As filed with the Securities and Exchange Commission on June 11, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-4079057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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)
_______________
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTIONS>
Proposed Proposed
Maximum Maximum
Aggregate Amount of
Title of Shares Amount To Price Per Offering Registration
To Be Registered Be Registered Unit (1) Price (1) Fee (1)
- ---------------- ------------- ------- -------- -------
<S> <C> <C> <C> <C>
Common Stock,
without par
value 468,883 shares $11.75 $5,509,375 $1,531.61
</TABLE>
(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 June 7, 1999 and calculated in accordance with
Rule 457(c) promulgated under the Securities Act of 1933, as amended.
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.
The information in this prospectus is not complete and may be changed. These
securities may not be sold nor may others to buy be accepted prior to the time
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.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1999
PROSPECTUS
468,883 SHARES
COMMON STOCK, NO PAR VALUE
THE KUSHNER-LOCKE COMPANY
The shareholder of The Kushner-Locke Company listed on page 15 may offer and
sell up to 468,883 shares of Kushner-Locke common stock under this prospectus.
We will not receive any part of the proceeds from any such sale.
Our common stock is listed on the NASDAQ National Market under the symbol KLOC
and on the Pacific Stock Exchange under the symbol KLO.
This investment involves a high degree of risk. See "Risk Factors"
beginning on page 4 for a discussion of some of these risks.
_______________
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 June ___, 1999
<PAGE>
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
2
<PAGE>
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. Some of 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
800-U.S. 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 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
3
<PAGE>
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.
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
distributor arrangement with Enrique Cerezo, we are broadcasting selections
from 1,500 Spanish language movie titles.
RISK FACTORS
An investment in our common stock involves a high degree or risk. You should
be aware of the following risks in addition to those risk factors included in
the remainder of this prospectus that may affect our business and results of
operations and the common stock. We caution you, however, that this list of
risk factors may not be exhaustive.
We may need additional working capital that may not be available
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 we may need to raise additional capital to fund all the
activities in our current business plan for the next 12 months. We may need
additional capital to:
- -- support more rapid production and distribution,
- -- develop new or enhanced products or services,
- -- respond to competitive pressures,
- -- acquire complementary businesses or technologies,
- -- provide additional working capital to fund the operations of Search, or
- -- respond to unanticipated events.
We may be unable to raise additional funds when needed on terms we consider to
be favorable or acceptable. If funds are unavailable when required or on
acceptable terms, we may be unable to develop or enhance our products or
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. Any of such limitations could
materially and adversely effect our business, financial condition and
prospects. 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.
If we raise additional working capital we could dilute existing shareholders
Any additional working capital in the form of equity financing may dilute
existing shareholders. If new equity securities are issued, the percentage
ownership of our shareholders before the issuance will be reduced and the net
book value of their shares may be diluted.
4
<PAGE>
Our quarterly results fluctuate significantly
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 the entire fiscal year.
We have experienced substantial net losses
Primarily as a result of significant net losses in fiscal 1993, 1994, 1995,
1997 and 1998 and through March 31, 1999 of fiscal 1999, we had an accumulated
deficit of $24,655,000 at March 31, 1999.
We depend 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.
Our accounting policies for program and film revenues may result in
significant write-downs
We generally recognize revenues from a program or film when it 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 the write-down is taken.
5
<PAGE>
We depend on certain key employees
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 or prospects
may be materially adversely affected if Messrs. Kushner or Locke, or one or
more other key personnel were to leave.
Our syndicated revolving credit agreement with Chase Manhattan Bank, as agent,
includes as events of default:
- -- the failure of either Messrs. Kushner or Locke to be our Chief Executive
Officer, or
- -- 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
the voting power).
If one of the described events of default occurred, the bank may not waive the
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 as well as its ability to attract and
retain additional highly qualified employees in all of these areas to
supplement existing personnel. Search's employees, including its senior
management, generally may terminate their employment with Search at any time
and competition for qualified employees is intense. The process of locating
and hiring 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 and prospects.
The costs for our television programming or films may be less than initial
revenue
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 revenues
obtained from third parties. In any event, we are generally required to fund
at least a portion of production costs, pending receipt of 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 these commitments. In the
past, we have commenced principal photography on a limited number of projects
before obtaining commitments which cover substantially all of the budgeted
production costs but were able subsequently to obtain commitments to cover
substantially all of these costs. Each project was one which we believed would
be successful and for which we determined it was necessary to begin principal
6
<PAGE>
photography quickly. We may be unable to cover project costs in the future if
we were to undertake projects before making adequate pre-sales.
The television and feature film industries are very risky
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 from the project.
As we shift towards more film projects from television programs, receipts of
revenues are delayed
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 not paid until 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 to a mix of network television and feature
films from exclusively network television programs.
Our businesses are in highly competitive industries
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.
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.
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
7
<PAGE>
publish free printed or electronic directories and private investigation firms.
Search's primary competitors for individual background searches include these
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 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.
We depend on strategic relationships in the 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 and expects to enter into similar agreements in the future.
Search anticipates that certain up-front and continuing payments and royalty
payments under these agreements will constitute a significant portion of its
expenses in future periods. Search's success will depend upon its ability to
maintain these relationships and develop additional 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 these 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, results of operations and
prospects.
We may not be successful in promoting and maintaining awareness 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 financial condition and results of
operations may be materially and adversely affected as Search incurs
additional expenses to improve its services and promote and maintain its
brand.
8
<PAGE>
Our plan to offer new services may not be successful
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 of these efforts. If offered and accepted, these 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 will also require significant additional
capital and development and may strain our management, financial and
operational resources. Search's inability to generate revenues from expanded
services sufficient to offset their cost could have a material adverse effect
on our financial condition and results of operations. Finally, certain new
services, like background checks, may be subject to state licensing
requirements. We may be unable to offer these services in one or more
jurisdictions if Search is unable to obtain required licenses.
We may not adequately respond to rapidly changing technology, standards and
consumer demands in our markets
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, these services may not effectively address
customer requirements and achieve market acceptance. Our business results of
operations and prospects would be materially and adversely affected if Search,
for technological or other reasons, is unable to develop and enhance these
services in a manner compatible with emerging industry standards and that
allows it to attract and expand a customer base.
We face risks associated with government regulation
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. These 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 employment purposes, Search
may be considered a "consumer reporting agency" as this term is used in the
Fair Credit Reporting Act ("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.
9
<PAGE>
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 excludes employment purposes).
However, these procedures 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 ADA regulates
the use by Search's customers of certain information sold to them, both in
respect to the type of information and the timing of its use. A number of
states have laws similar to the FCRA, and some states 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 these states can access Search's Web site, which may
subject Search to the laws of these states because its residents order
services through Search's Web site and Search mails, faxes or e-mails reports
to the resident within the state. In the event Search is determined to have
violated any of the applicable federal or state laws, Search could be subject
to substantial civil and/or criminal liability which would have a material
adverse effect on our business 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, including those of consumer credit reporting agencies.
Various federal regulators and organized groups have attempted and continue
attempting 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 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. These
laws, governmental policies and/or regulations could significantly increase
the costs incurred by Internet Service Providers ("ISPs"), and the increased
costs could be passed along ultimately to end users, including Search. These
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, 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. The carriers are concerned 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
10
<PAGE>
Service Fund funding obligations on ISPs, the ability of ISPs to route long
distance telephone-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 these laws or that these 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 financial condition and results of operations.
Search may be unable to acquire or maintain relevant domain names and may be
unable to prevent third parties from acquiring similar 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 this regulation is subject to change. As a result of changes in government
regulation, Search may be unable to acquire or maintain relevant domain names
in some or all of the countries in which it conducts business.
The relationships between regulation governing domain names and laws
protecting trademarks and similar proprietary right, is uncertain at present.
Accordingly, 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.
We could face problems related to the "Year 2000 Issue"
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
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 have upgraded or replaced virtually all firmware in part to mitigate Year
2000 exposure. We utilize off-the-shelf and custom software developed
internally and by third parties. We believe that our off-the-shelf software
is Year 2000 compliant. However, there is no assurance that we will not be
required to modify or replace significant portions of our software so that our
systems will function properly with respect to dates in the year 2000 and
11
<PAGE>
thereafter. We are engaged in a two-phase process to evaluate our internal
status with respect to the Year 2000 issue. In phase one, we are completing a
Year 2000 evaluation, including Information Technology ("IT") systems,
non-IT systems, and critical third-party entities with which we transact
business. Either of the following problems could have a material adverse
effect on our business, financial condition, results of operations and
prospects: (1) our failure to make, or timely complete, required modifications
to existing software and firmware or conversions to new software or firmware;
or (2) a malfunction in software or firmware used on computer systems utilized
by our service providers. Further, our failure to successfully resolve these
issues could result in a shut-down of some or a substantial portion of our
operations (including those of Search), which could 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
Internet databases and computer systems maintained by third parties. The
disruption of these third-party systems and the supply of information provided
through these systems could have a material adverse effect on Search's, and
therefore 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 Search's, and therefore our, business, financial condition, results
of operations and prospects. Search does not currently have any information
concerning the Year 2000 compliance status of its customers and their Internet
service providers. In the event that substantial numbers of Internet users do
not successfully and timely achieve Year 2000 compliance, Search's, and
therefore our, business, financial condition, results of operations and
prospects could be adversely affected.
We are developing a comprehensive contingency plan to address situations that
may result if we are unable to achieve Year 2000 readiness of our critical
operations, and in particular those related to Search. There is no assurance
that our contingency plan will adequately address all Year 2000 issues. Our
failure to implement, if necessary, an appropriate contingency plan could have
a material impact on our business, financial condition, results of operations
and prospects.
Finally, 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 the Internet, 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. Because of the unprecedented nature of such litigation, it
is uncertain whether or to what extent we may be affected by it.
We currently believe that this issue will not pose significant operational
problems, however delays in the modification or conversion of our or Search's
systems, or those of our or Search's vendors and suppliers of services, or the
failure to fully identify all Year 2000 dependencies in the systems could have
a material adverse effect on the our business, financial condition, results of
operations and prospects.
12
<PAGE>
Until the completion of phase one, we cannot quantify the impact of the Year
2000 issue. However, failure of critical internal IT systems, non-IT systems,
third-party vendors and financial institutions may limit or prevent is from
performing services for our customers, and could have a material adverse
effect on our business, financial condition, results of operations and
prospects. Through March 31, 1999 we incurred no material year 2000
remediation costs, and presently anticipate incurring no material remediation
costs in the future.
We may face labor problems as a result of collective bargaining agreements
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, results of operations and prospects.
We do not plan to pay and are restricted from paying 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.
We can not guarantee an adequate market for our common stock
Our common stock is currently listed on the NASDAQ National Market. We may be
unable to maintain our listings. It is possible that no adequate market for
our common stock will exist or, if it exist, that it will continue.
Shares available for futures sale may depress the market price of our common
stock
Substantially all of the 13,644,291 shares of common stock outstanding as of
June 3, 1999 and the 2,965,019 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 2,070,102 of these 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.
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
13
<PAGE>
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 above together with all of the
other information included or incorporated by reference in this prospectus
before you decide to purchase any securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. 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 quarters ended December 31, 1998
and March 31, 1999.
- -- Our Proxy Statement dated April 29, 1999.
- -- Our Current Reports on Form 8-K filed on October 27, 1998, April 16, 1999
and May 3, 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
14
<PAGE>
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.
USE OF PROCEEDS
All net proceeds from the sale of the common stock covered by this prospectus
will go to the selling shareholder. Accordingly, we will receive no proceeds
from the sale of these securities.
SELLING SHAREHOLDER
An aggregate of 468,883 shares of common stock are being registered in this
offering for the account of the selling shareholder. The selling shareholder
may sell its 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.
The table below presents certain information with respect to the selling
shareholder for whom we are registering securities for resale to the public.
The selling shareholder has not held any position or office or had a material
relationship with us or any of our affiliates within the past three years
other than as a result of the ownership of our common stock.
<TABLE>
<CAPTION>
Selling Shares Owned Number of Shares Owned
Shareholder Prior to Offering Shares Offered After Offering
----------- ----------------- -------------- --------------
<S> <C> <C> <C>
The Harvey
Entertainment Company 468,883 468,883 0
</TABLE>
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 the selling shareholder.
The selling shareholder 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;
15
<PAGE>
- -- in connection with short sales of the securities;
- -- 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 shareholder may sell its securities at market prices prevailing at
the time of sale, at prices related to the prevailing market prices, at
negotiated prices or at fixed prices. The selling shareholder may use
broker-dealers to sell its securities. If this happens, broker-dealers will
either receive discounts or commissions from the selling shareholder, or they
will receive commissions from purchasers of securities for whom they acted as
agents.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock. At
June 10, 1999, we had 13,644,291 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, before the voting, the 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 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.
SHARES ELIGIBLE FOR FUTURE SALE
Substantially all of the 13,644,291 shares of common stock outstanding as of
June 10, 1999, and, subject to issuance, the 2,965,019 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 the shares issuable upon exercise or
conversion of outstanding securities, approximately 2,070,102 shares are
issuable at or below $10.00 per share. The availability of shares for public
sale, or the perception of this availability, may have a depressive effect on
the market price of the common stock.
EXPERTS
Our consolidated financial statements and the financial statement schedule
included in our 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,
16
<PAGE>
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. The consolidated financial statements and schedule of The
Kushner-Locke Company 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 and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in
accounting and auditing.
17
<PAGE>
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 $ 1,531.61
NASD Listing Fee $ 9,377.66
Blue Sky fees and expenses $ -0-
Accounting fees and expenses $ 3,000.00
Legal fees and expense $ 20,000.00
Miscellaneous $ 1,090.73
Total $ 35,000.00
</TABLE>
None of the expenses of issuance and distribution of the securities set forth
above are to be borne by the selling shareholder.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 204.5 of the California General Corporation Law
("CGCL"), the our articles of incorporation, as amended, include a provision
which eliminates the personal liability of our directors to us and our
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 our best interests or the best interests of our 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 act or omissions that show a reckless disregard for the
director's duty to us or our shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing his duties, of a risk of a serious injury to us or our
shareholders, (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to us or
our 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 our 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 our shareholders for any
violation of a director's fiduciary duty to us or our shareholders.
Our articles of incorporation also authorize us to indemnify our agents (as
defined in Section 317 of the CGCL) for breach of duty to us and our
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 our bylaws, as
amended, is to provide for indemnification of its agents to the fullest extent
permissible under California law.
We maintain insurance coverage for each of our directors and officers for
claims against our 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 us, or any matter claimed
against them solely by reason of their status as directors or officers of us,
subject to certain exceptions.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Registration Rights Agreement dated as of April 26, 1999,
between The Kushner-Locke Company and The Harvey
Entertainment Company
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
</TABLE>
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.
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 June 10,
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>
<CAPTIONS>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ PETER LOCKE Co-Chairman of the Board and June 10, 1999
Peter Locke Co-Chief Executive Officer
/s/ DONALD KUSHNER Co-Chairman of the Board and June 10, 1999
Donald Kushner Co-Chief Executive Officer and
Secretary
/s/ ROBERT SWAN Senior Vice President and June 10, 1999
Robert Swan Chief Financial Officer
/s/ ADELINA VILLAFLOR Controller (Chief Accounting June 10, 1999
Adelina Villaflor Officer)
/s/ IRWIN FRIEDMAN Director June 10, 1999
Irwin Friedman
/s/ STUART HERSCH Director June 10, 1999
Stuart Hersch
/s/ JOHN LANNAN Director June 10, 1999
John Lannan
</TABLE>
EXHIBIT INDEX
<TABLE>
<S> <C>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Registration Rights Agreement dated as of April 26, 1999,
between The Kushner-Locke Company and The Harvey Entertainment
Company
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
</TABLE>
<PAGE>
EXHIBIT 2.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of April 26, 1999, by and between The
Kushner-Locke Company, a California Corporation (the "Company") and The Harvey
Entertainment Company, a California corporation (the "Shareholder").
W I T N E S S E T H
WHEREAS, pursuant to the Stock Purchase Agreement dated as of April 7, 1999,
by and among the Shareholder, the Company, Roger A. Burlage, Michael R. Burns
and Ken Slutsky (the "Purchase Agreement"), the Shareholder will acquire an
aggregate of 468,883 shares of the Company's common stock, no par value
("Common Stock");
WHEREAS, the Purchase Agreement provides that the Shareholder will have
certain demand and piggyback registration rights and it is a condition to the
consummation of the acquisition of the Common Stock that the Shareholder and
the Company enter into this Registration Rights Agreement;
NOW, THEREFORE, in order to implement the foregoing and in consideration of
the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not otherwise defined
shall have the meaning given to such terms in the Purchase Agreement.
"Closing" shall mean the consummation of the Purchase Agreement and the
transactions contemplated thereby.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder as the same may be amended
from time to time.
"Holders" shall mean the Shareholder and any other holders of record of the
Shareholder Common Stock.
"Person" shall mean any individual, partnership, joint venture, corporation,
limited liability company, trust, joint stock company, business trust,
unincorporated association, joint venture, governmental authority or any
department or agency thereof or other entity of any nature whatsoever.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder as the same may be amended from
time to time.
"Shareholder Common Stock" shall mean the 468,883 shares of Common Stock
issuable to the Shareholder under the terms and conditions of the Purchase
Agreement.
ARTICLE II
TRANSFERS OF SHARES
2.1 Shareholder Common Stock Unregistered. The Shareholder acknowledges and
represents that he has been advised by the Company that:
(a) the acquisition of the Shareholder Common Stock has not been registered
under the Securities Act;
(b) the Shareholder Common Stock must be held, and the Shareholder must
continue to bear (and is able to bear) the economic risk of the investment in
the Shareholder Common Stock, subject to the terms and conditions of the
Purchase Agreement, including without limitation Section 6.7 thereof until (i)
the Shareholder Common Stock is registered pursuant to an effective
registration statement under the Securities Act and all applicable state
securities laws or (ii) an exemption from such registration is available;
(c) when and if shares of the Shareholder Common Stock may be disposed of
without registration under the Securities Act in reliance on Rule 144
thereunder ("Rule 144"), such disposition can be made only in limited amounts
in accordance with the terms and conditions of such Rule;
(d) if the Rule 144 exemption is not available, public offer or sale of
Shareholder Common Stock without registration will require compliance with
some other exemption under the Securities Act;
(e) a restrictive legend in the form set forth in Section 3.1(c) of the
Purchase Agreement shall be placed on the certificates representing the
Shareholder Common Stock; and
(f) a notation shall be made in the appropriate records of the Company
indicating that the Shareholder Common Stock is subject to restrictions on
transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent with respect to the Common Stock.
2.2 Rule 144 Reporting. The Company agrees that to the extent reasonably
necessary to permit the Shareholder to sell shares of the Shareholder Common
Stock in accordance with and in reliance on Rule 144, and for so long as such
shares are owned by the Shareholder and such shares are not registered for
resale under the Securities Act, the Company will use its reasonable best
efforts to:
(a) Make and keep public information available within the meaning of Rule 144
at all times from and after the Closing Date;
(b) File with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) So long as the Shareholder owns any Shareholder Common Stock issued to
such Shareholder pursuant to the Purchase Agreement, inform the Shareholder
upon request as to compliance by the Company with the reporting requirements
of Rule 144 and of the Securities Act and the Exchange Act, and provide a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents filed with the SEC and available to the public as may
reasonably be requested in availing the Shareholder of any rule or regulation
of the SEC allowing a sale of any such securities without registration.
Anything to the contrary contained in this Section 2.2 notwithstanding, the
Company may deregister any of its securities under the Exchange Act if it is
then permitted to do so pursuant to the Exchange Act, in which case the
provisions of this Section 2.2 insofar as they relate to obligations to make
filings under the Exchange Act that would no longer be required as a result of
such delisting shall be of no further force or effect. Nothing in this
Section shall be deemed to limit in any manner the restriction on sales of
Shareholder Common Stock contained in this Agreement.
ARTICLE III
REGISTRATION RIGHTS
3.1 Automatic Registration; Demand Registration.
(a) Not later than 60 days after the Closing Date, the Company shall file a
registration statement on Form S-3 (or, if not available, any other applicable
form) registering the resale of the Shareholder Common Stock (the "Automatic
Registration Statement").
(b) If at any subsequent time the Automatic Registration Statement has been
suspended and the Company receives a written request from the Holders of at
least 25% of the Shareholder Common Stock (excluding shares previously
publicly sold) the Company will file a registration statement on Form S-3 or
any successor form (or, if not available, any other applicable form) with the
SEC within 45 days after the initiating Holder or Holders request and use its
best efforts to effect the registration for resale of the Shareholder Common
Stock (including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as would permit the sale and
distribution by the Holders of such shares of Shareholder Common Stock under
applicable law; provided, however that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance
pursuant to this Section 3.1:
(i) In any particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) If, at such time as a request for registration pursuant to this Section
3.1 is pending, the Company has already effected two such registrations of the
Shareholder Common Stock for resale pursuant to this Section 3.1, and each
such registration has been declared or ordered effective; or
(iii) Other than in the case of the Automatic Registration Statement, during
the period starting with the date 60 days prior to the filing of, and ending
on a date three months following the effective date of, a registration
statement (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Shareholder
Common Stock).
3.2 Right to Include Securities. If at any time within one year after the
Closing Date, or within two years thereafter if the Shareholder is deemed to
be an affiliate of the Company within the meaning of Rule 144, all of the
shares of Shareholder Common Stock are not then registered for resale under
the Securities Act, and the Company proposes to register any shares of its
Common Stock under the Securities Act on Forms S-1, S-2 or S-3 or any
successor or similar forms (except for registrations on such forms solely for
registration of Common Stock in connection with any warrant, option, employee
benefit or dividend reinvestment plan), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to the Holders. In such event, upon the written
request (which request shall specify the total number of shares of Shareholder
Common Stock intended to be disposed of by the Holder) of any Holder made
within 15 days after the receipt of any such notice (10 days if the Company
gives telephonic notice with written confirmation to follow promptly
thereafter, stating that (i) such registration will be on Form S-3 and (ii)
such shorter period of time is required because of a planned filing date), the
Company will use all reasonable efforts to effect the registration under the
Securities Act in the manner initially proposed by the Company of all
Shareholder Common Stock held by any Holder which the Company has been so
requested to register for sale. If the Company thereafter determines for any
reason in its sole discretion not to register or to delay registration of the
Common Stock, the Company may, at its election, give written notice of such
determination to the Holders and (i) in the case of a determination not to
register, shall be relieved of the obligation to register any Shareholder
Common Stock in connection with such registration and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Shareholder Common Stock of the Holders for the same period as the delay
in registration of such other securities.
3.3 Priority in Incidental Registration. In a registration pursuant to
Section 3.2 hereof, if the managing underwriter of any underwritten offering
to which Section 3.2 pertains shall inform the Company by letter of its belief
that the number of shares of Shareholder Common Stock to be included in such
registration would adversely affect its ability to effect such offering, then
the Company will be required to include in such registration only that number
of shares of Shareholder Common Stock which it is so advised can be included
in such offering without so adversely affecting it. With respect to a
registration that is the subject of Section 3.2 hereof, shares of Common Stock
proposed by the Company to be registered for issuance by the Company or for
sale by third parties exercising "demand" registration rights shall have the
first priority and all other shares of Common Stock to be registered,
including any and all shares of Shareholder Common Stock owned by the Holders
shall be given second priority without preference among the relevant Holders.
If less than all of the shares of Shareholder Common Stock duly requested to
be included in such registration are to be registered therein, such shares of
Shareholder Common Stock shall be included in the registration pro rata based
on the total number of such shares sought to be registered other than for
issuance by the Company or for sale by third parties exercising "demand"
registration rights in accordance with the preceding sentence.
3.4 Registration Procedures. In connection with the Company's obligations to
register the Shareholder Common Stock for resale pursuant to this Article III,
the Company will use its reasonable best efforts to effect such registration
in accordance herewith and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after request for
registration hereunder the requisite registration statement to effect such
registration and use its reasonable best efforts to cause such registration
statement to become effective and to remain continuously effective until the
earlier to occur of (x) 180 days following the date on which such registration
statement is declared effective (the "Effective Date") or (y) the termination
of the offering being made thereunder; provided that the Automatic
Registration Statement shall remain continuously in effect and not subject to
such limitations until (A) if the Shareholder is not deemed to be an affiliate
of the Company within the meaning of Rule 144, one year from the date of the
Closing or (B) if the Shareholder is deemed to be an affiliate of the Company
within the meaning of Rule 144, two years from the date of the Closing;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective as set forth above
and to comply with the provisions of the Securities Act with respect to the
disposition of all shares of Shareholder Common Stock covered by such
registration statement until such Shareholder Common Stock has been sold or
such lesser period of time as the Company, any seller of such Shareholder
Common Stock or any underwriter is required under the Securities Act to
deliver a prospectus in accordance with the intended methods of disposition by
the sellers of such Shareholder Common Stock set forth in such registration
statement or supplement to such prospectus;
(c) furnish to the managing underwriter, if any, and to the Shareholder at
least one executed original of the registration statement and to each
applicable Holder such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act as
may reasonably be requested by such Holder;
(d) use its reasonable best efforts (i) to register or qualify, to the extent
necessary, all shares of Common Stock covered by such registration statement
under the securities or "blue sky" laws of such jurisdictions where an
exemption is not available as the applicable Holders shall reasonably request,
(ii) to keep such registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other action
which may be reasonably necessary or advisable to enable the applicable
Holders to consummate the disposition in such jurisdictions of such Common
Stock, provided that the Company will not be required to qualify generally to
do business or as a dealer in any jurisdiction where it is not then so
qualified, subject itself to taxation in any such jurisdiction or take any
action which would subject it to general service of process in any such
jurisdiction;
(e) notify the applicable Holders and the managing underwriter, if any,
promptly, and confirm such advice in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for
additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of a registration statement or the initiation of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any of the
registered securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the happening of any
event or information becoming known which requires the making of any changes
in a registration statement or related prospectus so that such documents will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (vi) of the Company's reasonable
determination that a post-effective amendment to a registration statement
would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of
any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v) above,
prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the securities being sold
thereunder, such prospectus will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(h) use its reasonable best efforts to furnish to the applicable Holders a
signed counterpart, addressed to the applicable Holders and the underwriters,
if any, of an opinion of counsel for the Company as to the effectiveness of
the registration statement registering the resale of the Shareholder Common
Stock under the Securities Act;
(i) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with a registration pursuant hereto;
(j) cooperate with the applicable Holders and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing shares of Shareholder Common Stock to be sold; and enable such
shares of Shareholder Common Stock to be in such denominations and registered
in such names as the applicable Holders or the managing underwriters, if any,
may request at least two business days prior to any sale of shares of
Shareholder Common Stock to the underwriters;
(k) cause all shares of Common Stock covered by the registration statement to
be listed on each securities exchange, if any, or Nasdaq, on which securities
of such class, series and form issued by the Company, if any, are then listed
or traded if requested by the managing underwriters, if any, or the Holders of
a majority of the shares of Common Stock covered by the registration statement
and entitled hereunder to be so listed; and
(l) cooperate and assist in any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD") and in the performance of
any due diligence investigation by any underwriter (including any qualified
independent underwriter that is required to be retained in accordance with the
rules and regulations of the NASD).
The Company may require the Holders to furnish to the Company such information
and documents regarding the Holders and the distribution of such securities as
the Company may from time to time reasonably request in writing in order to
comply with the Securities Act.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3.4(e)(ii), (iii),
(iv), (v) or (vi) hereof, it will forthwith discontinue disposition pursuant
to such registration statement of any shares of Common Stock covered by such
registration statement or prospectus until its receipt of the copies of the
supplemented or amended prospectus relating to such registration statement or
prospectus or until it is advised in writing by the Company that the use of
the applicable prospectus may be resumed (and the period of such
discontinuance shall be excluded from the calculation of the period specified
in clause (x) of Section 3.4(a)) and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in their possession, of the prospectus covering
such securities in effect at the time of receipt of such notice. The Holders
agree to furnish the Company a signed counterpart, addressed to the Company
and the underwriters, if any, of an opinion of counsel covering substantially
the same matters with respect to such registration statement (and the
prospectus included therein) as are customarily covered in opinions of selling
stockholder's counsel delivered to the underwriters in underwritten public
offerings of securities (and dated the dates such opinions are customarily
dated) and such other legal matters as the Company or the underwriters may
reasonably request.
3.5 Incidental Underwritten Offerings. If the Company at any time proposes
to register any shares of its common stock under the Securities Act as
contemplated by Section 3.2 and such shares are to be distributed by or
through one or more underwriters, the Company and, if the managing underwriter
shall elect in writing to include the shares of the Shareholder Common Stock
sought to be included in such registration, the Holders who hold Shareholder
Common Stock to be distributed by such underwriters in accordance with Section
3.2 shall be parties to the underwriting agreement between the Company and
such underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made to
and for the benefit of them and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to their obligations. The Company may, at its option,
require that any or all of the representations and warranties by, and the
other agreements on the part of the Holders to and for the benefit of such
underwriters shall also be made to and for the benefit of the Company.
3.6 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders, the
underwriters, if any, and their respective counsel and accountants the
opportunity (but such Persons shall not have the obligation except as set
forth herein) to participate (in the case of a registration pursuant to
Section 3.2 hereof such participation shall be at their expense), in the
preparation of such registration statement, each prospectus included therein
or filed with the SEC, and, to the extent practicable, each amendment thereof
or supplement thereto, and will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities) and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of the Holders, and
the underwriters' respective outside counsel to conduct a reasonable
investigation within the meaning of the Securities Act.
3.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause the Shareholder Common Stock to be registered under the
Securities Act are subject to each of the following limitations, conditions
and qualifications (except in the case of the Automatic Registration
Statement):
(a) The Company shall be entitled to postpone for a reasonable period of time
the filing or effectiveness of, or suspend the rights of the Holders to make
sales pursuant to, any registration statement otherwise required to be
prepared, filed and made and kept effective by it hereunder (but the duration
of such postponement or suspension may not exceed the earlier to occur of (w)
30 days after the cessation of the circumstances described in clauses (i) and
(ii) below or (x) 120 days after the date of the determination of the Board of
Directors referred to below, and the duration of such postponement or
suspension shall be excluded from the calculation of the period specified in
clause (x) of Section 3.4(a)) if the Board of Directors of the Company
determines in good faith that (i) there is a material undisclosed development
in the business or affairs of the Company (including any pending or proposed
financing, recapitalization, acquisition or disposition), the disclosure of
which at such time would be adverse to the Company's interests or (ii) the
Company has filed a registration statement with the SEC, such registration
statement has not yet been declared effective, the Company is using its
reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay
the filing of a registration statement, it shall, as promptly as practicable,
notify the applicable Holders of such determination, and such applicable
Holders shall have the right (y) in the case of a postponement of the filing
or effectiveness of a registration statement to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (z) in the case of a suspension of the
right to make sales, to receive an extension of the registration period equal
to the number of days of the suspension.
(b) The Company's obligations shall be subject to the obligations of each
Holder, which each Holder hereby acknowledges, to furnish all information and
materials and to take any and all actions as may be required under applicable
federal and state securities laws and regulations to permit the Company to
comply with all applicable requirements of the SEC and state securities
regulators and to obtain any acceleration of the effective date of such
registration statement or maintain the effectiveness of currency thereof.
(c) The Company shall not be obligated to cause any special audit to be
undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
(d) If requested by the Company, each Holder agrees not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any Shareholder Common Stock (other than in accordance with
Sections 3.1 or 3.2) within 30 days before or 60 days after the effective date
of a registration statement filed pursuant to Sections 3.1 or 3.2.
3.8 Expenses. The Company will pay its own actual expenses (including legal
fees) incurred in connection with each demand and incidental registration of
Shareholder Common Stock pursuant to Sections 3.1 and 3.2 of this Agreement,
including, without limitation, any and all filing fees payable to the SEC,
fees with respect to filings required to be made with stock exchanges, Nasdaq
and the NASD, fees and expenses of compliance with state securities or blue
sky laws, printing expenses, fees and disbursements of counsel and accountants
of the Company, including costs associated with comfort letters, and fees and
expenses of other Persons retained by the Company, and, in the case of a
demand registration pursuant to Section 3.1 of this Agreement, all reasonable
costs, expenses and fees of one legal counsel for the Holders (which legal
counsel shall be chosen by the majority-in-interest of the Holders in their
discretion), but each Holder shall pay its own underwriters' expenses (such as
but not limited to discounts, commissions and fees of underwriters and
expenses included therein of selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the
securities being registered) and legal expenses (except as set forth above).
The Company shall pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), and the expense of securities law liability insurance and
rating agency fees, if any and the legal expenses of the Shareholder's counsel
in connection with the Automatic Registration Statement.
3.9 Indemnification.
(a) Indemnification by the Company. In connection with any registration
pursuant hereto in which Shareholder Common Stock are to be disposed of, the
Company shall indemnify and hold harmless, to the fullest extent permitted by
law, each Holder and, when applicable, its officers, directors, agents and
employees and each Person who controls (or is controlled by or under common
control with) each Holder (within the meaning of the Securities Act or the
Exchange Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
including, without limitation, any loss, claim, damage, liability or expense
resulting from the failure to keep a prospectus current as required hereunder,
except insofar as the same (i) are caused by or contained in any information
furnished in writing to the Company by or on behalf of such Holder expressly
for use therein or (ii) are caused by such Holder's failure to deliver a copy
of the current required prospectus after the Company has furnished such Holder
with a sufficient number of copies of such prospectus as requested hereunder
or (iii) arise in respect of any offers to sell or sales made during any
period when such Holder is required to discontinue sales under Section 3.4(e).
The Company shall also indemnify underwriters, selling brokers, dealer managers
and similar securities industry professionals (if any) participating in the
distribution of the Shareholder Common Stock, their officers and directors and
each person who controls such Persons (within the meaning of the Securities
Act and the Exchange Act) to the same extent (and subject to the same
exceptions) as provided above with respect to the indemnification of the
Holders and shall enter into an indemnification agreement with such Persons
containing such terms, if requested.
(b) Indemnification by the Holders. In connection with each registration
statement effected pursuant hereto in which Shareholder Common Stock is to be
disposed of, each Holder whose shares of Shareholder Common Stock are included
in such registration statement shall indemnify and hold harmless, to the
fullest extent permitted by law, the Company and its directors, officers,
agents and employees and each Person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) and the managing
underwriter, if any, and its directors, officers, agents and employees and
each person who controls such underwriter (within the meaning of the
Securities Act and the Exchange Act), in each case against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in such
registration statement or prospectus or preliminary prospectus or necessary to
make the statements therein not misleading, to the extent but only to the
extent, that such untrue statement or omission is contained in any information
furnished in writing by the Company expressly for inclusion in such
registration statement or prospectus. In no event shall the liability of any
Holder hereunder be greater in amount than the dollar amount of the proceeds
received or to be received by such Holder upon the sale of the securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder shall give prompt notice to the indemnifying party
of any claim with respect to which it shall seek indemnification and shall
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such Person
unless (i) the indemnifying party shall have agreed to pay such fees or
expenses, or (ii) the indemnifying party shall have failed to assume the
defense of such claim and to employ counsel reasonably satisfactory to such
Person or (iii) such assumption would constitute an actual conflict of
interest (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such claim on behalf of such Person). If such defense
is not assumed by the indemnifying party, the indemnifying party shall not be
subject to any liability for any settlement made without its consent (but such
consent shall not be unreasonably withheld). No indemnified party shall be
required to consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a written release in form and
substance reasonably satisfactory to such indemnified party from all liability
in respect of such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim shall not be
obligated to pay the fees and expenses of more than one firm of counsel (and,
if necessary, local counsel) for all parties indemnified by such indemnifying
party with respect to such claim, unless a conflict of interest as to the
subject matter exists between such indemnified party and another indemnified
party with respect to such claim, in which event the indemnifying party shall
be obligated to pay the fees and expenses of additional counsel for such
indemnified party.
(d) Contribution. If for any reason the indemnification provided for herein
is unavailable to an indemnified party or is insufficient to hold it harmless
as contemplated hereby, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such loss,
claims damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and
the indemnifying party, as well as any other relevant equitable
considerations, provided that in no event shall the liability of any Holder
for such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received or to be received by such Holder upon the sale
of securities giving rise to such indemnification and contribution obligation.
3.10 Participation in Underwritten Registrations. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to
sell its Shareholder Common Stock on the basis provided in and in compliance
with any underwriting arrangements approved by the persons entitled hereunder
to approve such arrangements and to comply with Regulation M under the
Exchange Act, and (b) completes and executes all questionnaires, appropriate
and limited powers-of-attorney, escrow agreements, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements; provided that all such documents shall be
consistent with the provisions hereof.
ARTICLE IV
MISCELLANEOUS
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common Stock.
The provisions of this Agreement shall apply, to the fullest extent set forth
herein with respect to Shareholder Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for, or in substitution of the Shareholder
Common Stock, by reason of any stock dividend, stock split, stock issuance,
reverse stock split, combination recapitalization, reclassification, merger,
consolidation or otherwise; provided, however, that such provisions shall
apply only to any class or classes of stock which have the right, without
limitation as to amount, either to all or a share of the balance of current
dividends and liquidating dividends after payment of dividends and
distributions on any shares entitled to preference so issued or issuable upon
the conversion, exchange or exercise, as the case may be, of securities of the
Company so issued.
4.2 Binding Effect. The provisions of this Agreement shall be binding upon
and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
4.3 Amendment; Waiver. This Agreement may be amended only by a written
instrument signed by the parties hereto. No waiver by either party hereto of
any of the provisions hereof shall be effective unless set forth in a writing
executed by the party so waiving.
4.4 Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (e.g., Federal
Express) and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
<TABLE>
<S> <C>
(a) if to the Company, addressed to:
The Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
Fax: (310) 481-2093
Attn: Secretary
(b) If to any Holder, to such address as may appear on the records of the
Company.
</TABLE>
4.5 Governing Law. This Agreement shall be governed by and construed,
interpreted and the rights of the parties determined in accordance with the
laws of the State of California without regard to choice of law principles
hereof.
4.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
4.7 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
4.8 Cumulative Remedies. All rights and remedies of the party hereto are
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
<TABLE>
<S> <C>
THE KUSHNER-LOCKE COMPANY
By: /S/ DONALD KUSHNER
Name:
Title:
SHAREHOLDER:
THE HARVEY ENTERTAINMENT
COMPANY
By: /S/ ANTHONY J. SCOTTI
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<CAPTIONS>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I DEFINITIONS 1
1.1 Defined Terms 1
ARTICLE II TRANSFERS OF SHARES 2
2.1 Shareholder Common Stock Unregistered 2
2.2 Rule 144 Reporting 3
ARTICLE III REGISTRATION RIGHTS 3
3.1 Automatic Registration; Demand Registration 3
3.2 Right to Include Securities 4
3.3 Priority in Incidental Registration 5
3.4 Registration Procedures 5
3.5 Incidental Underwritten Offerings 8
3.6 Preparation; Reasonable Investigation 8
3.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants 8
3.8 Expenses 9
3.9 Indemnification 10
3.10 Participation in Underwritten Registrations 12
ARTICLE IV MISCELLANEOUS 12
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common
Stock 12
4.2 Binding Effect 12
4.3 Amendment; Waiver 12
4.4 Notices 13
4.5 Governing Law 13
4.6 Counterparts 13
4.7 Invalidity 13
4.8 Cumulative Remedies 13
</TABLE>
<PAGE>
EXHIBIT 23.1
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
June 10, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 23.2
The Board of Directors
The Kushner-Locke Company:
We consent to incorporation by reference in the registration statement
on Form S-3 of The Kushner-Locke Company of our report dated
December 26, 1997, relating to the consolidated balance sheet of The
Kushner-Locke Company and subsidiaries as of September 30, 1997, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the two-year period ended September
30, 1997, and the related schedule for each of the years in the two-year
period ended September 30, 1997, which report appears in the September 30,
1998 annual report on Form 10-K/A of The Kushner-Locke Company.
We consent to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG LLP
Los Angeles, California
June 4, 1999
