internet products and services in direct competition with Search. Search's
competitors or potential competitors may develop services that are superior to
those of Search, develop services less expensive than those of Search or achieve
greater market acceptance with their services than Search achieves with its
services.
RELIANCE ON STRATEGIC RELATIONSHIPS IN INTERNET MARKET.
An important element of Search's current business strategy is to enter
into agreements with Internet companies to direct and attract traffic to
Search's Web site. Search has recently entered into agreements with Internet
companies to expand opportunities to attract page views to Search's Web site and
generate sales. Search expects to enter into similar agreements in the future.
Search anticipates that certain up-front and continuing payments and royalty
payments pursuant to such agreements will constitute a significant portion of
its expenses in future periods. Search's success will depend upon the ability of
Search to maintain these relationships and develop additional such
relationships, and upon these arrangements generating page views to Search's Web
site and ultimately sales of our services. Search may not maintain its existing
relationships or enter into new relationships with Internet companies, and
Search may not generate sales from such relationships. Any early termination of
certain existing agreements, or failure after termination to enter into or to
renew agreements with Internet companies on terms favorable to Search, could
have a material adverse effect on our business, financial condition, results of
operations and prospects.
UNCERTAIN ACCEPTANCE AND MAINTENANCE OF THE 1-800-USSEARCH BRAND.
We believe that establishing and maintaining the 1-800-USSearch brand
through its marketing campaign and creation of consumer confidence in Search's
services is critical to its efforts to attract customers to its Web site. We
will be unsuccessful in promoting and maintaining Search's brand if Search's
capital resources are not sufficient to maintain current and anticipated future
levels of advertising or if customers do not perceive the content of Search's
services to be of high quality. Our business, financial condition, results of
operations and prospects may be materially and adversely affected as Search
incurs additional expenses to improve its services and promote and maintain its
brand.
RISKS ASSOCIATED WITH OFFERING NEW SERVICES.
Search plans to introduce new and expanded services in order to
generate additional revenues and attract more customers. Search may be unable to
offer new services in a cost-effective or timely manner or customers may not
accept any such efforts. If offered and accepted, such new services may be
unprofitable. Any new service launched by Search that is not favorably received
by customers could damage Search's reputation for existing services or its brand
name.
Expansion of Search's services in this manner will also require
significant additional expenses and development and may strain our management,
financial and operational resources. Search's inability to generate revenues
from such expanded services sufficient to offset their cost could have a
material adverse effect on
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our business, financial condition, results of operations and prospects. Finally,
certain new services, such as background checks, may be subject to state
licensing requirements. We may be unable to offer such services in one or more
jurisdictions if Search is unable to obtain required licenses.
RAPIDLY CHANGING TECHNOLOGY, STANDARDS AND CONSUMER DEMANDS.
The markets for Search's services are characterized by rapidly changing
technology, emerging industry standards and customer requirements that are
subject to rapid change and frequent new service introductions. These
characteristics are exacerbated by the emerging nature of the electronic
commerce market and the expectation that many companies may introduce new
Internet products and services addressing this market in the near future. Search
may be unsuccessful in developing new services or enhancing its existing service
on a timely basis. If Search develops new services or enhances existing
services, such services may not effectively address customer requirements and
achieve market acceptance. Our business, financial condition, results of
operations and prospects would be materially and adversely affected if Search,
for technological or other reasons, is unable to develop and enhance such
services in a manner compatible with emerging industry standards and that allows
it to attract and expand a customer base.
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RISK ASSOCIATED WITH REGULATORY MATTERS.
FINANCIAL INTEREST AND SYNDICATION RULES. The Federal Communications
Commission ("FCC") repealed its financial interest and syndication rules,
effective as of September 21, 1995. Those FCC rules, which were adopted in 1970
to limit television network control over television programming and thereby
foster the development of diverse programming sources, had restricted the
ability of the three established, major U.S. television networks (i.e., ABC, CBS
and NBC) to own and syndicate television programming. We believe that there has
been an increase in in-house productions of programming for the networks' own
use and potentially a decrease of programming from independent suppliers such as
us.
LOCAL CONTENT AND QUOTA REQUIREMENTS. Our programming may be subject to
local content and quota requirements, and/or other limitations, in international
markets which prohibit or limit the amount of programming produced outside of
the local market. Such restrictions, or new or different restrictions, could
have an adverse impact on our operations in the future should we be unable to
perform under those requirements or limitations. We believe these requirements
have not affected our licensing of programs in international markets to date.
FCRA AND ADA. In connection with certain services Search provides,
particularly individual background checks used for certain purposes, Search may
be considered a "consumer reporting agency" as such term is used in the Fair
Credit Reporting Act, as amended ("FCRA"), and, therefore, may be required to
comply with the various consumer credit disclosure requirements of the FCRA.
While Search intends to comply with the FCRA as a "consumer reporting agency" in
connection with providing individual background checks for employment purposes
in the future, the procedures which we implement may be deemed insufficient.
Search's limited procedures to date to avoid being regulated as a consumer
reporting agency by attempting to restrict its individual background check
service to permissible purposes (which do not permit use for employment
purposes) may be deemed insufficient. Willful or negligent noncompliance with
the FCRA, including with respect to Search's prior operations, could result in
civil liability to the subjects of reports.
The Americans with Disabilities Act of 1990 ("ADA") contains
pre-employment inquiry and confidentiality restrictions designed to prevent
discrimination in the hiring process against individuals with disabilities. The
use by Search's customers of certain information sold to them is also regulated,
both in respect to the type of information and the timing of its use by the ADA.
There are a number of states which have laws similar to the FCRA, and some
states which have laws more restrictive than the ADA. Many state laws limit the
type of information which can be made available to the public. Certain state
laws may require Search to be licensed in order to conduct its background check
business within those states. Customers in such states can access Search's Web
site, which may subject Search to the laws of such states because residents of
such state order services through Search's Web site and Search mails, faxes or
e-mails reports to the resident within such state. In the event Search is
determined to have violated any of the federal or state laws referred to herein,
Search could be subject to substantial civil and/or criminal liability which
would have a material adverse effect on our business, financial condition,
results of operations and prospects.
PRIVACY AND CONSUMER ISSUES. Many privacy and consumer advocates and
federal regulators have become increasingly concerned with the use of personal
information, particularly consumer credit reports (which Search does not
provide). Search uses the social security numbers of individuals to search
various databases,
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<PAGE> 13
including those of consumer credit reporting agencies. Attempts have been made
and can be expected to continue to be made by various federal regulators and
organized groups to adopt new or additional federal and state legislation to
regulate the use of personal information. Federal and/or state laws relating to
access and use of personal information, in particular, and privacy and civil
rights, in general, amended or enacted in the future could materially adversely
impact our business, financial condition, results of operations and
prospects.
GENERAL BUSINESS ISSUES. Search is also subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to access to online commerce. A number of new or changed laws, governmental
policies and/or regulations may be adopted, or cases may be decided, with
respect to the Internet or commercial online services covering issues such as
property ownership, user privacy, libel, pricing, acceptable content,
copyrights, trademarks and/or other intellectual property rights, distribution,
taxation, access charges and other fees, and quality of products and services.
Such laws, governmental policies and/or regulations could significantly increase
the costs incurred by Internet Service Providers ("ISPs"), and such increased
costs could be passed along to Internet end users who obtain access to the
Internet from such ISPs, with such cost increases possibly taking the form of
increased end user fees. This could result in increased costs being passed along
to Search and ultimately to end users. Such cost increases could dampen the
growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium, which could have a material
adverse effect on our business, financial condition, results of operations
and prospects. Certain telephone carriers have petitioned governmental bodies to
regulate ISPs and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on ISPs and online service
providers because of the Internet's increasing burden on the existing
telecommunications infrastructure and resulting interruptions in phone service,
the present policy of the Federal Communications Commission of not imposing
access charges or Universal Service Fund funding obligations on ISPs, the
ability of ISPs to route long distance telephony-type traffic over the Internet
in competition with the services of traditional long distance telephone
carriers, or for other competitive concerns. The costs of communicating on the
Internet would increase substantially if any of these petitions or the relief
sought therein is granted, potentially adversely affecting the growth in use of
the Internet.
It is possible that the governments of other states or foreign
countries might attempt to regulate Search's business or levy sales or other
taxes relating specifically to the activities engaged in by Search due to the
global nature of the Internet. Tax authorities in a number of states are
currently reviewing the appropriate tax treatment of companies engaged in online
commerce, and new state tax regulations may subject Search to additional state
sales and income taxes. There is no assurance that state or foreign governments
will not allege or charge violations of local laws, that Search might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on our business, financial condition and results of
operations.
RISKS ASSOCIATED WITH DOMAIN NAMES.
Search currently holds various Web domain names relating to its brand,
including the 1800USSEARCH.COM domain name. Governmental agencies and their
designees generally regulate the acquisition and maintenance of domain names and
such regulation is subject to change. Governing bodies may establish additional
top-level domain names, appoint additional domain name registrars or modify the
requirements for holding domain names. Search may be unable to acquire or
maintain relevant domain names in all countries in which it conducts business.
The relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is uncertain at present. Search may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of its trademarks and other
proprietary rights. Any such inability could have a material adverse effect on
our business, financial condition, results of operations and prospects.
YEAR 2000 COMPLIANCE.
The "Year 2000 Issue" is typically the result of certain firmware
limitations and of limitations of certain software written using two digits
rather than four to define the applicable year. If software and firmware with
11
<PAGE> 14
date-sensitive functions are not Year 2000 compliant, they may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, interruptions in customer service operations, a temporary
inability to process transactions, conduct searches, or engage in similar normal
business activities.
We use off-the-shelf and custom software developed internally and by
third parties. We believe that most of our off-the-shelf software is Year 2000
compliant. While we do not currently believe it to be the case, we may be
required to modify or replace significant portions of our software to be year
2000 compliant. The failure of our systems or firmware may have a material
adverse effect on our business, financial condition, results of operations and
prospects.
Search depends on information contained primarily in electronic format
in databases and computer systems maintained by third parties. We do not
currently have any information concerning the Year 2000 compliance status of our
suppliers, customers and Search's Internet service providers. The disruption of
such third-party systems and the supply of information provided through such
systems could have a material adverse effect on our business, financial
condition, results of operations and prospects. In addition, Search relies on
the integration of various systems in aggregating the content from multiple
sources. The failure of any of those systems as a result of Year 2000 compliance
issues could prevent Search from delivering its products and services, which
could have a material adverse effect on our business, financial condition,
results of operations and prospects.
We have not yet fully developed a comprehensive contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness of our critical operations. We are currently developing contingency
plans which we expect to be developed in detail and expanded during 1999. We may
be unable to develop a contingency plan that will adequately address all Year
2000 issues. Our failure to develop and implement, if necessary, an appropriate
contingency plan could have a material impact on our business, financial
condition, results of operations and prospects.
We are also vulnerable to external forces that might generally affect
industry and commerce, such as utility or transportation company or Internet
Year 2000 compliance failures and related service interruptions. Any significant
interruption of general access to, or the customary function and operations of,
the Internet could have a material adverse effect on our business,
financial condition, results of operations and prospects.
Some commentators have predicted significant litigation regarding Year
2000 compliance issues. It is uncertain whether or to what extent we may be
affected because of the unprecedented nature of such litigation. Although we
currently believe that this issue will not pose significant operational
problems, delays in the modification or conversion of our systems, or those of
our vendors and suppliers of services, or the failure to fully identify all Year
2000 dependencies in our systems could have a material adverse effect on our
business, financial condition, results of operations and prospects. Through
January 31, 1998 we incurred no material year 2000 remediation costs, and
presently anticipate incurring no material remediation costs in the future.
LABOR RELATIONS.
We and certain of our subsidiaries are parties to several collective
bargaining agreements. Our union contracts are industry-wide and our labor
relations are not entirely dependent on our activities or decisions alone. A
labor dispute or strike could have a material adverse effect on our future
business, financial condition, results of operations and prospects.
ABSENCE OF CASH DIVIDENDS.
We have never paid any cash dividends and have no present intention to
declare or to pay cash dividends. The payment of dividends also is restricted by
covenants in our credit agreement and the indentures and fiscal agency
agreements under which our Convertible Subordinated Debentures were issued. It
is our present policy to retain any earnings to finance our business growth and
development.
NO ASSURANCE OF PUBLIC MARKET.
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<PAGE> 15
Our Common Stock and our Class C Redeemable Common Stock Purchase
Warrants are currently listed on the NASDAQ National Market. We may be unable to
maintain our listings. It is possible that no adequate market for either our
Common Stock or our Class C Redeemable Common Stock Purchase Warrants will exist
or, if either of such markets exist, that either will continue.
SHARES AVAILABLE FOR FUTURE SALE.
Substantially all of the 10,691,128 shares of Common Stock outstanding
as of February 19, 1999 and the 4,274,153 shares of Common Stock issuable upon
exercise of outstanding options or warrants or upon conversion of outstanding
convertible subordinated debentures will be freely tradeable in the public
markets pursuant to a registration statement or available exemption from
registration. Approximately 4,169,569 of such shares are issuable at or below
$10.00 per share. The availability or perception of availability of shares for
public sale may have a depressive effect on the market price of the Common
Stock.
13
<PAGE> 16
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document we file at the SEC's public reference room at 450
Fifth Street, N.W.,Washington, D.C., 20549, or the SEC's public reference rooms
in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's Website at
"HTTP://WWW.SEC.GOV" or on our Website at "HTTP://WWW.KUSHNER-LOCKE.COM."
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
- Our Annual Report on Form 10-K for the fiscal year ended
September 30, 1998 as amended on Forms 10-K/A filed on January
28, 1999 and February 22, 1999.
- Our quarterly report on Form 10-Q for the quarter ended
December 31, 1998 filed on February 16, 1999.
- Our registration statement on Form 8-A filed on July 16, 1996
We will provide a copy of the documents incorporated by reference upon
your request. You may request a copy of these filings, at no cost, by writing or
telephoning our Senior Vice President and Chief Financial Officer, Mr. Robert
Swan, at the following address:
The Kushner-Locke Company
11601 Wilshire Blvd. 21st Floor
Los Angeles, California 90025
(310) 481-2000
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
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<PAGE> 17
USE OF PROCEEDS
All net proceeds from the sale of the Common Stock or Class C
Redeemable Common Stock Purchase Warrants covered by the prospectus will go to
the shareholders who offer and sell their securities. Accordingly, we will
receive no proceeds from the sale of such securities.
If exercised, we will receive proceeds from the exercise of warrants
and options, as follows:
RAS Securities, Inc. Warrants. In 1994, RAS Securities, Inc. was the
placement agent in connection with our offering and sale of our 8% Convertible
Subordinated Debentures and 9% Convertible Subordinated Debentures. As part of
such transactions, we issued to RAS Securities warrants to purchase up to
$1,479,000 principal amount of the 8% Debentures and up to $404,000 principal
amount of the 9% Debentures. The 8% Debentures are convertible into
approximately 171 shares, as adjusted to date, of Common Stock per $1,000 of
principal amount of 8% Debentures, and the 9% Debentures are convertible into
approximately 105 shares, as adjusted to date, of Common Stock per $1,000 of
principal amount of 9% Debentures. The exercise price of each of these warrants
is $1,200 per $1,000 of principal amount of each class of convertible
subordinated debentures. Accordingly, if the current holders were to exercise
all of such warrants, we would receive gross proceeds of approximately
$1,775,000 from the 8% Debentures and $485,000 from the 9% Debentures.
Imperial Bank Warrants. In January 1996, we issued a warrant to
purchase 83,333 shares of Common Stock to Imperial Bank. The exercise price of
this warrant is $5.06280 per share, as adjusted to date. If the holder of this
warrant exercises the warrant in full, we will receive gross proceeds of
approximately $422,000.
Brokerlink Option. In January and July 1996, we issued options to
purchase up to an aggregate of 25,000 shares of Common Stock to Brokerlink, of
which options to purchase 8,333 remain unexercised. The exercise price of the
remaining options is $7.50 per share, as adjusted to date. If the holder of this
option exercises the option in full, we will receive gross proceeds of
approximately $62,000.
Lew Lieberbaum & Co., Inc. Warrants. In July 1996, Lew Lieberbaum &
Co., Inc. was the underwriter in connection with our offering and sale of units
consisting of two shares of Common Stock and one Class C Redeemable Common Stock
Purchase Warrant. Each Class C Redeemable Common Stock Purchase Warrant entitles
the holder thereof to purchase one share of Common Stock for $6.8625 per share,
as adjusted to date. As part of such transactions, we issued to Lew Lieberbaum &
Co. warrants to purchase up to 71,250 units at an exercise price of $19.18125
per unit, each as adjusted to date. Accordingly, if the holders exercise all of
the warrants to purchase units, we will receive gross proceeds of approximately
$1,367,000. If the holders of such warrants also exercise in full the Class C
Redeemable Common Stock Purchase Warrants issued to them when they purchased the
units, we will receive gross proceeds of approximately $489,000.
Class C Redeemable Common Stock Purchase Warrants. As part of the 1996
offering and sale of units described above, we sold 791,667 Class C Redeemable
Common Stock Purchase Warrants, each of which entitle the holder thereof to
purchase one share of Common Stock for $6.8625, each as adjusted to date. If the
holders of Class C Redeemable Common Stock Purchase Warrants exercise their
warrants in full, we will receive gross proceeds of approximately $5,433,000.
Consultant's Option. In 1989, we issued to a consultant a ten year
option to purchase 33,334 shares of Common Stock for $11.625 per share, each as
adjusted to date. If the holder thereof exercises such option in full, we will
receive gross proceeds of approximately $387,500.
Arturo Feliu. As of February 1, 1998 we issued an option to purchase
25,000 shares of Common Stock at an exercise price of $2.281 per share to Arturo
Feliu. Such options were issued pursuant to an agreement entered into in
connection with the formation of KL/Phoenix and Mr. Feliu's employment as
president thereof. In addition, pursuant to that same agreement, we issued an
option to purchase an additional 12,500 shares at an exercise price of $10.25
per share to
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<PAGE> 18
Mr. Feliu as of February 1, 1999. If Mr. Feliu exercises all of these options in
full, we will receive gross proceeds of approximately $185,000.
In August 1997, we issued options to purchase an aggregate of 55,000
shares of Common Stock at an exercise price of $1.878, as adjusted to date, to
Jeffrey Franklin, Steve Waterman, Buddy Epstein and Mark Phillips in connection
with a production and distribution agreement. If the holders exercise all of
these options in full, we will receive gross proceeds of approximately $103,000.
We expect to use any proceeds we receive upon exercise of any of the
options and warrants described above for working capital and general corporate
purposes. We expect to continue to use a significant amount of our working
capital to finance our development, production and distribution activities,
including those of our feature film division as well as to continue to fund the
working capital needs of Search. The amount of working capital required for
production activities will vary depending on, among other things, actual
production costs and the timing of payments from our customers. The amount of
working capital required to fund Search's operations will depend on Search's
results of operations.
SELLING SHAREHOLDERS
An aggregate of 2,596,879 shares of common stock are being registered
in this offering for the account of the selling shareholders. The selling
shareholders may sell their shares commencing on the effective date of the
registration statement of which this Prospectus is a part. Sales of the Common
Stock may depress the price of the Common Stock in any market for the Common
Stock. Sales of the Class C Redeemable Common Stock Purchase Warrants in any
market for such securities could depress the price of the Class C Redeemable
Common Stock Purchase Warrants.
We will not receive any of the proceeds from the sale of the securities
to the public but may receive proceeds from the exercise of options and warrants
pursuant to which certain of the securities listed below may be issued. See "Use
of Proceeds."
The shares issuable upon exercise, if any, of the Class C Redeemable
Common Stock Purchase Warrants or any other option or warrant will be issued
upon such exercise by us. The table below presents certain information with
respect to persons (other than the current holders of the Class C Redeemable
Common Stock Purchase Warrants) for whom we are registering securities for
resale to the public.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK NUMBER OF SHARES BEING STOCK BENEFICIALLY
BENEFICIALLY OWNED OFFERED BY OWNED
SELLING SHAREHOLDER PRIOR TO OFFERING SELLING SHAREHOLDERS AFTER OFFERING
------------------- ----------------- -------------------- --------------
<S> <C> <C> <C>
The Whittier Opportunity Fund 400,000 400,000 0
The Gordon and Dana Crawford 75,000 75,000 0
Trust, UTD 8/23/77, Gordon &
Dana Crawford, Trustees
John W. Gildea 20,000 20,000 0
Berrard Holdings Limited 180,000 180,000 0
Partnership
David E. Siminoff 25,000 25,000 0
Kingdon Associates 185,000 185,000 0
Kingdon Partners 153,000 153,000 0
Kingdon Family Partnership, LP 62,000 62,000 0
Victory Ventures LLC 100,000 100,000 0
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
Imperial Bank 83,333(a) 83,333 0
9777 Wilshire Blvd., Fourth Fl.
Beverly Hills, CA 90212
Ron Bass 33,334(a) 33,334 0
Roland Perry 25,000(b) 25,000 0
Robert A. Schneider 59,805(c) 59,805 0
Jessy W. Dirks 117,490(c) 117,490 0
Wellfleet Partners, Inc. 106,875(d) 106,875 0
Leonard A. Neuhaus 106,875(d) 106,875 0
Arturo Feliu 37,500(a) 37,500 0
Jeffrey Franklin 20,000(a) 20,000 0
Steve Waterman 20,000(a) 20,000 0
Buddy Epstein 7,500(a) 7,500 0
Mark Phillips 7,500(a) 7,500 0
</TABLE>
(a) Represents shares of Common Stock issuable upon exercise of
options or warrants to purchase shares of Common Stock.
(b) Includes shares of Common Stock issuable upon exercise of options to
purchase 8,333 shares of Common Stock.
(c) Represents shares of Common Stock issuable upon conversion of
convertible subordinated debentures which are issuable upon exercise of
warrants.
(d) Represents shares of Common Stock issuable upon exercise of warrants to
purchase units consisting of two shares of Common Stock and one Class C
Redeemable Common Stock Purchase Warrant, as well as shares of Common
Stock issuable upon exercise of such Class C Redeemable Common Stock
Purchase Warrants. The Class C Redeemable Common Stock Purchase
Warrants described herein are also being registered as described
in the table set forth below.
<TABLE>
<CAPTION>
Shares of Class C Number of Class C Shares of Class C
Redeemable Common Redeemable Common Stock Redeemable Common
Stock Purchase Warrants Purchase Warrants being Stock Purchase Warrants
Beneficially Owned Offered by Beneficially Owned
Selling Shareholder Prior to Offering Selling Shareholders After Offering
- ------------------- ---------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Wellfleet Partners, Inc. 35,625(a) 35,625 0
Leonard A. Neuhaus 35,625(a) 35,625 0
</TABLE>
(a) Represents 35,625 Class C Redeemable Common Stock Purchase Warrants
issuable upon exercise of warrants to purchase units as described in
footnote (d) of the preceding table. The Common Stock issuable upon
exercise of these Class C Redeemable Common Stock Purchase Warrants is
included in the number of shares of Common Stock set forth above as
described in such footnote (d).
PLAN OF DISTRIBUTION
We will pay all of the expenses, including, but not limited to, fees
and expenses of compliance with federal and state securities or blue sky laws,
incident to the registration of the shares, other than underwriting discounts
and selling commissions, and fees or expenses, if any, of counsel or other
advisors retained by one or more selling shareholders.
The selling shareholders may offer the securities covered by this
Prospectus at various times in one or more of the following transactions:
- on the National Association of Securities Dealers Automated
Quotation System National Market;
- on the Pacific Stock Exchange;
- in a transaction other than on such market or exchange;
- in connection with short sales of the securities;
17
<PAGE> 20
- by pledge to secure debts and other obligations;
- in connection with the writing of non-traded and exchange
traded call options, in hedge transactions and in settlement
of other transactions in standardized or over-the-counter
options; or
- in a combination of any of the above transactions.
The selling shareholders may sell their securities at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The selling shareholders may
use broker-dealers to sell their securities. If this happens, broker-dealers
will either receive discounts or commissions from the selling shareholders, or
they will receive commissions from purchasers of securities for whom they acted
as agents.
DESCRIPTION OF CAPITAL STOCK
Common Stock
Our authorized capital stock consists of 50,000,000 shares of common
stock. At February 19, 1999, we had 10,691,128 shares of Common Stock issued and
outstanding. Each holder of Common Stock is entitled to one vote for each share
held of record on the applicable record date on all matters submitted to the
shareholders. In electing directors, however, each shareholder is entitled to
cumulate votes for any candidate if, prior to the voting, such candidate's name
has been placed in nomination and any shareholder has given notice of an
intention to cumulate votes. The Common Stock is not subject to redemption or to
liability for further calls or assessment. Holders of Common Stock will be
entitled to receive such dividends as may be declared by our Board of Directors
out of funds legally available therefore and to share pro rata in any
distribution to shareholders. The shareholders have no conversion, preemptive or
other subscription rights.
Class C Redeemable Common Stock Purchase Warrants
Each Class C Redeemable Common Stock Purchase Warrant entitles the
holder thereof to purchase one share of Common Stock until July 23, 2001. The
exercise price of the Class C Redeemable Common Stock Purchase Warrants is
$6.8625, as adjusted to date. We may redeem the Class C Redeemable Common Stock
Purchase Warrants at a redemption price of $.10 per Class C Redeemable Common
Stock Purchase Warrant upon reaching certain trading prices for the Common
Stock and upon at least 30 days notice. Such warrants can be redeemed if (a) the
closing high bid price of the Common Stock as reported on the NASDAQ National
Market if traded thereon, (b) the closing high bid price of the Common Stock if
listed on a national securities exchange (or other reporting system that
provides last sales prices), or (c) if not traded thereon but traded on the
NASDAQ SmallCap Market, over the counter or on the bulletin board, the average
of the ask and bid price, has been at least 150% of the then exercise price of
the Class C Redeemable Common Stock Purchase Warrants on all ten of the trading
days prior to the third day prior to the day on which such notice is given.
The exercise price and number of Class C Redeemable Common Stock
Purchase Warrants may be subject to adjustment upon the occurrence of certain
events, including a merger, acquisition, recapitalization or split of shares of
Common Stock of the Company or the issuance by the Company of a stock dividend.
Holders of Class C Redeemable Common Stock Purchase Warrants do not have any of
the rights of shareholders of the Company. The Warrant Agent for the Class C
Redeemable Common Stock Purchase Warrants is Corporate Stock Transfer, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the 10,691,128 shares of Common Stock outstanding
as of February 19, 1999, and, subject to issuance, the 4,274,153 shares of
Common Stock issuable upon exercise of outstanding options or warrants, or
issuable upon conversion of outstanding convertible securities, will be freely
tradeable in the public markets, in certain cases pursuant to a registration
statement or available exemption from registration. Of such
18
<PAGE> 21
shares issuable upon exercise or conversion of outstanding securities,
approximately 4,169,569 shares are issuable at or below $10.00 per share. The
availability of shares for public sale, or the perception of such availability,
may have a depressive effect on the market price of the Common Stock.
EXPERTS
The consolidated financial statements and the financial statement
schedule of The Kushner-Locke Company included in the report on Form 10-K/A of
the Company as of and for the year ended September 30, 1998, have been audited
by PricewaterhouseCoopers, independent accountants, as set forth in their
reports, dated December 24, 1998, accompanying such financial statements and
financial statement schedule, and are incorporated herein by reference in
reliance upon the reports of such firm, which reports are given upon their
authority as experts in accounting and auditing. Our consolidated financial
statements as of September 30, 1997 and for each of the years in the two-year
period ended September 30, 1997, have been incorporated by reference herein in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated herein by this reference, and upon the authority of said firm as
experts in accounting and auditing.
19
<PAGE> 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 5,512
----------
NASD Listing Fee.......................................................... $ 17,500
----------
Blue Sky fees and expenses................................................ $ -0-
----------
Accounting fees and expenses............................................... $ 5,000
----------
Legal fees and expense..................................................... $ 25,000
----------
Miscellaneous.............................................................. $ 1,988
----------
Total................................................................. $ 55,000
----------
</TABLE>
None of the expenses of issuance and distribution of the securities set
forth above are to be borne by the selling shareholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 204.5 of the California General Corporation
Law ("CGCL"), the Articles of Incorporation of the registrant (the "Company"),
as amended, include a provision which eliminates the personal liability of its
directors to the Company and its shareholders for monetary damage to the fullest
extent permissible under California law. This limitation has no effect on a
director's liability (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of the
Company or its shareholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing his or her duties, of a risk of a serious injury
to the Company or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders, (vi) under Section 310 of the CGCL
(concerning contracts or transactions in which a director has a material
financial interest or (vii) under Section 316 of the CGCL (concerning directors'
liability for improper dividends, loans and guarantees). The provision does not
eliminate or limit the liability of an officer for any act or omission as an
officer, notwithstanding that the officer is also a director or that his
actions, if negligent or improper, have been ratified by the Board of Directors.
Further, the provision has no effect on claims arising under federal or state
securities or blue sky laws and does not affect the availability of injunctions
and other equitable remedies available to the Company's shareholders for any
violation of a director's fiduciary duty to the Company or its shareholders.
The Company's Articles of Incorporation also authorize the Company to
indemnify its agents (as defined in Section 317 of the CGCL) for breach of duty
to the corporation and its shareholders through bylaw provisions, agreements or
both, in excess of the indemnification otherwise permitted by Section 317 of the
CGCL subject to the limits on such excess indemnification set forth in Section
204 of the CGCL. The general effect of Section 317 of the CGCL and Article V of
the Company's bylaws, as amended, is to provide for indemnification of its
agents to the fullest extent permissible under California law.
The Company maintains insurance coverage for each director and officer
of the Company for claims against such directors and officers for any alleged
breach of duty, neglect, error, misstatement, misleading statement, omission or
out in their respective capacities as directors and officers of the Company, or
any matter
II-1
<PAGE> 23
claimed against them solely by reason of their status as directors or officers
of the Company, subject to certain exceptions.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1 Indenture between the Company and National City Bank
of Minneapolis, as Trustee, dated as of December 1,
1990 pertaining to 10% Convertible Subordinated
Debentures Due 2000, Series A(A)
4.2 First Supplemental Indenture between the Company and
National City Bank of Minneapolis, as Trustee, dated
as of March 15, 1991 pertaining to 10% Convertible
Subordinated Debentures Due 2000, Series A(B)
4.3 Indenture between the Company and National City Bank
of Minneapolis, as Trustee, dated as of December 1,
1990 pertaining to 13 3/4% Convertible Subordinated
Debentures Due 2000, Series B(A)
4.4 Warrant agreement between the Company and City
National Bank, as Warrant Agent, dated as of March
19, 1991 pertaining to Common Stock Purchase
Warrants(B)
4.5 Warrant Agreement between the Company and Chatfield
Dean & Co., Inc. dated as of November 13, 1992(C)
4.7 Fiscal Agency Agreement dated March 10, 1994 between
and among the Company, Bank America National Trust
Company and Bank of America National Trust and
Savings Association(D)
4.8 Side letter between the Company and BankAmerica Trust
Company to the Fiscal Agency Agreement dated March
10, 1994 between and among the Company, BankAmerica
Trust Company and Bank of America National Trust and
Savings Association(D)
4.9 Warrant Agreement dated March 10, 1994 between the
Company and RAS Securities Corp.(D)
4.10 Fiscal Agency Agreement dated July 25, 1994 between
and among the Company, Bank America National Trust
Company and Bank of America National Trust and
Savings Association(E)
4.11 Form of Warrant Agreement with Lew Lieberman & Co.
Inc.(F)
4.12 Form of Class C Redeemable Common Stock Purchase
Warrants(F)
4.13 Warrant agreement dated September 5, 1997 between the
Company and Allen & Company Incorporated.(G)
4.14 Warrant agreement dated September 5, 1997 between the
Company and I. Friedman Equities, Inc.(G)
4.15 Warrant Agreement dated June 27, 1997 between the
Company and I. Friedman Equities, Inc.(G)
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
</TABLE>
- ----------
(A) Incorporated by reference from the Exhibits to the Company's
Registration Statements on Form S-1, as amended, effective November 30,
1990 (File No. 33-37192), and effective December 20, 1990 (File No.
33-37193).
(B) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, effective March 20, 1991.
(C) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective November 12, 1992
(Commission File No. 33-51544).
II-2
<PAGE> 24
(D) Incorporated by reference from the Exhibits to the Company's Report on
Form 10-Q for the fiscal quarter ended March 31, 1994.
(E) Incorporated by reference from the Exhibits to the Company's Report on
Form 10-Q for the fiscal quarter ended June 30, 1994.
(F) Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-2, as amended, effective July 24, 1996
(Commission File No. 333-5089).
(G) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-3/A, as amended, effective January 8, 1998
(Commission File No. 333-40391).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Los Angeles, State of California, on February 22,
1999.
THE KUSHNER-LOCKE COMPANY,
By: /s/ DONALD KUSHNER
---------------------------------
Donald Kushner
CO-CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER LOCKE Co-Chairman of the Board and February 22, 1999
- ------------------------------------- Co-Chief Executive Officer
Peter Locke
/s/ DONALD KUSHNER Co-Chairman of the Board, Co- February 22, 1999
- ------------------------------------- Chief Executive Officer and
Donald Kushner Secretary
/s/ ROBERT SWAN Senior Vice President and February 22, 1999
- ------------------------------------- Chief Finanical Officer
Robert Swan
/s/ ADELINA VILLAFLOR Controller (Chief Accounting February 22, 1999
- ------------------------------------- Officer)
Adelina Villaflor
/s/ IRWIN FRIEDMAN Director February 22, 1999
- -------------------------------------
Irwin Friedman
/s/ STUART HERSCH Director February 22, 1999
- -------------------------------------
Stuart Hersch
/s/ JOHN LANNAN Director February 22, 1999
- -------------------------------------
John Lannan
</TABLE>
II-4
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1 Indenture between the Company and National City Bank
of Minneapolis, as Trustee, dated as of December 1,
1990 pertaining to 10% Convertible Subordinated
Debentures Due 2000, Series A(A)
4.2 First Supplemental Indenture between the Company and
National City Bank of Minneapolis, as Trustee, dated
as of March 15, 1991 pertaining to 10% Convertible
Subordinated Debentures Due 2000, Series A(B)
4.3 Indenture between the Company and National City Bank
of Minneapolis, as Trustee, dated as of December 1,
1990 pertaining to 13 3/4% Convertible Subordinated
Debentures Due 2000, Series B(A)
4.4 Warrant agreement between the Company and City
National Bank, as Warrant Agent, dated as of March
19, 1991 pertaining to Common Stock Purchase
Warrants(B)
4.5 Warrant Agreement between the Company and Chatfield
Dean & Co., Inc. dated as of November 13, 1992(C)
4.7 Fiscal Agency Agreement dated March 10, 1994 between
and among the Company, Bank America National Trust
Company and Bank of America National Trust and
Savings Association(D)
4.8 Side letter between the Company and BankAmerica Trust
Company to the Fiscal Agency Agreement dated March
10, 1994 between and among the Company, BankAmerica
Trust Company and Bank of America National Trust and
Savings Association(D)
4.9 Warrant Agreement dated March 10, 1994 between the
Company and RAS Securities Corp.(D)
4.10 Fiscal Agency Agreement dated July 25, 1994 between
and among the Company, Bank America National Trust
Company and Bank of America National Trust and
Savings Association(E)
4.11 Form of Warrant Agreement with Lew Lieberman & Co.
Inc.(F)
4.12 Form of Class C Redeemable Common Stock Purchase
Warrants(F)
4.13 Warrant agreement dated September 5, 1997 between the
Company and Allen & Company Incorporated.(G)
4.14 Warrant agreement dated September 5, 1997 between the
Company and I. Friedman Equities, Inc.(G)
4.15 Warrant Agreement dated June 27, 1997 between the
Company and I. Friedman Equities, Inc.(G)
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
</TABLE>
- ----------
(A) Incorporated by reference from the Exhibits to the Company's
Registration Statements on Form S-1, as amended, effective November 30,
1990 (File No. 33-37192), and effective December 20, 1990 (File No.
33-37193).
(B) Incorporated by reference to the Company's Registration Statement on
Form S-1, as amended, effective March 20, 1991.
(C) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-2, as amended, effective November 12, 1992
(Commission File No. 33-51544).
(D) Incorporated by reference from the Exhibits to the Company's Report on
Form 10-Q for the fiscal quarter ended March 31, 1994.
II-5
<PAGE> 27
(E) Incorporated by reference from the Exhibits to the Company's Report on
Form 10-Q for the fiscal quarter ended June 30, 1994.
(F) Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-2, as amended, effective July 24, 1996
(Commission File No. 333-5089).
(G) Incorporated by reference from Exhibits to the Company's Registration
Statement on Form S-3/A, as amended, effective January 8, 1998
(Commission File No. 333-40391).
II-6
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
The Kushner-Locke Company:
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Los Angeles, California
February 22, 1999
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
The Kushner-Locke Company:
We consent to the incorporation by reference in the registration
statement (No. ) on Form S-3 of our reports dated December 24, 1998, on our
audit of the consolidated financial statements and the financial statement
schedule of The Kushner-Locke Company as of and for the year ended September 30,
1998, which reports are included in the Annual Report on Form 10-K/A
incorporated herein.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 22, 1999
