SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 2000 Commission File No. 0-17295
THE KUSHNER-LOCKE COMPANY
(Exact name of registrant as specified in its charter)
California 95-4079057
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11601 Wilshire Blvd., 21st Floor, Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 481-2000
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
13-3/4% Convertible Subordinated Debentures, Series B due 2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
There were 14,271,908 shares of outstanding Common Stock of the
Registrant as of May 12, 2000.
Total number of pages: 65. Exhibit Index begins on page 22.
<PAGE>
THE KUSHNER-LOCKE COMPANY
Form 10-Q for the Quarter ended March 31, 2000
INDEX
Part I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Stockholders' Equity
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Not Applicable.
</TABLE>
Part II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1 through 3. Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(b) Reports on Form 8-K: None.
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1.
THE KUSHNER-LOCKE COMPANY
Condensed Consolidated Balance Sheets
March 31, September 30,
2000 1999
----------- -----------
Assets (unaudited)
Cash and cash equivalents $14,532,000 $31,612,000
Reserved cash 52,000 734,000
Restricted cash 4,079,000 4,088,000
Accounts receivable, net of allowance
for doubtful accounts 36,968,000 30,030,000
Due from related parties 3,637,000 2,611,000
Film and television program costs,
net of accumulated amortization 83,212,000 91,499,000
Investments in unconsolidated entities,
at equity 10,233,000 12,045,000
Other assets 19,678,000 12,496,000
----------- -----------
Total assets $172,391,000 $185,115,000
=========== ===========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $11,577,000 $11,104,000
Due to related party 85,000 233,000
Notes payable 87,356,000 82,925,000
Deferred revenue 4,542,000 3,628,000
Contractual obligations 8,398,000 11,039,000
Production advances 1,415,000 1,592,000
Convertible subordinated debentures,
net of deferred issuance costs 2,142,000 2,269,000
----------- -----------
Total liabilities 115,515,000 112,790,000
Minority interest 6,609,000 11,580,000
Stockholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; Issued and outstanding
13,844,408 shares at March 31, 2000 and
13,810,767 shares at September 30, 1999 71,484,000 70,379,000
Accumulated deficit (21,217,000) (9,634,000)
----------- -----------
Net stockholders' equity 50,267,000 60,745,000
----------- -----------
Total liabilities and stockholders' equity $172,391,000 $185,115,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE KUSHNER-LOCKE COMPANY
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTIONS>
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Film and television
program licensing $9,444,000 $6,811,000 $21,129,000 $18,436,000
Search and individual
reference services 7,452,000 3,397,000 13,555,000 5,640,000
---------- ---------- ---------- ----------
Total operating revenues 16,896,000 10,208,000 34,684,000 24,076,000
---------- ---------- ---------- ----------
Costs related to
operating revenues:
Film and television
program licensing (8,003,000) (4,966,000) (18,234,000) (15,745,000)
Search and individual
reference services (3,173,000) (1,476,000) (5,819,000) (2,360,000)
---------- ---------- ---------- ----------
Total costs related
to operating revenues (11,176,000) (6,442,000) (24,053,000) (18,105,000)
---------- ---------- ---------- ----------
Gross profit 5,720,000 3,766,000 10,631,000 5,971,000
Selling, general and
administrative expenses (12,673,000) (5,684,000) (24,057,000) (11,353,000)
Provision for doubtful
accounts and notes (521,000) (411,000) (939,000) (1,201,000)
---------- ---------- ---------- ----------
Loss from operations (7,474,000) (2,329,000) (14,365,000) (6,583,000)
Equity in net earnings of
unconsolidated entities 53,000 -- 71,000 118,000
Dividend income 101,000 -- 200,000 --
Interest income 248,000 39,000 618,000 103,000
Interest expense (2,159,000) (2,253,000) (3,974,000) (4,106,000)
---------- ---------- ---------- ----------
Loss before minority
interest and income
taxes (9,231,000) (4,543,000) (17,450,000) (10,468,000)
Minority interest in
subsidiary net losses 3,144,000 -- 5,908,000 --
---------- ---------- ---------- ----------
Loss before income taxes (6,087,000) (4,543,000) (11,542,000) (10,468,000)
Income tax expense (21,000) (32,000) (41,000) (82,000)
---------- ---------- ---------- ----------
Net loss $(6,108,000) $(4,575,000) $(11,583,000) $(10,550,000)
========== ========== ========== ==========
Basic net loss per share $(0.44) $(0.42) $(0.84) $(1.04)
====== ====== ====== ======
Diluted net loss per share $(0.44) $(0.42) $(0.84) $(1.04)
====== ====== ====== ======
Weighted average common
shares outstanding 13,844,000 10,932,000 13,831,000 10,149,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE KUSHNER-LOCKE COMPANY
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTIONS>
Six Months Ended March 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,583,000) $(10,550,000)
Adjustments to reconcile net loss to net
cash (used) by operating activities:
Minority interest in subsidiary net losses (5,908,000) --
Dividend income (200,000) --
Equity in net earnings of unconsolidated entities (71,000) (118,000)
Depreciation and amortization 812,000 490,000
Provision for doubtful accounts and notes 939,000 1,201,000
Compensatory options and warrants 233,000 --
Amortization of film and television program costs 17,423,000 16,568,000
Other 3,000 909,000
Changes in assets and liabilities:
Reserved and restricted cash 691,000 (44,000)
Accounts receivable, net (7,777,000) 448,000
Due from related parties (1,126,000) (766,000)
Increase in film and television program costs (11,636,000) (17,214,000)
Other assets (1,133,000) 323,000
Accounts payable and accrued liabilities 473,000 2,151,000
Due to related party (148,000) --
Deferred film license fees 914,000 (1,215,000)
Contractual obligations (2,641,000) (567,000)
Production advances (177,000) (485,000)
----------- -----------
Net cash (used) by operating activities (20,912,000) (8,869,000)
----------- -----------
Cash flows from investing activities:
Decrease in investments in unconsolidated entities 1,883,000 134,000
Increase in other assets (2,497,000) (96,000)
----------- -----------
Net cash provided (used) by investing activities (614,000) 38,000
----------- -----------
Cash flows from financing activities:
Borrowings under notes payable 16,969,000 17,134,000
Repayment of notes payable (12,538,000) (17,077,000)
Private placement of common stock -- 5,456,000
Exercise of stock options and warrants 15,000 2,671,000
Other -- (48,000)
----------- -----------
Net cash provided by financing activities 4,446,000 8,136,000
----------- -----------
Net decrease in cash and cash equivalents (17,080,000) (695,000)
Cash and cash equivalents at beginning of period 31,612,000 1,255,000
----------- -----------
Cash and cash equivalents at end of period $14,532,000 $ 560,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE KUSHNER-LOCKE COMPANY
Condensed Consolidated Statement of Stockholders' Equity
Six Months Ended March 31, 2000
(unaudited)
<TABLE>
<CAPTIONS>
Common Stock
----------------------
Number of Common Accumulated
shares Stock Deficit Net
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at September 30, 1999 13,810,767 $70,379,000 $(9,634,000) $60,745,000
Exercise of stock options 8,000 15,000 -- 15,000
Conversion of subordinated
debentures 25,641 146,000 -- 146,000
Compensatory option and
warrant grants -- 233,000 -- 233,000
Issuance of stock by
subsidiary -- 711,000 -- 711,000
Net loss -- -- (11,583,000) (11,583,000)
---------- ---------- ----------- ----------
Balance at March 31, 2000 13,844,408 $71,484,000 $(21,217,000) $50,267,000
========== ========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE KUSHNER-LOCKE COMPANY
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Organization and Business
The Kushner-Locke Company is a leading independent entertainment
company established in 1983, 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.
(2) Basis of Presentation
These unaudited consolidated financial statements and notes
thereto have been condensed and, therefore, do not contain
certain information included in the Company's annual consolidated
financial statements and notes thereto. The unaudited condensed
consolidated financial statements should be read in conjunction
with the Company's annual consolidated financial statements and
notes thereto.
The unaudited condensed consolidated financial statements reflect,
in the opinion of management, all adjustments, all of which are
of a normal recurring nature, necessary to present fairly the
financial position of the Company as of March 31, 2000, the
results of its operations for the three and six month periods
ended March 31, 2000 and 1999, and its cash flows for the six
month periods ended March 31, 2000 and 1999. Interim results are
not necessarily indicative of results to be expected for a full
fiscal year.
Restricted and Reserved Cash
At March 31, 2000, out of $18,663,000 of total cash the Company
had $4,079,000 in restricted cash principally related to deposits
held at a British bank pursuant to film sale/leaseback
transactions and a security deposit on rental space for a
subsidiary. In addition, at March 31, 2000, the Company had
$52,000 in cash collected by the Company and reserved for use
principally by Chase Manhattan Bank to be applied against the
Company's outstanding borrowings under the Company's credit
facility.
(3) Film and Television Program Costs
Film and television program costs consist of the following:
<TABLE>
<S> <C> <C>
March 31, September 30,
2000 1999
---------- ----------
In process or development $6,177,000 $20,472,000
Released, net of accumulated amortization 77,035,000 71,027,000
---------- ----------
$83,212,000 $91,499,000
========== ==========
</TABLE>
(4) Credit Agreement and Financing Arrangements
Credit arrangements and borrowings consist of the following:
<TABLE>
<S> <C> <C>
March 31, September 30,
2000 1999
---------- ----------
Note payable to bank, under a revolving
credit facility collateralized by
substantially all Company assets, interest
at LIBOR (6.54% at May 12, 2000) plus 3%,
outstanding principal balance due August 2000 $67,700,000 $66,455,000
Notes payable to banks and/or financial
institutions consisting of production loans
principally collateralized by film rights,
interest at rates from LIBOR (6.54% at May 12,
2000) plus 2% to Prime (9% at May 12, 2000)
plus 2%, and maturities at varying dates
through March 2001 17,642,000 16,272,000
7% term note payable to bank collateralized
by certain partnership interests, interest
payable quarterly, due February 2005 2,000,000 --
Series B Convertible Subordinated Debentures
due December 2000, bearing interest at 13.75%
per annum payable monthly, net 1,551,000 1,535,000
8% Convertible Subordinated Debentures due
December 2000, interest payable February 1
and August 1, net 591,000 734,000
Trade notes payable and debt of US SEARCH.com 14,000 198,000
---------- ----------
Total credit agreements and financing arrangements $89,498,000 $85,194,000
========== ==========
Total notes payable $87,356,000 $82,925,000
========== ==========
Total convertible subordinated debentures, net
of deferred issuance costs $2,142,000 $2,269,000
========== ==========
</TABLE>
The Company has a $75,000,000 syndicated secured revolving credit
facility. In April 2000 the Company was granted an extension of
the facility's current June 2000 maturity to August 2000 and the
syndicated group approved the issuance of up to $2,500,000 in
principal amount of the Company's notes as described below, in
exchange for a renewal of the Company's former pledge of the
7,608,080 shares of common stock of US SEARCH.com not pledged as
security for such notes. As of May 12, 2000 a maximum of
$68,000,000 could be borrowed based upon available collateral,
and $67,763,000 was then outstanding.
The Company continues to discuss with Chase extending the secured
revolving facility beyond the August 2000 maturity date.
Discussions are presently in an early stage and no agreement has
been reached. In February 2000 the Company obtained a $2,000,000
loan from Far East National Bank. Interest is payable quarterly
commencing March 2000. Proceeds were used to obtain limited
partnership units in World Wide Multimedia LLP, which
collateralize the loan. The Company has obtained additional
limited partnership units in World Wide Multimedia LLP in
exchange for certain film rights.
In April 2000, the Company received commitments from certain
individuals, including Messrs. Kushner and Locke, to purchase
notes from the Company in the minimum aggregate principal amount
of $1,500,000 in a private placement pursuant to Regulation D of
the Securities Exchange Act of 1934. An additional $1,000,000 in
notes may be sold to these or other persons under terms of the
private placement. The notes will become due six months from the
closing unless extended another six months at the Company's option.
The notes will be collateralized by a pledge of 2,000,000 shares
of the Company's US SEARCH.com shareholdings. The notes will bear
interest at the rate of 10% per annum payable at maturity. At
the scheduled six month maturity the holders will be entitled to
receive at their election either a cash payment equal to 15% of
the principal amount of the notes purchased or a warrant for a
number of shares of common stock equal to their loan principal
amount divided by $10. The warrant would be exerciseable at 110%
of the Company's common stock market value at the loan closing
date for a three-year term from the date of issuance. In addition,
if the Company extends the notes' maturity an additional six
months, at the extended maturity date the holders will be
entitled to receive at their election either a cash payment equal
to 15% of the principal amount of the notes purchased or an
additional warrant for a number of shares of common stock equal
to their loan principal amount divided by $10. That warrant
would also be exerciseable at 110% of the Company's common stock
market value at the loan closing date for a three-year term from
the date of issuance. The warrants will not be transferable.
Unissued shares of common stock underlying the warrants will be
reserved by the Company for possible future issuance, and will
be registered as soon as practicable at the Company's expense.
At the request of other investors, Messrs. Kushner and Locke have
agreed to participate as members of the investor group, but have
agreed to receive only the cash payments in addition to the 10%
interest.
Credit arrangements and borrowings are due as follows:
Fiscal Year Ending September 30, Amount
- ------------------------------- ----------
2000 $85,356,000
2001 2,142,000
2005 2,000,000
----------
Total $89,498,000
==========
(5) Commitments and Contingencies
The Company is party to certain legal proceedings and claims
arising out of the normal course of its business. Management of
the Company believes that the ultimate resolution of all of these
matters will not have a material adverse effect upon the Company's
results of operations, liquidity or financial condition.
In its normal course of business as an entertainment distributor,
the Company makes contractual down payments to acquire film and
television distribution rights. This initial advance for rights
ranges from 10% to 30% of the total purchase price. The balance
of the payment is generally due upon the complete delivery by
third party producers of acceptable materials, proof of rights
held and insurance policies that may be required for the Company
to begin exploitation of the product. As of March 31, 2000 the
Company had agreed to pay approximately $1,459,000 should those
third party producers complete delivery to the Company. These
amounts are estimated to be payable over the next twelve months.
US SEARCH.com has several cancelable and noncancelable agreements
with data suppliers and various Internet companies. The Company
also has cancelable and noncancelable broadcast and cable
advertising commitments. At March 31, 2000, the minimum
noncancelable payments required under these agreements are
approximately:
Year ending September 30, Amount
2000 $5,610,000
2001 $8,600,000
2002 $5,950,000
2003 $4,200,000
2004 $4,200,000
Thereafter $1,050,000
(6) Earnings (Loss) Per Share
Basic net earnings (loss) per share is computed using the
weighted average number of common shares outstanding during the
period. Diluted net earnings (loss) per share is computed using
the weighted average number of common shares and common
equivalent shares outstanding during the period. All common
equivalent shares were antidilutive for all periods presented.
Accordingly, basic loss per share equals diluted loss per share.
Approximately 1,318,000 options and 585,000 warrants to acquire
common stock were not included in the calculation of diluted
earnings per share for the three or six month periods ended
March 31, 2000, respectively, as the impact of including such
securities would be antidilutive. Approximately 982,000 options
and 1,446,000 warrants to acquire common stock were not included
in the calculation of diluted loss per share for the three or six
month periods ended March 31, 1999, respectively, as the impact of
including such securities would be antidilutive. Shares issuable
upon conversion of the Company's convertible subordinated
debentures were not included in the calculation of diluted earnings
per share for the three or six month periods ended March 31, 2000
or 1999 as the impact of including such securities would be
antidilutive.
(7) Segment Information
Summarized financial information regarding the Company's business
segments is shown in the table below (in thousands).
<TABLE>
<CAPTIONS>
Film and
Television Search Other (a) Consolidated
---------- ------ --------- ------------
<S> <C> <C> <C> <C>
For the three months ended
March 31, 2000:
Revenues $9,444 $7,452 -- $16,896
Gross profit 1,441 4,279 -- 5,720
Earnings (loss) before income taxes (2,526) (6,705) 3,144 (6,087)
For the three months ended
March 31, 1999:
Revenues 6,912 3,296 -- 10,208
Gross profit 1,521 2,245 -- 3,766
Earnings (loss) before income taxes (2,246) (6,595) 4,298 (4,543)
For the six months ended
March 31, 2000:
Revenues 21,129 13,555 -- 34,684
Gross profit 2,895 7,736 -- 10,631
Earnings (loss) before income taxes (4,150) (13,300) 5,908 (11,542)
For the six months ended
March 31, 1999:
Revenues 18,479 5,597 -- 24,076
Gross profit 2,257 3,714 -- 5,971
Earnings (loss) before income taxes (5,206) (8,872) 3,610 (10,468)
Total assets at:
March 31, 2000 151,466 20,925 -- 172,391
March 31, 1999 133,603 2,016 -- 135,619
</TABLE>
___________________
(a) Fiscal year 2000 amounts represent minority interests in
subsidiary net losses. Fiscal year 1999 amounts represent
intercompany eliminations.
(8) Supplemental Cash Flow Information
During the six month period ended March 31, 2000, $150,000 of
convertible subordinated debentures were converted into 25,641
shares of common stock. Also the Company contributed film and
television license rights valued at $2,500,000 in exchange for
partnership interests, which are included in other assets.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's revenues are derived primarily from the production
or the acquisition of distribution rights in films licensed for
release domestically; from the production and distribution of
television programming for the major domestic television networks,
basic and pay cable television and first-run syndicators; and from
the licensing of rights to films and television programs in
international markets. Major domestic television networks are
reducing the volume of independently produced television
programming. The Company generally finances all or a substantial
portion of the budgeted production costs of films and television
programming it produces through advances obtained from
distributors and borrowings secured by domestic and international
licenses. The Company typically retains rights to be exploited
in future periods or in additional markets or media. The Company
produces a limited number of higher-budget theatrical films to
the extent the Company is able to obtain an acceptable domestic
studio to release the film theatrically in the U.S.
In November 1997, the Company acquired control of US SEARCH.com,
Inc., a leading provider of fee-based people search and other
customized individual reference services. In February 1998
the Company established KL/Phoenix, an 80% owned venture, which
distributes film and television product in Latin America. In
November 1998 the Company established Gran Canal Latino, an 80%
owned venture which broadcasts Spanish and Portuguese language
programming in the Americas.
The Company's revenues and results of operations are significantly
affected by accounting policies required for the industries in
which it operates (see Note 1 of Notes to Consolidated Financial
Statements). Among the more significant policies are the following:
Film and Television Programs. The Company generally capitalizes
the costs it has incurred to produce a film or television program.
These costs include direct production expenditures, certain
exploitation costs, production overhead, and interest relating to
financing the project. Capitalized exploitation or distribution
costs include those costs that clearly benefit future periods
such as film prints and prerelease and early release advertising
that is expected to benefit the film or program in future markets.
These costs, as well as third party participations and talent
residuals, are amortized each period on an individual film or
television program basis in the ratio that the current period's
gross revenues for the program bear to management's estimate of
anticipated total remaining gross revenues for such film or
program from all sources. When management reduces its estimates
of the future gross revenues for a particular product, a
significant write-down and a corresponding decrease in the
Company's earnings could result. See "Results of Operations"
below. Film and television program costs, net of accumulated
amortization, decreased to $83,212,000 at March 31, 2000 from
$91,499,000 at September 30, 1999. Film and television program
costs in process or development at March 31, 2000 decreased to
$6,177,000 from $20,472,000 at September 30, 1999. See "Results
of Operations" below.
Gross profits for any period are a function, in part, of the
number of programs delivered in that period and the recognition
of costs in that period. Because initial licensing revenues and
related costs generally are recognized either when the program
has been delivered or is available for delivery, significant
fluctuations in revenues and net earnings may occur from period
to period. Thus, a change in the amount of entertainment product
available for delivery from period to period may materially
affect a given period's revenues and results of operations and
year-to-year results may not be comparable. The continuing shift
of the Company's film and television program mix during a fiscal
year may further affect the Company's quarter-to-quarter or
year-to-year results of operations as new products may be
amortized differently as determined by length of product life
cycle and the number of related revenue sources.
Distributor production advances or license fees received prior to
delivery or completion of a program are deferred. License fees
are generally recognized as revenue on the date the film or
program is delivered or available for delivery. Activities
conducted through joint ventures, wherein the Company reports
its equity in earnings (losses), can significantly affect
comparability of net earnings. See "Results of Operations"
below.
US Search.com. In November 1997, the Company acquired an 80%
interest of US SEARCH.com, a leading provider of fee-based people
search and other customized individual reference services. In
June 1999 the Company sold shares of US SEARCH.com and
US SEARCH.com completed an initial public offering, which resulted
in the Company's ownership position declining to 55.2% while
raising $54,000,000 of gross proceeds, $13,500,000 of which
benefited the Company. Since its acquisition, US SEARCH.com's
financial position and results of operations have been
consolidated in the Company's financial statements. During the
quarter ended March 31, 2000 US SEARCH.com issued shares to an
executive in connection with his exercise of stock options. This
resulted in an increase in US SEARCH.com's equity but diluted the
Company's ownership position to 53.6%. Since such acquisition,
the Company has consolidated $37,173,000 of revenues and
$22,674,000 of net losses attributable to US SEARCH.com.
US SEARCH.com has significantly higher gross profit margins than
the film and television program segment. Management's strategy is
to enhance US SEARCH.com's brand awareness and market position
through increased advertising and distribution and marketing
alliances. As an expected result of increases in revenues
trailing such increases in expenditures, the Company believes that
US SEARCH.com will continue to adversely affect the Company's
consolidated results of operations for the foreseeable future.
Gran Canal Latino. In November 1998, the Company launched Gran
Canal Latino ("GCL"), its first satellite channel. GCL broadcasts
24 hours a day, with a selection of films mostly from Spain.
GCL's satellite transmission reaches the United States and all of
Latin America including Mexico. Under a distribution agreement
with Enrique Cerezo, the Company is broadcasting selections from
approximately 1,500 Spanish language movie titles.
Forward Looking Statements
Except for the historical information contained herein, certain
of the matters discussed in this quarterly report are
"forward-looking statements" as defined in Section 21E of the
Securities Exchange Act of 1934, as amended, which involve certain
risks and uncertainties which could cause actual results to
differ materially from those discussed herein. Such risks and
uncertainties include, but are not limited to, liquidity and
financing requirements, variability of quarterly results and
prior losses, increased interest expense, dependence on a limited
number of projects, certain accounting policies including
amortization and adjustments of the film costs, dependence on key
personnel, production deficits, risks involved in the Internet,
television and theatrical film industries, competition, government
regulation, labor relations, limited operating history and
continued operating losses of US SEARCH.com and GCL, reliance of
US SEARCH.com on strategic relationships in Internet market,
uncertain acceptance and maintenance of the 1-800-USSearch brand,
risks associated with offering new services, risks associated with
growth and expansion, liability for online content, rapidly
changing technology, standards and consumer demands, online
commerce security risks, including credit card fraud, system
disruptions and capacity constraints for US SEARCH.com, risks
associated with domain names, year 2000 compliance, shares
available for future sale, absence of cash dividends, and the
volatility of public markets. See the relevant discussions
elsewhere herein, and in the Company's registration statement on
Form S-3 (Registration No. 333-80521), as filed with the
Securities and Exchange Commission on June 11, 1999, and the
Company's periodic reports and other documents filed with the
Securities and Exchange Commission for further discussions of
these and other risks and uncertainties applicable to the
Company and its business.
Results of Operations
Comparison of Three Months Ended March 31, 2000 and 1999
The Company's operating revenues for its second quarter ended
March 31, 2000 were $16,896,000, an increase of $6,668,000 or 66%
from $10,208,000 from the prior fiscal year's second quarter
ended March 31, 1999. The increase principally resulted from a
$4,156,000 or 126% increase in US SEARCH.com revenues from
$3,296,000 in the second quarter of 1999 to $7,452,000 in the
second quarter of 2000. Film and television revenues increased
$2,532,000 or 37% from the prior fiscal year's second quarter and
decreased $(2,241,000) (19%) from the quarter ended December 31,
1999 due to the timing of delivery or availability of film and
television productions.
The Company recognized $2,689,000 of revenues (16% of total
revenues) during the second quarter of fiscal 2000 primarily
from the delivery and/or availability of the film The St.
Francisville Experiment and continuing licenses of Picking Up
The Pieces starring Woody Allen and Sharon Stone. In addition,
$3,953,000 (23%) of fiscal 2000 revenues came from the delivery
and/or availability of the made-for-television film They Nest
starring Dean Stockwell, John Savage and Thomas Calabro. A total
of $7,452,000 (44%) of second quarter fiscal 2000 revenues were
generated by US SEARCH.com. In addition, $2,361,000 (14%) of
fiscal 2000 revenues came from continuing licenses of completed
product from the Company's library direct to video, to domestic
cable channel operators and international sub-distributors. The
remaining 3% of fiscal 2000 revenues were generated from various
sources, including materials sold to licensees. Gran Canal
Latino generated nominal revenues.
In various stages of production for the Company's fiscal 2000
distribution slate are Vlad The Impaler directed by Joe Chappelle,
and Harvard Man starring Sarah Michelle Geller and written and
directed by James Toback. In addition, the Company continues to
acquire international distribution rights to films for
distribution through Kushner Locke International, Inc.
Costs relating to operating revenues were $11,176,000 during the
second quarter of fiscal 2000 as compared to $6,442,000 during
the second quarter of fiscal 1999. As a percentage of operating
revenues, costs relating to operating revenues were 66% for the
second quarter of fiscal 2000 compared to 63% for the second
quarter of fiscal 1999. The $4,734,000 or 74% overall increase
resulted from a $2,122,000 or 202% increase in costs incurred by
US SEARCH.com, and a $2,612,000 or 49% increase in film and
television program costs, principally consisting of amortization.
The Company's film and television licensing gross profits
decreased $(80,000) (5%) as the fiscal 2000 release of one of
the Company's feature films is now expected to be less profitable
than the fiscal 1999 releases. US SEARCH.com's gross profits
increased $2,034,000 (91%) from March 31, 1999 quarter to the
March 31, 2000 quarter due primarily to the 126% revenue increase
in the comparable periods. US SEARCH.com's gross profit margin
decreased from 68% in the March 31, 1999 quarter to 57% in the
March 31, 2000 quarter due primarily to the introduction of a
broad array of products in late 1999, some of which were at
lower prices and profit margins, and due to higher labor costs
in anticipation of higher transaction levels.
Selling, general and administrative expenses increased $6,989,000
or 123% to $12,673,000 in the second quarter of fiscal 2000 from
$5,684,000 in the second quarter of fiscal 1999. The increase in
such expenses is principally due to a $6,923,000 or 165% increase
in US SEARCH.com advertising and administrative expenses, and by
a $66,000 increase in film and television selling general and
administrative expenses. US SEARCH.com is contractually committed
to spend at least $2,730,000 in the June 2000 quarter and $2,880,000
in the September 2000 quarter for advertising.
The provisions for doubtful accounts and notes increased $110,000
or 27% during fiscal 2000 due to a $20,000 or 11% increase in
such provisions for the film and television segment, and a $90,000
or 38% increase for US SEARCH.com consistent with increased
credit sales.
Interest expense for the second quarter ended March 31, 2000 was
$2,159,000, a $(94,000) or (4%) decrease as compared to
$2,253,000 for the second quarter ended March 31, 1999. The
decrease was due to lower average convertible subordinated
debenture borrowings in fiscal 2000. This factor was largely
offset by increased average borrowings under the Company's line
of credit, a $60,000 decrease in the capitalization of interest
costs in fiscal 2000, and by increases in the variable rates
charged on borrowings. The increased average borrowings under
separate production loans did not have a material effect upon
interest expense because interest is capitalized to film and
television program costs during production. Changes in variable
interest rates during 2000 are expected to increase expense in
subsequent quarters if debt remains near current levels. The
Company may also incur additional debt, which would result in
increased interest expense. Total indebtedness for borrowed
money increased 11% to $89,498,000 at March 31, 2000 from
$80,879,000 at March 31, 1999.
The Company's estimated effective income tax rate was 0.4% for
the second quarter ended March 31, 2000 compared to an estimated
effective income tax rate of 0.7% for the quarter ended March 31,
1999. Tax expense in first quarter of fiscal 2000 pertained to
estimated federal alternative minimum taxes and state income
taxes. The Company has Federal net operating loss carryforwards
which exceed expected taxable income for fiscal 2000.
The Company reported a net loss of $(6,108,000) or $(0.44) per
share, for the second quarter ended March 31, 2000 as compared a
net loss of $(4,575,000), or $(.42) per share, for the second
quarter ended March 31, 1999. Basic and diluted average common
shares outstanding for the compared first quarters were
13,844,000 in fiscal 2000 and 10,932,000 in fiscal 1999.
Comparison of Six Months Ended March 31, 2000 and 1999
The Company's operating revenues for the six month period ended
March 31, 2000 were $34,684,000, an increase of $10,608,000 or
44% from $24,076,000 from the prior fiscal year's six month
period ended March 31, 1999. The increase resulted from a
$7,958,000 or 142% increase in US SEARCH.com revenues from
$5,597,000 to $13,555,000. Film and television revenues
increased $2,650,000 or 14% from the prior fiscal year's period
due to the timing of delivery or availability of film and
television productions.
The Company recognized $11,092,000 of revenues (32% of total
revenues) during the six month period ended March 31, 2000
primarily from the delivery and/or availability of two films,
Picking Up The Pieces starring Woody Allen and Sharon Stone,
and The St. Francisville Experiment. In addition, $3,953,000
(11%) of fiscal 2000 revenues came from the delivery and/or
availability of the made-for-television film They Nest starring
Dean Stockwell, John Savage and Thomas Calabro. A total of
$13,555,000 (39%) of fiscal 2000 revenues were generated by
US SEARCH.com. In addition, $5,102,000 (15%) of fiscal 2000
revenues came from continuing licenses of completed product
from the Company's library to domestic cable channel operators
and international sub-distributors. The remaining 3% of fiscal
2000 revenues were generated from various sources, including the
licensing of existing television programming and materials sold
to licensees. Gran Canal Latino generated nominal revenues.
Costs relating to operating revenues were $24,053,000 during the
six month period ended March 31, 2000, a $5,948,000 or 33%
increase as compared to $18,105,000 during the six month period
ended March 31, 1999. As a percentage of operating revenues,
costs relating to operating revenues were 69% for the fiscal 2000
compared to 75% for fiscal 1999. The increase resulted from a
$3,936,000 or 209% increase in costs incurred by US SEARCH.com,
and a $2,012,000 or 12% increase in film and television program
amortization.
The Company's film and television licensing gross profits
increased $638,000 or 28% as the revenues increased. US
SEARCH.com operations resulted in a $4,022,000 or 108% increase
in gross profits. US SEARCH.com's gross profit margin decreased
from 66% during the six months ended March 31, 1999 quarter to 57%
during the six months ended March 31, 2000 due primarily to the
introduction of a broad array of products in late 1999, some of
which were at lower prices and profit margins, and due to higher
labor costs in anticipation of higher transaction levels.
Selling, general and administrative expenses increased
$12,704,000 or 112% to $24,057,000 during the six months ended
March 31, 2000 from $11,353,000 during the six months ended
March 31, 1999. The increase in such expenses is principally due
to a $12,323,000 or 143% increase in US SEARCH.com advertising
and administrative expenses, and by a $381,000 increase in film
and television segment selling, general and administrative expenses.
The provisions for doubtful accounts and notes decreased $(262,000)
or (22%) during the six months ended March 31, 2000 due to a
($387,000) or (57%) decrease in such provisions for the film and
television segment, partially offset by a $125,000 or 24% increase
for US SEARCH.com consistent with increased credit sales.
Interest expense for the six months ended March 31, 2000 was
$3,974,000, a $(132,000) or (3%) decrease as compared to
$4,106,000 for the six months ended March 31, 1999. The decrease
was due to lower average convertible subordinated debenture
borrowings in fiscal 2000. This factor was largely offset by
increased average borrowings under the Company's line of credit,
and by increases in the variable rates charged on borrowings.
The increased average borrowings under separate production loans
did not have a material effect upon interest expense because
interest is capitalized to film and television program costs
during production. Changes in variable interest rates during
2000 are expected to increase expense in subsequent quarters if
debt remains near current levels. The Company may also incur
additional debt, which would result in increased interest expense.
Total indebtedness for borrowed money increased 11% to
$89,518,000 at March 31, 2000 from $80,879,000 at March 31, 1999.
The Company's estimated effective income tax rate was 0.4% for
the six months ended March 31, 2000 compared to an estimated
effective income tax rate of 0.8% for the six months ended
March 31, 1999. Tax expense in fiscal 2000 pertained to
estimated federal alternative minimum taxes and state income
taxes. The Company has Federal net operating loss carryforwards
which exceed expected taxable income for fiscal 2000.
The Company reported a net loss of $(11,583,000) or $(0.84) per
share, for the six months ended March 31, 2000 as compared a net
loss of $(10,550,000), or $(1.04) per share, for the six months
ended March 31, 1999. Basic and diluted average common shares
outstanding for the compared six month periods were 13,831,000
in fiscal 2000 and 10,149,000 in fiscal 1999.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2000 decreased to
$18,663,000 (including $4,079,000 of restricted cash being
used principally as collateral for a film sale/leaseback
transaction and as a deposit by US SEARCH.com, and $52,000 of
reserved cash to be applied against the Company's outstanding
borrowings under its credit facility) from $36,434,000 (including
$4,088,000 of restricted cash being used as collateral for film
sale/leaseback transactions and as a deposit by US SEARCH.com,
and $734,000 of reserved cash to be applied against the Company's
outstanding borrowings under its credit facility) at September 30,
1999. Unrestricted and unreserved cash and cash equivalents
decreased $(17,080,000) since September 30, 1999.
The Company's film and television program operations, and
operations of US SEARCH.com are capital intensive. The June 1999
initial public offering of US SEARCH.com has financed that
subsidiary's capital needs since that date. While the Company
is not contractually obligated to finance US SEARCH.com, from
time to time the Company may consider doing so out of its capital
resources. The Company has funded its working capital
requirements through receipt of third party domestic and
international licensing payments as well as other operating
revenues, and proceeds from debt and equity financings, and has
relied upon its line of credit and transactional production loans
to provide bridge production financing prior to receipt of license
fees. The Company funds production and acquisition costs out of
its working capital, including the line of credit, and through
certain pre-sale of rights in international markets and the use
of related production loans. In addition, the expansion of the
Company's international distribution business, the establishment
of its feature film division and its Internet and direct marketing
subsidiary US SEARCH.com have significantly increased the
Company's working capital requirements. The amount available
under the credit facility as of May 12, 2000 was $237,000.
For the six months ended March 31, 2000 the Company experienced
consolidated net negative cash flows of $(20,912,000) from
operating activities, primarily resulting from the Company's
operating expenditures exceeding operating receipts, including
$(11,850,000) pertaining to its subsidiary US SEARCH.com.
Consolidated accounts receivable and amounts due from related
parties increased $8,903,000 from September 30, 1999 to March
31, 2000. Net consolidated unrestricted cash decreased by
$(17,080,000) to $14,532,000 on March 31, 2000. As the Company
continues production and distribution activities and increases its
debt service burdens, it will continue to experience net negative
cash flows from operating activities, pending receipt of licensing
revenues, other revenues and sales from its library. If US
SEARCH.com continues to increase marketing and administrative
expenditures, it will continue to experience net negative cash
flows from operating activities.
Credit Facility
In June 1996, the Company obtained a $40,000,000 syndicated
revolving credit facility with a group of banks led by The Chase
Manhattan Bank N.A. ("Chase"). A September 1997 amendment
increased the maximum amount of revolving credit to $60,000,000,
and a December 1998 amendment increased the maximum amount of
revolving credit to $75,000,000, however participating banks have
limited their credit to $68,000,000. The agreement provides for
borrowing by the Company on specified percentages of receivables
and a specified amount of the Company's appraised library value
for unsold or unlicensed rights. In addition, the Company may
from time to time allocate a production tranche in its line of
credit for the Company's productions. Subject to the availability
of borrowing base collateral, such tranche will allow the Company
to borrow production funding after a required Company equity
participation. Loans made pursuant to such agreement are
secured by substantially all of the Company's otherwise
unencumbered assets except for a portion of the Company's
US SEARCH.com shareholdings, and bear interest, at the Company's
option, either (i) at LIBOR (6.54% as of May 12, 2000) plus 3%
(for that portion of the borrowing base supported by accounts
or contracts receivable) or 4% (for that portion of the
borrowing base supported by unamortized library film costs or
for loans made under the production tranche) or (ii) at the
Alternate Base Rate, which is 2% plus the greater of (a)
Chase's Prime Rate (9% as of May 12, 2000), (b) Chase's Base
30-Day CD Rate (6.78% as of May 12, 2000) plus 1% or (c) the
Federal Funds Effective Rate (6.05% as of May 12, 2000) plus
1/2%). The Company pays an annual commitment fee of 0.5% of the
unused portion of the credit line. The amount outstanding under
the credit facility as of March 31, 2000 was $67,700,000 out of
a borrowing base availability of $68,000,000, and as of May 12,
2000 $67,763,000 was outstanding out of a borrowing base
availability of $68,000,000.
The credit agreement contains restrictive covenants to which the
Company must adhere. These covenants include limitations on
additional indebtedness, liens, investments, disposition of
assets, guarantees, deficit financing, capital expenditures,
affiliate transactions, the use of proceeds, and prohibit
payment of cash dividends and prepayment of subordinated debt.
In addition, the credit agreement requires the Company to
maintain a minimum liquidity level, limits overhead expense and
requires the Company to meet certain ratios. The credit
agreement also contains a provision permitting the bank to
declare an event of default if either of Messrs. Locke or
Kushner fails to be the Chief Executive Officer of the Company
or if any person or group acquires ownership or control of
capital stock of the Company having voting power greater than
the voting power at the time controlled by Messrs. Kushner and
Locke combined (other than any institutional investor able to
report its holdings on Schedule 13G which holds no more than 15%
of such voting power). Management believes the Company will
comply with the restrictive covenants of the Chase agreement
and accordingly the credit facility will be available through
August 2000, the current maturity date.
In April 2000 the Company was granted an extension of the
facility's June 2000 maturity to August 2000 and the syndicated
group approved the issuance of up to $2,500,000 in principal
amount of the Company's notes as described below in exchange for
a renewal of the Company's former pledge of 7,608,080 shares of
common stock of US SEARCH.com not pledged as security for such
notes. The Company is currently in discussions with Chase
regarding extending the secured revolving facility beyond the
August maturity date. Discussions are presently at an early
stage and no agreement has been reached, however Chase has
in the past expressed a willingness to extend the maturity
date beyond fiscal 2000. See Summary below.
Other Debt
The Company's other borrowings, totaling $21,798,000 as of March
31, 2000, consisted principally of production loans from
Comerica Bank - California ("Comerica") and Far East National
Bank ("Far East") to consolidated production entities,
convertible subordinated debentures, a five-year term loan, and
loans to the Company's 53.6%-owned subsidiary, US SEARCH.com.
The Kushner-Locke Company provided corporate guarantees for a
total of $ 3,750,000 of the production loans which are callable
in the event that the respective borrower does not repay the
loans by the respective maturity date. Deposits paid by the
distributing licensees prior to the delivery of the financed
pictures are held as restricted cash collateral by the Lenders
In April 1998, a $4,625,000 production loan was obtained by a
consolidated subsidiary from Comerica to cover the production
budget of Susan's Plan. The loan bears interest at Prime (9% as
of May 12, 2000) plus 1% or at LIBOR (6.54% as of May 12, 2000)
plus 2%. The loan is collateralized by the rights, title and
assets related to the film. The Company provided a corporate
guaranty in the amount of $600,000 in connection with this loan.
The loan matures on June 30, 2000.
In August 1998, a $2,900,000 production loan was obtained by a
consolidated subsidiary from Comerica to cover the production
budget of Ringmaster. In November 1998, the loan amount was
increased to $4,200,000. The loan bears interest at Prime (9%
as of May 12, 2000) plus 1% or at LIBOR (6.54% as of May 12,
2000) plus 2%. The loan is collateralized by the rights, title
and assets related to the film. The Company provided a
corporate guaranty in the amount of $800,000 in connection with
this loan. As extended, the loan matures on June 15, 2000.
In October 1998, a $1,400,000 production loan was obtained by a
consolidated subsidiary from Far East National Bank to cover the
production budget of Mambo Cafe. The loan bears interest at Prime
(9% as of May 12, 2000) plus 1.5%. The loan is collateralized by
the rights, title and assets related to the film. The Company
provided no corporate guaranty in connection with this loan. As
extended, the loan matures on August 31, 2000.
In October 1998, a $2,500,000 production loan was obtained by an
unconsolidated subsidiary from Far East National Bank to cover
the production budget of Freeway II: Confessions of a Trickbaby.
The loan bears interest at Prime (9% as of May 12, 2000) plus
1.5%. The loan is collateralized by the rights, title and assets
related to the film. The Company provided a corporate guaranty
in the amount of $400,000 in connection with this loan. As
extended, the loan matures on September 30, 2000.
In April 1999, a $12,000,000 production loan was obtained by a
consolidated subsidiary from Comerica to cover the production
budget of Picking Up The Pieces. The loan bears interest at
Prime (9% as of May 12, 2000) plus 1% or at LIBOR (6.54% as of
May 12, 2000) plus 2%. The loan is collateralized by the
rights, title and assets related to the film. The Company
provided a corporate guaranty in the amount of $700,000 in
connection with this loan. As extended, the loan matures on
September 15, 2000.
In June 1999, a $1,626,000 production loan was obtained by a
consolidated subsidiary from Far East National Bank to cover the
production budget of The Last Producer. The loan bears interest
at Prime (9% as of May 12, 2000) plus 1%. The loan is
collateralized by the rights, title and assets related to the
film. The Company provided no corporate guaranty in connection
with this loan. The loan matures on June 30, 2000.
In November 1999, a $1,500,000 production loan was obtained by
a consolidated subsidiary from Far East National Bank to cover
the production budget of They Nest. The loan bears interest at
Prime (9% as of May 12, 2000) plus 1.5%. The loan is
collateralized by the rights, title and assets related to the
film. The Company provided no corporate guaranty in connection
with this loan. The loan matures on November 30, 2000.
In February 2000 the Company obtained a $2,000,000 loan from Far
East National Bank. Interest at 7% per year is payable
quarterly commencing March 2000. The loan matures in February
2005. Proceeds were used to obtain limited partnership units
2006. in World Wide Multimedia LLP ("WWMM") which collateralize
2007. the loan. The Company has obtained additional limited
2008. partnership units in WWMM in exchange for certain film
2009. rights.
In March 2000, a $1,700,000 production loan was obtained by a
consolidated subsidiary from Far East National Bank to cover
the production budget of Vlad The Impaler. The loan bears
interest at Prime (9% as of May 12, 2000) plus 1%. The loan is
collateralized by the rights, title and assets related to the
film. The Company provided a corporate guaranty in the amount
of $1,250,000 in connection with this loan. The loan matures
on March 31, 2001.
Proceeds from Securities Offerings
As of March 31, 2000, $1,574,000 principal amount of Series B
Convertible Subordinated Debentures (convertible into common
stock at an adjusted rate of approximately $9.27 per share) and
$602,000 principal amount of 8% Convertible Subordinated
Debentures (convertible into common stock at an adjusted rate of
$5.85 per share) were outstanding. In December 1999, $150,000
principal amount of the 8% Debentures were converted into 25,641
shares of Common Stock.
In April 2000, the Company received commitments from certain
individuals, including Messrs. Kushner and Locke, to purchase
notes from the Company in the minimum aggregate principal amount
of $1,500,000 in a private placement pursuant to Regulation D of
the Securities Exchange Act of 1934. An additional $1,000,000
in notes may be sold to these or other persons under terms of
the private placement. The notes will become due six months from
the closing unless extended another six months at the Company's
option. The notes will be collateralized by a pledge of
2,000,000 shares of the Company's US SEARCH.com shareholdings.
The notes will bear interest at the rate of 10% per annum payable
at maturity. At the scheduled six month maturity the holders
will be entitled to receive at their election either a cash
payment equal to 15% of the principal amount of the notes
purchased or a warrant for a number of shares of common stock
equal to their loan principal amount divided by $10. The
warrant would be exerciseable at 110% of the Company's common
stock market value at the loan closing date for a three-year
term from the date of issuance. In addition, if the Company
extends the notes' maturity an additional six months, at the
extended maturity date the holders will be entitled to receive
at their election either a cash payment equal to 15% of the
principal amount of the notes purchased or an additional warrant
for a number of shares of common stock equal to their loan
principal amount divided by $10. That warrant would also be
exerciseable at 110% of the Company's common stock market value
at the loan closing date for a three-year term from the date of
issuance. The warrants will not be transferable. Unissued
shares of common stock underlying the warrants will be reserved
by the Company for possible future issuance, and will be
registered as soon as practicable at the Company's expense.
At the request of other investors, Messrs. Kushner and Locke
have agreed to participate as members of the investor group,
but have agreed to receive only the cash payments in addition
to the 10% interest.
Capital Expenditure Commitments
In its normal course of business as an entertainment distributor,
the Company makes contractual down payments to acquire film and
television distribution rights. This initial advance for rights
ranges from 10% to 30% of the total purchase price. The balance
of the payment is generally due upon the complete delivery by
third party producers of acceptable materials, proof of rights
held and insurance policies that may be required for the Company
to begin exploitation of the product. As of March 31, 2000 the
Company had agreed to pay approximately $1,459,000 should those
third party producers complete delivery to the Company. These
amounts are estimated to be payable over the next twelve months.
US SEARCH.com has several cancelable and noncancelable
agreements with various suppliers, Internet companies and
broadcasters and cable companies for advertising. At March 31,
2000, the minimum noncancelable payments required under these
agreements are approximately $5,610,000, $8,600,000, $5,950,000,
$4,200,000, $4,200,000 and $1,050,000 for 2000, 2001, 2002, 2003,
2004 and thereafter, respectively. The Company expects US
SEARCH.com to decrease its Internet and television advertising of
US SEARCH.com's services in its quest for profitability, however
it expects US SEARCH.com's net losses to continue. Such losses
would adversely impact the Company's consolidated results of
operations, however the Company is not obligated to fund any US
SEARCH.com operating cash flow deficiencies.
Summary
The Company faces short term liquidity issues. Management
believes that if the Company is able to extend the maturity of
or refinance its existing revolving credit facility and other
borrowings coming due in calendar year 2000, existing resources
and cash generated from operating activities, together with
amounts that would be generated from the possible sale of certain
non-core assets, will be sufficient to meet the Company's working
capital requirements for at least the next twelve months. The
Company is currently in negotiations to extend the secured
revolving facility beyond its current maturity date. In April
2000 the Company obtained an extension of the maturity of the
Chase facility to August 2000. The Company continues to discuss
with Chase extending the secured revolving facility beyond the
August 2000 maturity date. Discussions are presently in an
early stage and no agreement has been reached regarding any
extension beyond August 2000, however Chase in the past has
expressed a willingness to extend the maturity date beyond
fiscal 2000. There can be no assurance that any extension beyond
the August 2000 maturity date will be obtained or, if obtained,
will continue the credit facility on its present or other
commercially acceptable terms.
If not extended, all amounts outstanding under the revolving
credit facility at August 25, 2000 will become due and payable
on that date. The Company would then be required to obtain
additional capital from other sources to satisfy such obligations.
In addition to refinancing or extending the maturity of existing
debt, the Company also is considering other sources of financing
to meet its working capital and other cash requirements,
including separate equity or debt financing for US SEARCH.com and
other possible sources of financing. The Company from time to
time seeks additional financing through the issuance of new debt
or equity securities, additional bank financings, or other means
available to the Company to increase its working capital. The
Company may not obtain additional financing on terms
satisfactory to the Company or at all. The inability to obtain
such resources on commercially acceptable terms would have a
material adverse effect on the Company's cash flow, the scope
of strategic alternatives available to the Company, its
operations and its financial condition and liquidity.
The Company also from time to time evaluates strategic
alternatives for enhancing liquidity in its core and non-core
businesses. To pursue strategic alternatives, the Company
engaged Prudential Securities. In addition the Company continued
its advisory agreement with Allen & Company Incorporated.
Strategic alternatives include but are not limited to, the
pursuit of opportunities to enhance the exploitation of the
Company's library properties, its distribution system and its
satellite channel. This approach may include consolidations
with, sales to, acquisition of, or strategic partnering with
companies in our core businesses or in businesses complementary
to our core businesses. In addition to expanding production and
its distribution business, whether internally or by acquisition,
the Company also considers acquisition possibilities from time to
time, including film libraries and companies which may or may not
be ancillary to the Company's existing business, subject to the
availability of financing as necessary. The Company is currently
in discussions to obtain outside financing for US SEARCH.com. As
part of its financing discussions, the Company is considering
selling a part of its 9,608,080 shares of US SEARCH.com.
There can be no assurances that any of these transactions will
occur. Many of these alternatives might require a change in the
capital structure or equity or debt financing. There is no
assurance that financing sources will be available or, if
available, will be available on commercially acceptable terms.
International operations are a significant portion of total
operations. Therefore the Company is exposed to risks of
currency translation losses, cash collection and repatriation
risks and risks of adverse political, regulatory and economic
changes.
Management believes that the Company's film and television sales
volumes are not subject to significant fluctuations based upon
seasonality, however search services have generally declined
during holiday periods.
Year 2000 ("Y2K") Issues
The Company's subsidiary US SEARCH.com depends on the delivery
of information over the Internet, a medium which is susceptible
to the Year 2000 Issue. The "Year 2000 Issue" is typically the
result of limitations of software written using two digits
rather than four to define the applicable year. If software
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.
The Year 2000 Issue could result in a system failure or
miscalculations causing significant disruption of US
SEARCH.com's operations, including, among other things,
interruptions in Internet traffic, accessibility of its Web
site, delivery of its service, transaction processing or
searching, telephone call center operations and other features
of its services. US SEARCH.com depends on information contained
primarily in electronic format in databases and computer systems
maintained by third parties, including governmental agencies.
The disruption of third-party systems or US SEARCH.com systems
interacting with these third- party systems could prevent US
SEARCH.com from receiving orders or delivering search results
in a timely manner. In addition, US SEARCH.com relies on the
integration of many systems in aggregating search data from
multiple sources. The failure of any of those systems as a
result of Year 2000 compliance issues could prevent US
SEARCH.com from delivering its products and services. Failure
of its systems or third-party systems providing information
used in its services could materially adversely affect its
business, financial condition and results of operations.
Neither the Company or US SEARCH.com have experienced material
interruption of operations or any other complication as a
result of the Year 2000 issue.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On March 23, 2000 the shareholders of the Company voted in the
annual meeting to elect five directors and to amend the Company's
1988 Stock Incentive Plan to increase the number of shares of
Common Stock reserved for issuance from 1,820,000 to 2,500,000.
The results of the voting were as follows:
Election of directors:
FOR AGAINST ABSTAIN
Peter Locke 11,574,186 1,084,618 25,169
Donald Kushner 11,582,503 1,076,030 25,440
Irwin Friedman 11,572,571 1,082,722 28,680
Stuart Hersch 11,668,100 985,579 30,294
John Lannan 11,672,061 983,699 28,213
Ratify the appointment of PricewaterhouseCoopers LLP to serve as
the company's independent accountants for the year ending
September 30, 2000:
FOR AGAINST ABSTAIN
12,615,190 32,891 35,892
Amend the Company's 1988 Stock Incentive Plan to increase the
number of shares of Common Stock reserved for issuance from
1,820,000 to 2,500,000:
FOR AGAINST ABSTAIN
10,125,588 2,509,053 49,332
The Company is unaware of any withheld votes or broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Exhibits filed as part of this report are
listed on the "Index to Exhibits" which follows the
signature pages hereto.
(b) Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C>
THE KUSHNER-LOCKE COMPANY
(Registrant)
Dated: May 12, 2000 /s/ PETER LOCKE
___________________________
Peter Locke
Co-Chairman of the Board,
Co-Chief Executive Officer
Dated: May 12, 2000 /s/ DONALD KUSHNER
___________________________
Donald Kushner
Co-Chairman of the Board,
Co-Chief Executive Officer
and Secretary
Dated: May 12, 2000 /s/ BRUCE ST.J LILLISTON
____________________________
Bruce St.J Lilliston
President and Chief Operating Officer
Dated: May 12, 2000 /s/ ROBERT SWAN
____________________________
Robert Swan
Senior Vice President and Chief Financial Officer
</TABLE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
4.8 Note Purchase and Pledge Agreement dated as of April
20, 2000 by and between The Kushner-Locke Company,
the Purchasers and U. S. Trust Company, National
Association
10.65 Amendment No. 8 dated as of May 14, 1999 to the Credit
Agreement.
10.66 Consent to the World Wide Investment dated as of January 31,
2000.
10.67 Amendment No. 9 dated as of April 2000 to the Credit
Agreement.
EX-27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 4.8
NOTE PURCHASE AND PLEDGE AGREEMENT
THIS NOTE PURCHASE AND PLEDGE AGREEMENT (this
"Agreement") is entered into as of April 20, 2000, by and among
THE KUSHNER-LOCKE COMPANY, a California corporation (the
"Company"), each of those persons and entities, severally and not
jointly, whose names are set forth on the Schedule of Purchasers
attached hereto as Schedule A (which persons and entities are
hereinafter collectively referred to as "Purchasers" and each
individually as a "Purchaser"), and U.S. TRUST COMPANY, NATIONAL
ASSOCIATION, a national banking association ("Collateral Agent").
R E C I T A L S
WHEREAS, the Company has authorized the (i) sale and issuance of
up to a maximum of $2,500,000 in aggregate principal amount of its
Notes (the "Notes") and (ii) pledge of the Collateral (as defined
hereinafter) to secure the timely and full repayment of the
indebtedness evidenced by the Notes;
WHEREAS, Purchasers desire to purchase the Notes on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Notes to
Purchasers on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants and agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following definitions:
"Additional Closing Date(s)" has the meaning specified in Section
3.2 of this Agreement.
"Additional Closings" has the meaning specified in Section 3.2 of
this Agreement.
"Additional Securities" has the meaning specified in Section 5.4(b)
of this Agreement.
"Agreement" means this Agreement dated as of April 20, 2000 by and
among the Company, the Purchasers and Collateral Agent.
"Chase" has the meaning specified in Section 2.6 of this Agreement.
"Closing Date" has the meaning specified in Section 3.2 of this
Agreement.
"Collateral Agent" means U.S. Trust Company, National Association,
a national banking association.
"Company" means The Kushner-Locke Company, a California corporation.
"Default Notices" has the meaning specified in Section 10.3 of
this Agreement.
"Event of Default" has the meaning specified in Section 9 of this
Agreement.
"Existing Credit Agreement" has the meaning specified in Section
2.6 of this Agreement.
"First Closing" has the meaning specified in Section 3.1 of this
Agreement.
"First Closing Date" has the meaning specified in Section 3.1 of
this Agreement.
"Lenders" has the meaning specified in Section 2.6 of this
Agreement.
"Lien" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property,
whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected,
and whether such interest shall be contingent upon the occurrence
of some future event or events or the existence of some future
circumstance or circumstances, including the lien or security
interest arising from any mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, security
agreement, adverse claim or charge, conditional sale or trust
receipt, or from a lease, consignment or bailment for security
purposes.
"Note(s)" has the meaning specified in Recitals above.
"Notice of Cure" has the meaning specified in Section 10.3 of
this Agreement.
"Obligations" has the meaning specified in Section 5.1 of this
Agreement.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general
partnerships, limited liability partnerships, joint ventures,
trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
"Pledged Shares" has the meaning specified in Section 5.2 of this
Agreement.
"Purchasers" means those Persons listed in Schedule A attached
hereto.
"Required Purchasers" means, at any time, Purchasers holding Notes
with an aggregate initial principal amount of at least $500,000.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means all debt or obligations of any kind or nature
of the Company under the Existing Credit Agreement and all
documents executed in connection therewith, together with any
amendments (including to increase the principal amount thereof),
supplements, replacements or refinancings (in whole or in part
and whether or not in a larger or smaller principal amount)
thereof.
"US Search" means US Search.com, a Delaware corporation and
affiliate of the Company.
2. AGREEMENT TO SELL AND PURCHASE;
GENERAL PROVISIONS.
2.1 Authorization of Notes. On or prior to the
First Closing (as defined in Section 3 below), the Company shall
have authorized (a) the sale and issuance to Purchasers of the
Notes. Each Note shall be in minimum increments of One Hundred
Thousand Dollars ($100,000) and substantially in the form attached
hereto as Exhibit A. As used in this Agreement, the term "Notes"
shall include each Note issued pursuant to this Agreement,
together with all Notes issued in exchange therefor or replacement
thereof.
2.2 Purchase and Sale of Notes. Subject to the
terms and conditions hereof, in reliance upon the
representations of each Purchaser set forth in Section 7 of this
Agreement, at the Closing (as hereinafter defined), the Company
hereby agrees to execute, sell and deliver to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase
from the Company, severally and not jointly, a Note in the
aggregate principal amount set forth opposite such Purchaser's
name on Schedule A, against receipt of funds by wire transfer to
an account or accounts designated by the Company prior to the
Closing in the amount set forth opposite such Purchaser's name
on Schedule A in payment of the full purchase price for the Notes.
2.3 Use of Proceeds. The proceeds from the Notes may be used by
the Company for any general corporate purposes.
2.4 Interest Rate and Payment Terms. Interest shall accrue on
the Notes, and payments of principal and interest on the Notes
shall be made, pursuant to the terms and subject to the conditions
set forth in each Note. Notwithstanding any provisions of this
Agreement or the Notes, in no event shall the amount of interest
paid or agreed to be paid by the Company exceed an amount computed
at the highest rate of interest permissible under applicable law.
2.5 Pro Rata Payments. All payments by the Company of principal
and interest on the Notes, and all decisions by the Company with
respect to the extension the maturity dates of the Notes to the
Extended Maturity Date (as defined in each Note), shall be made
pro rata based on the relative outstanding principal balance of
the Notes.
2.6 Subordination.
(a) Generally. The Obligations (as defined below) shall be
subordinated to the Senior Debt, including that certain loan made
to the Company by those lenders (collectively, the "Lenders")
party to that certain Credit Agreement dated as of June 19, 1996
(as amended or otherwise modified from time to time, the "Existing
Credit Agreement") by and among the Company, Chase Manhattan Bank,
N.A., in its capacity as agent under the Existing Credit Agreement
(in such capacity, "Chase"), and the Lenders. Furthermore, Chase,
as agent for the Lenders, shall have a security interest and lien
on the Pledged Shares subordinate to the security interest and
lien on the Pledged Shares granted to the Purchasers hereunder.
(b) Allowable Payments and Actions. Prior to the
occurrence of any proceeding or event referred to in subsection
(c) or (d) of this Section 2.6, and unless such proceeding or
event shall be continuing or uncured, the Purchasers may receive
payment of principal and interest in connection with the Notes as
such payments become due in accordance with the terms thereof.
(c) Default under Senior Debt. As long as any payment
Obligations remain outstanding hereunder or on the Notes,
following (i) the receipt by any Purchaser or holder of any Note
of a notice of a default in the payment of principal, interest
or other sums payable on any installment of Senior Debt, or (ii)
receipt by any Purchaser or holder of any Note of notice of any
other default or the occurrence of any condition or event of
default which with the giving of notice or passage of time or
both would constitute a default on Senior Debt, and until receipt
by such Purchaser or holder of rescission of any such notice or
any such payment, such Purchaser or holder, by accepting any Note
agrees that, except as set forth in subsection (e) below, it will
not (y) take any action or initiate any proceedings, judicial or
otherwise, to enforce its rights or remedies with respect to any
Obligations under this Agreement or the Notes, including,
without limitation, any action to obtain any judgement or
prejudgment remedy against the Company or (z) receive any payment
of principal, interest or other sums payable under this Agreement
or the Notes.
(d) Dissolution, Liquidation or Reorganization of the
Company. In the event of any insolvency, bankruptcy or
receivership case or proceeding, or any dissolution, winding up,
liquidation, reorganization or other similar proceeding, relative
to the Company, its property or its operations (whether voluntary
or involuntary and whether in bankruptcy, insolvency or
receivership proceedings or otherwise) or upon an assignment for
the benefit of creditors, or any other marshalling of the assets
of the Company, then, except as set forth in subsection (e) below,
all Senior Debt shall first be paid in full in cash or cash
equivalents, before the Purchasers shall be entitled to receive
or retain any payment or distribution of assets with respect to
this Agreement or the Notes.
(e) Rights to Pledged Shares Unaffected. Notwithstanding
the subordination provisions of this Section 2.6, in no event
shall Purchaser's rights with respect to the Pledged Shares be
subordinated to the Senior Debt; and Purchasers shall be entitled,
pursuant to the terms set forth in this Agreement and subject
to applicable law, to declare the occurrence or continuation
of an Event of Default, accelerate the Obligations and exercise
all rights and remedies relating to the Pledged Shares without
regard to the provisions of subsections (a) through (d) of
this Section 2.6.
3. CLOSING, SEPARATE OBLIGATIONS.
3.1 First Closing. The first closing of the purchase and sale
of the Notes under this Agreement (the "First Closing") shall
take place promptly upon the satisfaction of the conditions set
forth in Section 4 hereof (the "First Closing Date").
3.2 Additional Closings. In addition to the First Closing,
the Company may schedule additional closings ("Additional
Closings") of the purchase and sale of the Notes, after the
First Closing Date, on such date or dates as the Company may
determine, but not later than ninety (90) days after the date
of the First Closing (which time(s) are designated as "Additional
Closing Date(s)"). At the Additional Closings, the Company
may sell to a limited number of investors (which may include one
or more Purchasers), who shall become parties to this Agreement,
any of the Notes reserved for issuance pursuant to the terms
hereof, which were not purchased at the First Closing. Each such
sale and issuance of Notes shall be in accordance with the terms
and conditions of this Agreement, without the requirement for any
waiver, consent or approval of Purchasers who participated in the
First Closing. Each additional purchaser of Notes at an
Additional Closing pursuant to this Agreement shall be a
"Purchaser" for all purposes of this Agreement. The Company and
Purchasers agree that the Notes to be issued in any Additional
Closing shall be sold pursuant to, and subject to the provisions
of, this Agreement (and the agreements attached as Exhibits
hereto). The First Closing, and any Additional Closings shall
be referred to collectively as the Closing, and the First
Closing Date, and any Additional Closing Date shall be referred
to collectively as the "Closing Date".
3.3 Separate Obligations. The sale of the Notes to each
Purchaser under this Agreement is a separate sale, and no
Purchaser shall have any liability with respect to any other
Purchaser pursuant to this Agreement.
4. CONDITIONS TO CLOSING.
4.1 Conditions to Purchasers' Obligations at the
Closing. Purchasers' obligations to purchase the Notes
at the Closing are subject to the satisfaction, at or prior to
the Closing Date, of the following conditions:
(a) Representations and Warranties True; Performance of
Obligations. The representations and warranties made by
the Company in Section 6 hereof shall be true and correct in
all material respects as of the Closing Date with the same force
and effect as if they had been made as of the Closing Date, and
the Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to
the Closing.
(b) Consents, Permits, and Waivers. The
Company shall have obtained any and all consents, permits and
waivers, including, without limitation, from Chase, necessary
or appropriate for consummation of the transactions
contemplated by the Agreement (except for such as may be properly
obtained subsequent to the Closing).
(c) Corporate Documents. The Company
shall have delivered to Purchasers or their counsel, copies of
all corporate documents of the Company as Purchasers shall
reasonably request.
(d) Delivery of Pledged Shares to Collateral
Agent. The Company shall have delivered all certificates or
instruments representing or evidencing the Pledged Shares,
together with stock certificates duly endorsed in blank, to
Collateral Agent.
(e) Compliance Certificate. The Company
shall have delivered to Purchasers a Compliance Certificate,
executed by the President of the Company, dated the First Closing
Date, to the effect that the conditions specified in subsections
(a), (b), and (d) of this Section 4.1 have been satisfied.
(f) Legal Opinion. The Purchasers shall have
received a favorable (subject to reasonable limitations) opinion
of counsel to the Company with respect to the matters set forth
in Sections 6.1 and 6.2 hereof.
4.2 Conditions to Obligations of the Company. The
Company's obligation to issue and sell the Notes at each
Closing is subject to the satisfaction, on or prior to such
Closing, of the following conditions:
(a) First Closing; Minimum Commitment. The aggregate
principal amount of the Notes which those Purchasers acquiring
Notes have committed to purchase shall be at least $1,500,000
on or before the First Closing. Notwithstanding the foregoing,
no minimum principal commitment amount in excess of $100,000 shall
be required for any subsequent Closings.
(b) Representations and Warranties True. The representations
and warranties in Section 7 made by those Purchasers acquiring
Notes hereof shall be true and correct in all material respects
at the date of the Closing, with the same force and effect as
if they had been made on and as of said date.
(c) Performance of Obligations. Such Purchasers shall have
performed and complied with all agreements and conditions herein
required to be performed or complied with by such Purchasers on
or before the Closing.
(d) Consents, Permits, and Waivers. The Company and each
Purchaser shall have obtained any and all consents, permits
and waivers necessary or appropriate to be obtained by such
Person for consummation of the transactions contemplated by
the Agreement (except for such as may be properly obtained
subsequent to the Closing).
5. PLEDGE.
5.1 Grant of Security Interest. As security for the
full and timely payment of all of the principal evidenced by
the Notes, the interest thereon and all other obligations of the
Company hereunder (collectively, the "Obligations"), the
Company hereby grants a continuing security interest in and
lien upon, and pledges and assigns to the Purchasers
for security purposes, the "Collateral."
5.2 Definition of Collateral. The term "Collateral"
shall mean (i) all of the Company's right title and interest
in and to 2,000,000 shares of stock (the "Pledged Shares")
of US Search.com, a Delaware corporation and affiliate of the
Company ("US Search"), and (ii) the proceeds and products
thereof.
5.3 Delivery of Collateral; Collateral Agent. The
Company shall deliver all certificates or instruments
representing or evidencing the Pledged Shares, together with
stock assignments duly endorsed in blank to Collateral Agent.
Collateral Agent shall hold the Pledged Shares as security for
the Obligations and for the benefit of the Purchasers pursuant
to the terms and conditions of this Agreement and shall not
encumber, sell, release or otherwise dispose of the Pledged
Shares except in accordance with provisions of this Agreement.
5.4 Transfer and Other Liens; Additional Pledged
Shares.
(a) Adjustments. In the event that, during the
term of this Agreement, any share dividend, reclassification,
readjustment or other change is declared or made in the capital
structure of the US Search, all new, substituted and additional
shares or other securities issued by reason of any such change
in respect of any shares of stock of US Search which are then
pledged as Collateral hereunder shall be delivered to and held
by the Collateral Agent in the same manner as the Pledged Shares.
(b) Additional Securities. In the event that, during the
term of this Agreement, any subscription rights, warrants or
any other rights or options shall be issued in respect of the
shares of stock of US Search which are then pledged as
Collateral hereunder, then any securities of US Search issued
upon exercise of any such subscription rights, warrants
or options (collectively, "Additional Securities") shall be the
sole property of the Company, but be immediately delivered to
the Collateral Agent and constitute additional Collateral to be
held under the terms hereof in the same manner as the Pledged
Shares.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on a Schedule of Exceptions delivered by
the Company to the Purchasers at the Closing (as attached as
Schedule B hereto), the Company hereby represents and warrants to
each Purchaser as of the date of the Closing Date:
6.1 Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California.
The Company has all requisite corporate power and authority to
own and operate its properties and assets, to execute and
deliver this Agreement, to issue and sell the Notes, to carry
out the provisions of this Agreement and to carry on its
business as presently conducted and as presently proposed to
be conducted.
6.2 Authorization; Binding Obligations. All corporate action
on the part of the Company, its officers, directors and
shareholders necessary for the authorization of this Agreement
and the performance of all obligations of the Company hereunder
at the Closing and the authorization, sale, issuance and delivery
of the Notes pursuant hereto has been taken or will be taken
prior to the First Closing. The Agreement and the Notes, when
executed and delivered, will be valid and binding obligations
of the Company enforceable against the Company in accordance
with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and (b)
general principles of equity that restrict the availability of
equitable remedies.
6.3 Title to Properties and Assets; Liens, Etc. The Company
is the legal, record and beneficial owner of the Collateral
free and clear of any Lien except for a negative pledge agreement
in favor of Chase pursuant to the Existing Credit Agreement.
7.REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser hereby severally represents and warrants to the
Company as follows (such representations and warranties do not
lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
7.1 Requisite Power and Authority. Purchaser has all
necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement and to carry out
their provisions. All action on Purchaser's part required for
the lawful execution and delivery of this Agreement have been
or will be effectively taken prior to the Closing. Upon its
execution and delivery, this Agreement will be valid and binding
obligation of Purchaser, enforceable against Purchaser in
accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors'
rights and (b) general principles of equity that restrict the
availability of equitable remedies.
7.2 Investment Representations. Purchaser understands that
the Notes have not been registered under the Securities Act.
Purchaser also understands that the Notes are being offered and
sold pursuant to an exemption from registration contained in
the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and
warrants as follows:
(a) Economic Risk; Own Account; Accredited Investor.
Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in
companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company
and has the capacity to protect its own interests. Purchaser
must bear the economic risk of this investment indefinitely
unless the Notes are registered pursuant to the Securities Act,
or an exemption from registration is available. Purchaser
understands that the Company has no present intention of
registering the Notes. Purchaser also understands that
there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer
all or any portion of the Notes under the circumstances, in the
amounts or at the times Purchaser might propose. Purchaser is
acquiring the Notes for Purchaser's own account for investment
only, and not with a view towards their distribution. Purchaser
represents that by reason of its, or of its management's,
business or financial experience, Purchaser has the capacity to
protect its own interests in connection with the transactions
contemplated in this Agreement. Purchaser represents that it is
an accredited investor within the meaning of Regulation D under
the Securities Act.
(b) Company Information. Purchaser has received such
information concerning the Company as desired and has had an
opportunity to discuss the Company's business, management and
financial affairs with directors, officers and management of the
Company and has had access to, and the opportunity to review, the
Company's operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the
Company and its management regarding the terms and conditions
of this investment.
(c) Rule 144. Purchaser acknowledges and agrees that the
Notes must be held until due unless they are subsequently
registered under the Securities Act or an exemption from such
registration is available. Purchaser has been advised or is
aware of the provisions of Rule 144 promulgated under the
Securities Act as in effect from time to time, which
permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions,
including, among other things, the availability of certain
current public information about the Company, the resale
occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month
period not exceeding specified limitations.
(d) Residence. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the
address of the Purchaser set forth on Schedule A; if the
Purchaser is a partnership, corporation, limited liability
company or other entity, then the office or offices of the
Purchaser in which its investment decision was made is
located at the address or addresses of the Purchaser set
forth on Schedule A.
8. COVENANTS.
(a) If Purchaser elects to receive warrants of the Company
pursuant to the Note, the Company covenants and agrees to,
at its expense, file as soon as practicable and use its best
efforts to cause to become effective, a registration statement
pursuant to the Securities Act to register the common shares
issuable upon conversion of the warrant and to maintain such
registration in effect for the term of the warrant or until the
shares issuable thereto may be sold pursuant to an exemption
from registration.
(b) Upon the occurrence of an Event of Default, if required
by the Collateral Agent in writing, the Company shall refrain
for a period of up to six (6) months from selling any shares of
US Search.
9. DEFAULT. Any one or more of the following events shall
constitute an event of default ("Event of Default") under this
Agreement:
(a) The Company shall fail to pay when due and payable, or when
declared due and payable, the principal or interest under the
Notes and such failure shall continue for more than five (5)
days;
(b) The Company shall fail to perform or observe any of the
other provisions contained in this Agreement or in the Notes held
by the Purchasers and such failure shall continue for more than
fifteen (15) days after the notice thereof to the Company; or
(c) The Company shall (i) be adjudicated bankrupt or insolvent,
or admit in writing its inability to pay its debts as they mature,
or makes an assignment for the benefit of creditors, or the
Company shall apply for or consent to the appointment of a
receiver, trustee, or similar officer for it; or such receivers,
trustee or similar officer shall be appointed without the
application or consent of the Company and such appointment shall
continue undischarged for a period of sixty (60) days, or (ii)
institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation
or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Company and
shall remain undismissed for a period of sixty (60) days; or
any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a
substantial part of the property (including, without
limitation, the Pledged Shares) of the Company and such
judgment, writ or similar process shall not be released,
vacated or fully bonded within ten (10) days after its issue
or levy.
10. REMEDIES.
10.1 Acceleration. In the case of an Event of Default, the
Purchasers may, upon the election of the Required Purchasers,
accelerate payment of the Notes in accordance with their
respective terms.
10.2 Sale of Collateral. In the case of the occurrence and
continuance of an Event of Default under Section 9.1(a) or
Section 9.1(b) above, Required Purchasers shall have the right
to request that the Collateral Agent sell any or all of the
Pledged Shares. Notwithstanding the foregoing, if required by
applicable law, the number of Pledged Shares sold by the
Collateral Agent during any rolling three-month period on
behalf of the Purchasers may not exceed the average weekly
trading volume of US Search common stock during the four (4)
weeks preceding such sale. Any sale of the Collateral by the
Collateral Agent shall be conducted in a commercially
reasonable manner and in accordance with the California
Uniform Commercial Code. All expenses of, or incident to, the
enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition
of the Collateral.
10.3 Release of Pledged Shares by Collateral Agent. If the
Collateral Agent shall receive notices, substantially in the
form of Exhibit B (collectively, the "Default Notices")
attached hereto, from the Required Purchasers stating that an
Event of Default has occurred and that such default is
continuing, the Collateral Agent shall forward copies of such
notices to the Company within two (2) business days after the
Collateral Agent's receipt thereof. Thereafter, if the
Collateral Agent receives notices from the Required Purchasers
that the Event of Default is continuing on or after the
eleventh day after the day the Company receives copies of the
Default Notices from the Collateral Agent, the Collateral Agent
shall sell the Pledged Shares on behalf of the Purchasers and
apply the proceeds therefrom pursuant to the terms set forth
in Section 10.4 below. If any Event of Default is cured prior
to delivery of the Collateral to the Required Purchasers,
the Company and the Required Purchasers shall each deliver a
notice to such effect on the same day as such cure (a "Notice
of Cure") to the Collateral Agent within two (2) days after
such cure. The Collateral Agent shall be entitled to rely on
any notice from the Required Purchasers and shall have no
liability hereunder for selling the Pledged Shares on
behalf of the Required Purchasers pursuant to any such notice.
10.4 Application of Proceeds.
(a) Generally. The proceeds of any sale,
foreclosure or disposition of the Collateral, or any part
thereof, shall be applied first to the reasonable expenses of
retaking, holding, preparing for sale, discharging all liens,
selling and the like, then to the reasonable attorneys' fees
and legal expenses incurred by Collateral Agent and
Purchasers, and then to the Obligations. Should the net
proceeds resulting from any such sale or disposition exceed
the amount owing to Collateral Agent and Purchasers,
Collateral Agent shall pay such surplus to the person(s)
legally entitled thereto.
(b) Application and Allocation of Payments on Obligations.
Collateral Agent and Purchasers shall have the right to
determine the application of any proceeds of any sale
foreclosure or disposition of Collateral to be applied against
the then due and payable Obligations pursuant to (a) above in
such manner as Collateral Agent and Requisite Purchasers may
deem advisable. In the absence of a specific determination
by Collateral Agent and Requisite Purchasers with respect
thereto, the same shall be applied in the following order:
(i) amounts due and payable to the Collateral Agent; (ii)
due and payable interest payments on the Notes; (iii) due and
payable principal payments on the Notes; and (iv) remaining due
and payable Obligations other than interest and principal
payments on the Notes. All applications of amounts with
respect to interest or principal on the Notes shall be made
pro rata based on the relative outstanding balance
of the Notes until such time, for each Note, as all
outstanding principal and interest thereof shall have been
repaid in full. All applications of amounts due to the
Purchasers other than principal and interest on the Notes
shall be made pro rata based on the total initial principal
amount of all Notes.
11. DUTIES AND LIABILITIES OF THE COLLATERAL AGENT.
To induce the Collateral Agent to act hereunder, it is agreed
by the Company and the Purchasers as follows:
(a) The Collateral Agent shall not be under any duty to
give the Pledged Shares held by it hereunder any greater degree
of care than it gives its own similar property.
(b) This Agreement expressly sets forth all the duties
of the Collateral Agent with respect to any and all matters
pertinent hereto. No implied duties or obligations shall be
read into this Agreement against the Collateral Agent. The
Collateral Agent shall not be bound by the provisions of any
agreement between the Company and the Purchasers except as set
forth in this Agreement.
(c) The Collateral Agent shall not be liable for, except
for its own negligence or willful misconduct, and, except
with respect to claims based upon such negligence or willful
misconduct that are successfully asserted against the Collateral
Agent, and the Company and the Purchasers shall jointly and
severally indemnify and hold harmless the Collateral Agent (and
any successor escrow agent) from and against, any and all
losses, liabilities, claims, actions, damages and expenses,
including reasonable attorneys' fees and disbursements, arising
out of or in connection with this Agreement. This Section 11(c)
shall survive any termination of this Agreement or the
resignation of the Collateral Agent.
(d) The Collateral Agent shall be entitled to rely upon
any order, judgment, certification, demand, notice,
instrument or other writing delivered to it hereunder without
being required to determine the authenticity or the correctness
of any fact stated therein or the propriety or validity of the
service thereof. The Collateral Agent may act in reliance
upon any instrument or signature believed by it in good faith
to be genuine and may assume, if in good faith, that any
person purporting to give notice or receipt or advice or many
any statement or execute any document in connection with the
provisions hereof has been duly authorized to do so.
(e) The Collateral Agent may act pursuant to the
advice of counsel with respect to any matter relating to
this Agreement and shall not be liable for any action take or
omitted to be taken in good faith and in accordance with such
advice.
(f) The Collateral Agent makes no representation as to
the validity, value, genuineness or the collectibility of any
security or other documents or instrument held by or delivered
to it.
(g) The Collateral Agent shall not be called upon to
advise any party as to the wisdom in selling or retaining
or taking or refraining from any action with respect to any
securities or other property deposited hereunder.
(h) The Collateral Agent (and any successor escrow
agent) at any time may be discharged from its duties and
obligations hereunder by the delivery to it of notice of
termination signed by the Company and the Purchasers; or at
any time may resign by giving thirty (30) days' prior written
notice to such effect to the Company and the Purchasers. Upon
any such termination or resignation, the Collateral Agent
shall deliver the Collateral to any successor escrow agent
jointly designated in writing by the Company and the Purchasers;
or to any court of competent jurisdiction if no such successor
escrow agent is designated, whereupon the Collateral Agent
shall be discharged from any and all further obligations
arising in connection with this Agreement. The termination
or resignation of the Collateral Agent shall take effect on
the earlier of (i) the appointment of a successor (including
a court of competent jurisdiction) or (ii) the day that is
thirty (30) days after the date of delivery of the notice of
termination to the Collateral Agent, or of the Collateral
Agent's notice of resignation to the Company and the
Purchasers. If at any time the Collateral Agent has not
received a designation of a successor escrow agent, the
Collateral Agent's sole responsibility thereafter shall be
to keep the Collateral safe until it delivers the Collateral
to a court of competent jurisdiction or until its receipt of
a notice regarding designation of successor escrow agent, a
written disposition instruction signed by the Company and
the Purchasers, or an enforceable order or a court of
competent jurisdiction.
(i) In the event of any disagreement between the
Company and the Purchasers resulting in adverse claims or
demands being made in connection with the Collateral, or in
the event that the Collateral Agent in good faith is in doubt
as to what action it should take hereunder, the Collateral
Agent shall be entitled to retain the Collateral until the
Collateral Agent shall have received (i) a final and
non-appealable order of a court of competent jurisdiction
directing delivery of the Collateral or (ii) a written
agreement executed by the Company and the Purchasers which
directs delivery of the Collateral, in which even the
Collateral Agent shall disburse the Collateral in accordance
with such order or agreement. Any court order referred to
in subsection (i) of this Section 11(i) shall be accompanied
by a legal opinion by counsel for the presenting party
satisfactory to the Collateral Agent to the effect that said
court order is final and non-appealable. The Collateral Agent
shall act on such court order and legal opinion without further
question.
(j) As consideration for its agreement to act as
Collateral Agent, the Company agrees to pay the Collateral
Agent a fee of $2,000 for services rendered through the
earlier to occur of (i) the Initial Maturity Date, or (ii)
the Extended Maturity Date. The Company shall also pay any
additional fees and charges of the Collateral Agent incurred as
set forth in Schedule C attached hereto promptly after receipt
of invoices for the same.
12. MISCELLANEOUS.
12.1 Governing Law; Venue.
(a) This Agreement shall be governed in all respects by the
laws of the State of California as such laws are applied to
agreements between California residents entered into and
performed entirely in California.
(b) Any legal action or other legal proceeding relating to
this Agreement or the enforcement of any provision of this
Agreement may be brought or otherwise commenced only in any
state or federal court located in the County of Los Angeles,
California. Each of the Purchasers and the Company hereby
waives any defense of lack of in personam jurisdiction of
said courts and agrees that service of process of such courts
may be made upon each of them by personal delivery or by
mailing certified or registered mail, return receipt requested,
to such party at the address provided for in this Agreement.
Each of the Purchasers and the Company hereby submits
to the jurisdiction of the courts so selected, to the exclusion
of any other courts which may have had jurisdiction apart from
this Section.
12.2 Arbitration.
(a) Except with respect to an Event of Default under
Section 9(a) hereof, the parties agree to submit any dispute
or controversy arising out of or relating to this Agreement
or the Notes, including without limitation the interpretation,
performance, breach, termination or validity thereof, to
arbitration administered by the Judicial and Mediation
Services in accordance with its Commercial Rules then in effect,
except as otherwise stated here, and judgment on the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The arbitrator shall have the authority
to award any remedy or relief that a court of competent
jurisdiction could order or grant, including, without limitation,
the issuance of a permanent injunction and default judgment.
The arbitration shall be by a single arbitrator chosen by the
parties or, if they cannot agree on an arbitrator within five
(5) days of exchanging the names of proposed arbitrators,
before a single arbitrator appointed in accordance with rules
and procedures of the Judicial and Mediation Services. The
arbitration shall take place in Los Angeles County, California
at a location and time to be agreed upon by the parties or,
in the absence of agreement, by the arbitrator. The arbitrator
shall apply California law in resolving such dispute. The
expense of the arbitration, including the compensation of the
arbitrator, shall be borne in accordance with the award of the
arbitrator. Any award rendered pursuant to this provision shall
be final and binding upon the parties to such arbitration, and
may be confirmed and entered in any court of proper jurisdiction.
(b) Notwithstanding any other provision of this Agreement,
either party may, without inconsistency with this arbitration
provision, seek interim provisional, injunctive or other
equitable relief until the arbitration award is rendered or the
controversy is otherwise resolved.
(c) Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to
obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content, or results of any arbitration
hereunder without the prior written consent of both parties.
(d) Notwithstanding any choice of law provision included in
this Agreement, the United States Federal Arbitration Act shall
govern the interpretation and enforcement of this arbitration
provision.
12.3 Entire Agreement. This Agreement, the Exhibits and
Schedules hereto and the other documents delivered pursuant
hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in
any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and
therein.
12.4 Severability. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
12.5 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon
the written consent of the Company and the Required Purchasers.
(b) The obligations of the Company and the rights of the
holders of the Notes under the Agreement may be waived only with
the written consent of the Required Purchasers.
12.6 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to
any party, upon any breach, default or noncompliance by
another party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or
noncompliance thereafter occurring. It is further agreed that
any waiver, permit, consent or approval of any kind or
character on any Purchaser's part of any breach, default or
noncompliance under this Agreement or any waiver on such
party's part of any provisions or conditions of the Agreement
must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either
under this Agreement, by law, or otherwise afforded to any
party, shall be cumulative and not alternative.
12.7 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a)
upon personal delivery to the party to be notified, (b) when
sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next
business day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage
prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on
the signature page hereof and to Purchaser at the address set
forth on Schedule A attached hereto or at such other address
as the Company or Purchaser may designate by ten (10) days
advance written notice to the other parties hereto.
12.8 Expenses; Attorneys' Fees. Each party shall pay the
costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of the
Agreement. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing
party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include,
without limitation, all fees, costs and expenses of appeals.
12.9 Titles and Subtitles; Counterparts. The titles of the
sections and subsections of the Agreement are for convenience
of reference only and are not to be considered in construing
this Agreement. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all
of which together shall constitute one instrument.
12.10 Exculpation Among Purchasers. Each Purchaser
acknowledges that it is not relying upon any person, firm,
or corporation, other than the Company and its officers and
directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners,
agents, or employees of any Purchaser shall be liable to any
other Purchaser for any action heretofore or hereafter taken
or omitted to be taken by any of them in connection with the
Notes.
12.11 Confidentiality. Each party hereto agrees that, except
with the prior written consent of the other party, it shall at
all times keep confidential and not divulge, furnish or make
accessible to anyone any confidential information, knowledge
or data concerning or relating to the business or financial
affairs of the other parties to which such party has been or
shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of
its obligations hereunder or the ownership of the Notes
purchased hereunder. The provisions of this Section 12.11
shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed
by the parties hereto.
12.12 Pronouns. All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine,
feminine or neutral, singular or plural, as to the identity
of the parties hereto may require.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
COMPANY:
THE KUSHNER-LOCKE COMPANY
By: ________________________
Name:
Title:
Address:
11601 Wilshire Boulevard
21st Floor
Los Angeles, California 90025
PURCHASERS:
_____________________________
By: ________________________
Name:
Title:
Address:
____________________________
____________________________
____________________________
COLLATERAL AGENT:
U.S. TRUST COMPANY, NATIONAL
ASSOCIATION
By: ________________________
Name:
Title:
Address:
_________________________
_________________________
SCHEDULE A
SCHEDULE OF PURCHASERS
Name and Address Principal Amount of Note
Peter and Karen Locke Living Trust $200,000
The Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, CA 90025
Donald Kushner $200,000
The Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, CA 90025
Mark and Kelly Moskowitz Living Trust $250,000
c/o CIBC Oppenheimer Corp.
580 California Street
Suite 2300
San Francisco, CA 94104
Aminals Productions, Inc. $100,000
Employee Profit Sharing Plan
c/o Fred Kaufman & Assoc.
16861 Ventura Blvd., Suit 307
Encino, CA 91436
Milt Okun $500,000
c/o Murray Frank, CPA
111 Great Neck Road, No. 308
Great Neck, NY 11021
Shel Bachrach $250,000
c/o Near North Entertainment Insurance
1840 Century Park East
Suite 500
Los Angeles, CA 90067
SCHEDULE B
SCHEDULE OF EXCEPTIONS
None
SCHEDULE C
FEE SCHEDULE OF COLLATERAL AGENT
EXHIBIT A
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER SUCH ACT AND ALL SUCH OTHER APPLICABLE LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
PROMISSORY NOTE
$__00,000.00 __________, 2000
[Los Angeles], California
The undersigned, The Kushner-Locke Company, a California
corporation (the "Company"), hereby promises to pay to the
order of [___________________], or its assignee (the "Holder")
the principal amount of [_______________] DOLLARS ($__00,000.00),
together with interest on the unpaid balance of such amount
from the date hereof as set forth in Section 2 hereof and a
bonus as set forth in Section 7 hereof. This Promissory Note
("Note") is one of the Notes issued under the Note
Purchase and Pledge Agreement between Company and certain
Purchasers, including Holder, of even date herewith (said
agreement, as the same may be amended, restated or
supplemented from time to time, being herein called the
"Agreement") to which reference is made for a
statement of the terms and conditions governing this Note.
Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement.
1. Maturity. The unpaid principal amount of this Note,
together with interest thereon at the rate provided herein,
shall be immediately due and payable on the date (the
"Maturity Date"), which shall be, at the election the Company
in its sole discretion, either (i) the date which is six
calendar months after the date hereof (the "Initial Maturity
Date"), or, (ii) the date which is six calendar months after
the Initial Maturity Date (the "Extended Maturity Date").
The Company shall provide written notice to Holder at least
five (5) days before the Initial Maturity Date setting forth
such election. In the event the Company fails to provide
such written notice, the Maturity Date shall be the Extended
Maturity Date.
2. Interest. Commencing on the date hereof and continuing
until repayment in full of this Note, interest shall accrue
on the principal balance outstanding hereunder at a rate
equal to ten percent (10%) per annum, and shall be payable
on the Initial Maturity Date and, if the Maturity Date is
extended to the Extended Maturity Date pursuant to Section 1
above, on the Extended Maturity Date. Interest shall be
computed on the basis of a 365 or 366 day year, as the case
may be, counting the number of actual days elapsed.
3. Prepayment. This Note may be prepaid in whole or in part
at any time upon at least five (5) business days' notice to
Holder without premium or penalty so long as any interest then
accrued on the principal so prepaid has been paid in full.
4. General Payment Provisions. Principal and interest shall
be paid in lawful money of the United States and shall be made
to Holder at the address set forth for Holder in the Agreement,
or at such other place as Holder shall have designated to the
Company in writing for such purpose. If any interest or other
payment to Holder becomes due and payable on a day other than
a business day, the maturity thereof shall be extended to
the next succeeding business day and, with respect to payments
of principal, interest thereon shall be payable at the then
applicable rate during such extension. Subject to Section
10.4 of the Agreement (with respect to application of proceeds
of the Collateral) and to Section 5 below, all payments received
by Holder shall be credited first on interest then due and the
remainder on principal and interest shall thereupon cease to
accrue on the principal so credited.
5. Excess Interest. In no event shall the amount paid or
agreed to be paid to the Holder for the use or forbearance of
money to be advanced hereunder exceed the highest lawful rate
permissible under the then applicable usury laws. If it is
hereafter determined by a court of competent jurisdiction that
the interest payable hereunder is in excess of the amount
which the Holder may legally collect under the then applicable
usury laws, such amount which would be excessive interest
shall be applied to the payment of the unpaid principal balance
due hereunder and not to the payment of interest or, if all
principal shall previously have been paid, promptly repaid by
the Holder to the Company.
6. Relation to Agreement; Collateral; Acceleration.
Reference is hereby made to the Agreement for a statement of
its terms and provisions. This Note is secured by the
Agreement and the Collateral, and is entitled to the benefit
of the rights and security provided thereby. Upon the
occurrence of any one or more of the Events of Default
specified in the Agreement, all amounts then remaining
unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all pursuant and subject to
the terms and conditions of the Agreement.
7. Bonus. As additional consideration for the purchase of
this Note by the Holder, the Company agrees that, on the
Maturity Date, the Company shall pay or deliver, as the case
may be, to Holder a bonus (the "Bonus") consisting, at the
election of the Holder as provided herein, of either (but
not both) cash or a non-transferable warrant as follows:
(a) a cash bonus equal to (i) $0.15 for each $1.00 of the
initial principal amount of this Note, plus, (ii) in the
event the Company elects to extend the Maturity Date to the
Extended Maturity Date, $0.15 for each $1.00 of the average
daily outstanding principal amount of this Note for the period
commencing on the Initial Maturity Date (after giving effect
to any payments made on such date) and continuing until the
Extended Maturity Date (whether or not this Note is prepaid
in full before such Extended Maturity Date, it being understood
that, for purposes of calculating the average daily outstanding
principal amount of this Note, the outstanding principal
amount of this Note from and after the date of prepayment in
full until the Extended Maturity Date shall be $0.00), such
amount to be computed on the Extended Maturity Date or such
earlier date of prepayment in full of this Note; or
(b) a three-year, nontransferrable warrant in the form of
Exhibit A hereto (a "Warrant") to purchase, at a strike price
per share equal to 110% of the average closing price per
share of the shares of common stock of the Company reported
of NASDAQ on the date hereof, a number of shares of common
stock equal to (i) 1 share for each $10.00 of the initial
principal amount of this Note, plus, (ii) in the event the
Company elects to extend the Maturity Date to the Extended
Maturity Date, 1 share for each $10.00 of the average daily
outstanding principal amount of this Note for the period
commencing on the Initial Maturity Date (after giving effect
to any payments made on such date) and continuing until the
Extended Maturity Date (whether or not this Note is prepaid
in full before such Extended Maturity Date, it being understood
that, for purposes of calculating the average daily
outstanding principal amount of this Note, the outstanding
principal amount of this Note from and after the date of
prepayment in full until the Extended Maturity Date shall be
$0.00), such amount to be computed on the Extended Maturity
Date or such earlier date of prepayment in full of this Note;
in each case (for (i) and (ii) above), as such number of
shares shall be appropriately adjusted for stock splits,
combinations, consolidations, stock distributions or stock
dividends with respect to common stock of the Company
occurring after the date hereof.
Holder shall provide written notice to the Company at least
two (2) business days before the Maturity Date (or such earlier
date of prepayment in full of this Note as set forth in a
notice of prepayment delivered by the Company) setting forth
Holder's election (of either cash pursuant to (a) above or a
Warrant pursuant to (b) above). In the event Holder fails to
deliver such written notice to the Company by such date,
the Company shall have the right to select the Bonus to be
received by Holder. The Company shall deliver or pay, as
applicable, the Bonus to Holder on the Maturity Date (or
such earlier date of prepayment in full of this Note).
8. Subordination. This Note is, and shall be, subordinate
to the obligations of the Company under the Existing Credit
Agreement to the extent and in the same manner as set forth
in the Agreement.
9. Amendments. All amendments to this Note, and any waiver or
consent of the Holder, must be in writing and signed by the
Holder and the Company.
10. Notice. All notices, requests, demands and other
communications required or permitted to be given under this
Note shall be in writing and shall be delivered to the party
to whom notice is to be given at the address for such party,
and pursuant to the terms, set forth in Section 12.7 of the
Agreement.
11. Choice of Law; Jurisdiction. This Note and the rights
and obligations in connection therewith shall in all respects
be governed by, and construed and interpreted in accordance
with, the laws of the State of California applicable to
transactions entered into and to be wholly performed within
the State of California. All actions or proceedings
relating to this Note shall be subject to the arbitration
and forum provisions of Sections 12.1 and 12.2 of the
Agreement.
12. Severability. Nothing in this Note shall be construed
so as to require or permit the commission of any act contrary
to law, and wherever there is any conflict between any
provision of this Note and any present or future statute,
law, ordinance or regulation, contrary to which the parties
have no power to contract, the latter shall prevail, and the
provisions of this Note so affected shall be curtailed and
limited, but only to the extent necessary to bring them within
the requirements of the law, and the remainder hereof shall
continue in full force and effect.
13. Successors and Assigns. This Note inures to and binds
the heirs, successors and assigns of the Company and the
Holder.
14. Restrictions on Transfer.
(a) Generally. The Holder acknowledges that this Note and
the any common stock issuable in connection with the exercise
of the Warrant have not been registered or qualified under
federal or state securities laws. This Note shall not be
transferable by the Holder except in accordance with the terms
and conditions set forth in the Agreement, this Note and the
Act.
(b) Assignment. This Note may be assigned by the Holder only
with the Company's prior written consent, and only if the
assignee of this Note acknowledges in writing to the Company
that it is bound by all the terms and conditions of this Note
and the Agreement.
15. Attorneys' Fees. In the event that any suit or action
is instituted to enforce any provision under this Note, the
prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with
respect to this Note, including without limitation, such
reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and
expenses of appeals.
[PROMISSORY NOTE SIGNATURE PAGE]
IN WITNESS WHEREOF, the Company has caused this
Note to be executed as of the day and year first written
above.
THE KUSHNER-LOCKE COMPANY
a California corporation
By: _________________________
Name:
Its:
<PAGE>
Exhibit 10.65
AMENDMENT NO. 8 dated as of May 14,
1999 to the Credit, Security, Guaranty and
Pledge Agreement dated as of June 19, 1996, as
amended, among THE KUSHNER-LOCKE
COMPANY (the "Borrower"), the Guarantors
named therein, the Lenders referred to therein
and THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank), as Agent
and as Fronting Bank for the Lenders (the
"Agent") (as heretofore amended, the "Credit
Agreement").
INTRODUCTORY STATEMENT
The Lenders have made available to the Borrower a revolving
credit facility pursuant to the terms of the Credit Agreement.
The Borrower has informed the Agent and the Lenders that
800-U.S. SEARCH, a Subsidiary of the Borrower and Guarantor under
the Credit Agreement ("US-SEARCH"), proposes to engage in an
initial public offering (the "Proposed Offering") of its
capital stock. In connection with the Proposed Offering, the
Borrower has requested that the Agent and the Lenders (i)
release US-SEARCH from its obligations (including, without
limitation, the obligations of US-SEARCH as a Guarantor) under
the Credit Agreement, (ii) release their Lien in the assets
of US-SEARCH and the capital stock of US-SEARCH currently held
by the Borrower and (iii) make certain other modifications to
the Credit Agreement.
The Borrower, the Guarantors, the Lenders and the Agent have
agreed to make revisions to the Credit Agreement, all on the
terms and subject to the conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and
not otherwise defined herein shall have the meaning given them
in the Credit Agreement.
Section 2. Amendments to the Credit Agreement. Subject to
the satisfaction of the conditions precedent set forth in
Section 3 hereof, the Credit Agreement is hereby amended
effective as of the Effective Date (as hereinafter defined)
as follows:
(A) Section 2.6 of the Credit Agreement is hereby
amended by adding the following clause (d) at the end thereof:
"(d) The Commitments shall be permanently reduced by an
amount equal to 50% of Net Cash Proceeds of any sale,
transfer or other disposition of shares of capital stock of US-
SEARCH held by a Credit Party, which sale, transfer or other
disposition occurs subsequent to the completion of the
Proposed Offering (as defined in Amendment No. 8 to the
Credit Agreement); provided, that the Commitments shall not
be reduced by more than $15 million in the aggregate in
connection with this Section 2.6(d). Such reduction(s) in the
Commitments shall occur simultaneously with the receipt by
any Credit Party of such Net Cash Proceeds. For purposes of
this Section 2.6(d), "Net Cash Proceeds" shall mean cash
payments received by any Credit Party from the sale, transfer
or other disposition of shares of capital stock of US-SEARCH
(whether directly or upon a later sale, transfer, collection or
other disposition of non-cash proceeds), in each case net of all
legal expenses, commissions and other fees and expenses
incurred, and any taxes payable and reasonably estimated
income taxes, as a consequence of such sale, transfer or other
disposition, but only to the extent reserved for, whether or not
such reserve is required by GAAP."
(B) The opening paragraph of Article 6 of the Credit
Agreement is hereby amended by adding the parenthetical
"(other than US-SEARCH)" after the word "Subsidiaries"
appearing therein.
(C) Section 6.4 of the Credit Agreement is hereby
amended by deleting the text set forth in clauses (x), (xi) and
(xii) in their entirety and inserting in lieu thereof the
following:
"(x) up to an aggregate principal amount of $5,500,000 loaned
to US-SEARCH, on or prior to the Proposed Offering (as
defined in Amendment No. 8 to the Credit Agreement),
pursuant to convertible notes issued by US-SEARCH to the
Borrower, (xi) up to an aggregate amount of $2,750,005 to be
paid by the Borrower to US-SEARCH pursuant to the exercise
of outstanding warrants, on or prior to the Proposed Offering,
to purchase common stock of US-SEARCH; and (xii) other
investments in or loans to US-SEARCH by the Borrower in an
amount not to exceed $1,000,000, provided, that such
investments or loans shall only be permitted hereunder until
the expiration of the 5 day-period following the consummation
of the Proposed Offering.
(D) Section 6.7 of the Credit Agreement is hereby
amended by adding the words ", or sell, transfer or otherwise
dispose of shares of capital stock of US-SEARCH held by a
Credit Party for consideration other than cash other than in
connection with a transaction or series of transactions to
which US-SEARCH or US-SEARCH and the stockholders of
US-SEARCH are parties and which involves (x) any
consolidation or merger of US-SEARCH with or into any
other entity or person, or any other corporate reorganization,
or (y) any sale, lease or other disposition of all or
substantially all of the assets of US-SEARCH" immediately after
the parenthetical "(other than permitted transactions between
the Borrower and its Subsidiaries)" appearing therein.
(E) Article 7 of the Credit Agreement is hereby amended
by adding the following clause (o) immediately after the end
of clause (n) appearing therein:
"(o) US-SEARCH shall have failed to repay all amounts owed
by US-SEARCH to the Borrower as of the date of the
consummation of the Proposed Offering (as defined in
Amendment No. 8 to the Credit Agreement) (including,
without limitation, all deferred management fees payable to
the Borrower by US-SEARCH and all loans made by the
Borrower to US-SEARCH but excluding any convertible
securities such as convertible notes which will convert or shall
be exercisable for shares of capital stock of US-SEARCH)
within 5 days following the consummation of the Proposed
Offering (as described in Amendment No. 8 to the Credit
Agreement);"
Section 3. Conditions to Effectiveness. This Amendment is
effective as of the first date on which all of the following
conditions precedent have been satisfied in full (the
"Effective Date"):
(A) the Agent shall have received counterparts of this
Amendment which, when taken together, bear the signatures of
the Borrower, each Guarantor, the Agent and such of the Lenders
as are required by the Credit Agreement; and
(B) the Agent shall have received evidence reasonably
satisfactory to the Agent and its counsel, that the
Registration Statement relating to the Proposed Offering (i)
shall have been declared effective by the Securities and
Exchange Commission and (ii) shall provide that a portion of
the proceeds received by US-SEARCH in connection with the
Proposed Offering shall be used to repay all amounts owed by
US-SEARCH to the Borrower (including, without limitation, all
deferred management fees payable to the Borrower by
US-SEARCH and all loans made by the Borrower to US-SEARCH but
excluding any convertible securities such as convertible notes
which will convert or shall be exercisable for shares of
capital stock of US-SEARCH).
Section 4. Release. Each of the Lenders and the Agent (on
behalf of itself and the Lenders), by its execution hereof,
hereby releases as of the Effective Date (i) US-SEARCH from its
obligations (including without limitation the obligations of
US-SEARCH as a Guarantor) under the Credit Agreement, (ii)
its Lien in the assets of US-SEARCH, and (iii) its Lien in the
shares of capital stock of US-SEARCH held by the Borrower.
Section 5. Representations and Warranties. Each Credit Party
represents and warrants that:
(A) notwithstanding the terms of this Amendment, any outstanding
shares of capital stock of US-SEARCH held or acquired by a
Credit Party (other than US-SEARCH) subsequent to the completion
of the Proposed Offering shall remain subject to the limitation
on Liens set forth in Section 6.2 of the Credit Agreement;
(B) after giving effect to this Amendment, the
representations and warranties contained in the Credit
Agreement are true and correct in all material respects on and
as of the date hereof as if such representations and warranties
had been made on and as of the date hereof (except to the
extent that any such representations and warranties specifically
relate to an earlier date); and
(C) after giving effect to this Amendment, no Event of
Default or Default will have occurred and be continuing on and
as of the date hereof.
Section 6. Further Assurances. At any time and from time
to time, upon the Agent's request and at the sole expense of
the Credit Parties, each Credit Party will promptly and duly
execute and deliver any and all further instruments and
documents and take such further action as the Agent reasonably
deems necessary to effect the purposes of this Amendment.
Promptly after the Effective Date, but in no event later than
five (5) Business Days, the Agent agrees to execute, on behalf
of itself and the Lenders, any UCC financing statements,
including releases and termination statements, or
other documentation as US-SEARCH of the Borrower may
reasonably deem necessary to effect the purposes of the
Amendment. No later than two (2) Business Days after the
Effective Date, the Agent agrees to return to US-SEARCH or
the Borrower, as the case may be, any definitive instruments
representing the shares of capital stock or other securities
of US-SEARCH and stock powers issued in connection therewith.
Section 7. Fundamental Documents. This Amendment is designated
a Fundamental Document by the Agent.
Section 8. Full Force and Effect. Except as expressly amended
hereby, the Credit Agreement and the other Fundamental
Documents shall continue in full force and effect in accordance
with the provisions thereof on the date hereof. As used in
the Credit Agreement, the terms "Agreement", "this Agreement",
"herein", "hereafter", "hereto", "hereof", and words of similar
import, shall, unless the context otherwise requires, mean the
Credit Agreement as amended by this Amendment.
Section 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Amendment may be executed in
two or more counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute
but one instrument.
Section 11. Expenses. The Borrower agrees to pay all
out-of-pocket expenses incurred by the Agent in connection with
the preparation, execution and delivery of this Amendment,
including, but not limited to, the reasonable fees and
disbursements of counsel for the Agent.
Section 12. Headings. The headings of this Amendment are for
the purposes of reference only and shall not affect the
construction of or be taken into consideration in interpreting
this Amendment
IN WITNESS WHEREOF, the parties hereby have caused this Amendment
to be duly executed as of the date first written above.
BORROWER:
THE KUSHNER-LOCKE COMPANY
By:
Name:
Title:
GUARANTORS:
KL PRODUCTIONS, INC.
KL INTERNATIONAL, INC.
ACME PRODUCTIONS, INC.
KUSHNER-LOCKE PRODUCTIONS, INC.
THE RELATIVES COMPANY
POST AND PRODUCTION SERVICES, INC.
L-K ENTERTAINMENT, INC.
INTERNATIONAL COURTROOM NEWS SERVICE
FAMILY PICTURES, INC.
TROPICAL HEAT, INC.
KL SYNDICATION, INC.
ANDRE PRODUCTIONS, INC.
TKLC NO. 2, INC.
TWILIGHT ENTERTAINMENT, INC.
KLC FILMS, INC.
KL FEATURES, INC.
KLF GUILD CO.
KLF DEVELOPMENT CO.
KLTV GUILD CO.
KLTV DEVELOPMENT CO.
KUSHNER-LOCKE INTERNATIONAL, INC.
KL INTERACTIVE MEDIA, INC.
DAYTON WAY PICTURES, INC.
DAYTON WAY PICTURES II, INC.
DAYTON WAY PICTURES III, INC.
DAYTON WAY PICTURES IV, INC.
FW COLD CO., INC.
By
Name:
Title:
KLC/NEW CITY
By its General Partner
THE KUSHNER-LOCKE COMPANY
By
Name:
Title:
800-U.S. SEARCH
By
Name:
Title:
LENDERS:
Executed in THE CHASE MANHATTAN BANK (formerly
New York, New York known as Chemical Bank), as Agent
On _____________, 1999
By
Name:
Title:
DE NATIONALE INVESTERINGSBANK N.V.
By
Name:
Title:
By
Name:
Title:
COMERICA BANK -- CALIFORNIA
By
Name:
Title:
FAR EAST NATIONAL BANK
By
Name:
Title:
<PAGE>
Exhibit 10.66
as of January 31, 2000
The Kushner-Locke Company
11601 Wilshire Boulevard, 21st floor
Los Angeles, California 90025
Dear Sirs:
Reference is hereby made to that certain Credit, Security,
Guaranty and Pledge Agreement, dated as of June 19, 1996 (as
the same has been, and may be, amended, supplemented or
otherwise modified, renewed or replaced from time to time,
the "Credit Agreement"), among The Kushner-Locke Company (the
"Borrower"), the Guarantors referred to therein, the Lenders
referred to therein, and The Chase Manhattan Bank
(formerly known as Chemical Bank), as Agent. Capitalized
terms used herein and not otherwise defined are used herein
as defined in the Credit Agreement.
You have advised the Agent that you are in the process of
consummating a transaction (the "WMM Investment") whereby the
Borrower will acquire two (2) limited partnership interests
in World Wide Multimedia, L.P., a Cayman Islands Exempted
limited partnership ("WMM"). In consideration of the
partnership interests, the Borrower will (i) invest
approximately $2,000,000 in cash in WMM (which investment
will be financed through a five-year, secured term loan to the
Borrower from Far East National Bank, which loan will be
subordinated to the payment in full of the obligations under
the Credit Agreement) and (ii) grant WMM distribution rights
for the Asian territory in certain items of its film library,
all as more fully described in the letter dated November
3, 1999 from the Borrower to the Agent, attached hereto as
Exhibit A. In connection therewith, you have requested that
the Required Lenders consent to the WMM Investment and authorize
and direct the Agent to enter into such documents and
agreements (in form and substance satisfactory to the Agent)
as the Borrower may reasonably request in order to consummate
the WMM Investment. You have also requested the Required
Lenders waive any non-compliance by the Borrower with the
Credit Agreement solely with respect to the WMM Investment.
Each of the undersigned hereby (i) consents to the WMM
Investment, (ii) waives any non-compliance by the Borrower
with the Credit Agreement solely with respect to the WMM
Investment, and (iii) authorizes and directs the Agent to enter
into such documents and agreements (in form and substance
satisfactory to the Agent) in connection with the WMM
Investment as the Borrower may reasonably request and as the
Agent may deem appropriate; provided, that the effectiveness
of the consent and waiver set forth in clause (i) and (ii)
above is subject to (x) receipt by the Agent of copies of
the final documentation delivered in connection with
the WMM Investment and (y) execution and delivery by Far
East National Bank of a Subordination Agreement in respect
of the financing provided by it to the Borrower in connection
with the WMM Investment, in form and substance satisfactory
to the Agent.
By its execution hereof, the Credit Parties hereby represents
and warrants that as of the date hereof, there exists no Default
or Event of Default.
This waiver may be executed in counterparts, each of which
shall constitute an original, but all of which when taken
together, shall constitute one and the same instrument.
This waiver shall become effective when the Agent shall have
received executed counterparts of this waiver which, when
taken together, bear the signatures of the Required Lenders
and all the Credit Parties.
This waiver shall not be construed as extending to any other
matter, similar or dissimilar, or entitling the Credit Parties
to any future waivers regarding similar matters or otherwise.
Except to the extent expressly set forth above, this letter
does not constitute a waiver or modification of any provision
of the Credit Agreement or a waiver of any Default or Event
of Default, whether or not known to the Agent or the Lenders.
Except as expressly modified herein, all terms of the Credit
Agreement remain in full force and effect.
THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
Very truly yours,
THE CHASE MANHATTAN BANK,
individually and as Agent
By:_______________________________
Name:
Title:
DE NATIONALE INVESTERINGSBANK N.V.
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
COMERICA BANK -- CALIFORNIA
By:_______________________________
Name:
Title:
FAR EAST NATIONAL BANK
By:_______________________________
Name:
Title:
AGREED TO BY:
THE KUSHNER-LOCKE COMPANY
KL PRODUCTIONS, INC.
POST AND PRODUCTION SERVICES, INC.
TWILIGHT ENTERTAINMENT, INC.
KLF GUILD CO.
KLTV DEVELOPMENT CO.
KUSHNER-LOCKE INTERNATIONAL, INC.
KL INTERACTIVE MEDIA, INC.
DAYTON WAY PICTURES III, INC.
By____________________________
Name:
Title:
KLC/NEW CITY
By its General Partner
THE KUSHNER-LOCKE COMPANY
By____________________________
Name:
Title:
<PAGE>
Exhibit 10.67
AMENDMENT NO. 9 dated as of April 18,
2000, to the Credit, Security, Guaranty and
Pledge Agreement dated as of June 19,
1996, as amended, among THE KUSHNER-
LOCKE COMPANY (the "Borrower"), the
Guarantors named therein, the Lenders
referred to therein and THE CHASE
MANHATTAN BANK (formerly known as
Chemical Bank), as Agent and as Fronting
Bank for the Lenders (the "Agent") (as
heretofore amended, the "Credit
Agreement").
INTRODUCTORY STATEMENT
The Lenders have made available to the Borrower a revolving
credit facility pursuant to the terms of the Credit Agreement.
The Borrower has informed the Agent and the Lenders that it
proposes to enter into a Note Purchase and Pledge Agreement,
among the Borrower, the purchasers named therein (the "Note
Purchasers") and U.S. Trust Company, National Association,
as collateral agent, pursuant to which the Borrower will
issue up to $2,500,000 of its Notes (the "US Search Notes")
to the Purchasers (the "Proposed Facility"). The Notes will
be secured by a first-priority lien in the Borrower's
interest in 2.0 million shares of common stock of 800-U.S.
Search ("US Search"). The Borrower has requested that the
Agent and the Lenders make certain modifications to the
Credit Agreement to permit the Proposed Facility.
In addition, the Borrower has requested that the Agent and
the Lenders extend the Commitment Termination Date and
Maturity Date under the Credit Agreement by an additional
two months.
The Borrower, the Guarantors, the Lenders and the Agent have
agreed to make revisions to the Credit Agreement, all on the
terms and subject to the conditions hereinafter set forth.
Therefore, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms used herein and
not otherwise defined herein shall have the meaning given them
in the Credit Agreement.
Section 2. Amendments to the Credit Agreement. Subject to
the satisfaction of the conditions precedent set forth in
Section 3 hereof, the Credit Agreement is hereby amended
effective as of the Effective Date (as hereinafter defined)
as follows:
(A) The definitions of "Commitment Termination Date" and
"Maturity Date" set forth in Article 1 of the Credit Agreement
are each hereby amended by deleting the date "June 25, 2000"
referenced therein and inserting in lieu thereof the date
"August 25, 2000".
(B) Section 6.1 of the Credit Agreement is hereby amended by
adding the following clause (l) at the end thereof:
"(l) Indebtedness of the Borrower of up to $2,500,000 at any
one time outstanding, represented by the promissory notes
(the "US Search Notes") issued by the Borrower pursuant to
that certain Note Purchase and Pledge Agreement, among the
Borrower, the purchasers of the notes referred to therein
(the "Note Purchasers") and U.S. Trust Company, National
Association, as collateral agent, substantially in the form
previously delivered to the Agent."
(C) Section 6.2 of the Credit Agreement is hereby amended by
adding the following clause (o) at the end thereof:
"(o) Liens granted by the Borrower in favor of the Note
Purchasers in 2.0 million shares of common stock of 800-U.S.
Search held by the Borrower to secure the Indebtedness
permitted by Section 6.1(l) hereof."
Section 3. Conditions to Effectiveness. This Amendment is
effective as of the first date on which all of the following
conditions precedent have been satisfied in full (the
"Effective Date"):
(A) the Agent shall have received counterparts of this
Amendment which, when taken together, bear the signatures of
the Borrower, each Guarantor, the Agent and such of the Lenders
as are required by the Credit Agreement; and
(B) all legal matters incident to this Amendment shall be
satisfactory to Morgan, Lewis & Bockius LLP, counsel for the
Agent.
Section 4. Pledge. As security for the Obligations, the
Borrower hereby pledges, hypothecates, assigns, transfers,
sets over and delivers unto the Agent for the benefit of the
Lenders, a security interest in the issued and outstanding
capital stock of 800-U.S. Search (the "US Search Stock"),
directly or indirectly owned or controlled by the Borrower
(other than the capital stock of 800-U.S. Search pledged by
the Borrower to the Note Purchasers to secure repayment of the
US Search Notes). As of the date hereof, the US Search Stock
pledged to the Agent (for the benefit of the Lenders) shall
consist of the shares listed on Schedule 1 hereto. The
Borrower acknowledges and agrees that the US Search Stock shall
constitute "Pledged Securities" (as defined in the Credit
Agreement) and shall be subject to the terms and conditions
set forth in the Credit Agreement.
Section 5. Representations and Warranties. Each Credit Party
represents and warrants that:
(A) after giving effect to this Amendment, the representations
and warranties contained in the Credit Agreement are true and
correct in all material respects on and as of the date hereof
as if such representations and warranties had been made on and
as of the date hereof (except to the extent that any such
representations and warranties specifically relate to an
earlier date); and
(B) after giving effect to this Amendment, no Event of Default
or Default will have occurred and be continuing on and as of
the date hereof.
Section 6. Further Assurances. At any time and from time to
time, upon the Agent's request and at the sole expense of the
Credit Parties, each Credit Party will promptly and duly
execute and deliver any and all further instruments and
documents and take such further action as the Agent reasonably
deems necessary to effect the purposes of this Amendment.
Section 7. Fundamental Documents. This Amendment is
designated a Fundamental Document by the Agent.
Section 8. Full Force and Effect. Except as expressly
amended hereby, the Credit Agreement and the other
Fundamental Documents shall continue in full force and effect
in accordance with the provisions thereof on the date hereof.
As used in the Credit Agreement, the terms "Agreement",
"this Agreement", "herein", "hereafter", "hereto", "hereof",
and words of similar import, shall, unless the context otherwise
requires, mean the Credit Agreement as amended by this Amendment.
Section 9. APPLICABLE LAW. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Amendment may be executed in
two or more counterparts, each of which shall constitute an
original, but all of which when taken together shall
constitute but one instrument.
Section 11. Expenses. The Borrower agrees to pay all
out-of-pocket expenses incurred by the Agent in connection
with the preparation, execution and delivery of this
Amendment, including, but not limited to, the reasonable
fees and disbursements of counsel for the Agent.
Section 12. Headings. The headings of this Amendment are
for the purposes of reference only and shall not affect the
construction of or be taken into consideration in interpreting
this Amendment
IN WITNESS WHEREOF, the parties hereby have caused this
Amendment to be duly executed as of the date first written
above.
BORROWER:
THE KUSHNER-LOCKE COMPANY
By:_________________
Name:
Title:
GUARANTORS:
KL PRODUCTIONS, INC.
POST AND PRODUCTION SERVICES, INC.
TWILIGHT ENTERTAINMENT, INC.
KLF GUILD CO.
KLTV DEVELOPMENT CO.
KUSHNER-LOCKE INTERNATIONAL,
INC.
KL INTERACTIVE MEDIA, INC.
DAYTON WAY PICTURES III, INC.
By: _________________
Name:
Title:
KLC/NEW CITY
By its General Partner
THE KUSHNER-LOCKE COMPANY
By: _________________
Name:
Title:
LENDERS:
Executed in THE CHASE MANHATTAN BANK (formerly
New York, New York known as Chemical Bank), as Agent
By: _________________
Name:
Title:
DE NATIONALE INVESTERINGSBANK N.V.
By: _________________
Name:
Title:
By: _________________
Name:
Title:
COMERICA BANK -- CALIFORNIA
By: _________________
Name:
Title:
FAR EAST NATIONAL BANK
By: _________________
Name:
Title:
Schedule 1
Pledged Securities of 800-U.S. Search
Stock Certificate No(s). No of Shares Registered Owner
The Kushner-Locke Company
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 18663
<SECURITIES> 0
<RECEIVABLES> 43323
<ALLOWANCES> 2718
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4987
<DEPRECIATION> 1599
<TOTAL-ASSETS> 172391
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 71484
<OTHER-SE> (21217)
<TOTAL-LIABILITY-AND-EQUITY> 172391
<SALES> 32
<TOTAL-REVENUES> 16896
<CGS> 22
<TOTAL-COSTS> 11176
<OTHER-EXPENSES> 12673
<LOSS-PROVISION> 521
<INTEREST-EXPENSE> 2159
<INCOME-PRETAX> (6087)
<INCOME-TAX> 21
<INCOME-CONTINUING> (6108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6108)
<EPS-BASIC> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
