-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZb2Pf63eSho1qbskUMZpbc3BOhugunCN+kbBZICmRcIvVIZpFoydZvBPw+2FFQu oTMZqpDICHvQDX3Cvtnq8Q== 0000842009-97-000008.txt : 19970514 0000842009-97-000008.hdr.sgml : 19970514 ACCESSION NUMBER: 0000842009-97-000008 CONFORMED SUBMISSION TYPE: 424B1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KUSHNER LOCKE CO CENTRAL INDEX KEY: 0000842009 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954079057 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 424B1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10239 FILM NUMBER: 97601403 BUSINESS ADDRESS: STREET 1: 11601 WILSHIRE BLVD 21ST FLR CITY: LOS ANGELES STATE: CA ZIP: 95202 BUSINESS PHONE: 3104451111 MAIL ADDRESS: STREET 1: 11601 WILSHIRE BLVD STREET 2: 21ST FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90025 424B1 1 PROSPECTUS 3,437,809 SHARES THE KUSHNER-LOCKE COMPANY COMMON STOCK This Prospectus relates to an aggregate of 3,437,809 shares (the "Shares") of common stock, no par value (the "Common Stock"), of The Kushner-Locke Company, a California corporation (the "Company"), of which (i) 1,685,467 shares are issuable by the Company upon the conversion of $1,643,330 aggregate principal amount of the Company's 8% Convertible Subordinated Debentures due 2000 ("8% Debentures"), which 8% Debentures are issuable upon the exercise of certain warrants to purchase such 8% Debentures, (ii) 287,342 shares are issuable by the Company upon the conversion of $454,000 aggregate principal amount of the Company's 9% Convertible Subordinated Debentures due 2002 ("9% Debentures"), which 9% Debentures are issuable upon the exercise of certain warrants (collectively with the warrants referred to in (i), the "Warrants") to purchase such 9% Debentures, (iii) 100,000 shares are issuable by the Company upon the exercise of certain options (the "Options") to purchase shares of Common Stock and (iv) 1,365,000 shares of Common Stock which may be sold by a selling shareholder named herein (the "Selling Shareholder Shares"): all of which may be offered for sale by the holders thereof (collectively, the "Selling Shareholders"). See "Description of Securities." The Company will not receive any proceeds from the sale of the shares of Common Stock underlying the Warrants or the Options or the Selling Shareholder Shares. However, the Company will receive proceeds from the applicable Selling Shareholders in the event the Warrants or Options are exercised. There is no assurance that any of the Warrants or Options will be exercised. The Common Stock is traded on the NASDAQ National Market ("NNM") under the symbol "KLOC" and on the Pacific Stock Exchange under the symbol "KLO." On April 25, 1997, the closing sales price of the Common Stock as reported on the NNM was $0.344 per share. THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER "RISK FACTORS" ON PAGE 7. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Selling Shareholders, acting as principal for their own account, directly or through agents, dealers, brokers, or underwriters to be designated from time to time, may sell the Shares from time to time on terms to be determined at the time of sale. To the extent required, the number of Shares to be sold, the respective purchase price and public offering price, the name of any agent, dealer, broker or underwriter and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying Prospectus Supplement. See "Plan of Distribution." Each Selling Shareholder reserves the sole right to accept or reject, in whole or in part, any proposed purchases of the Shares. THE DATE OF THIS PROSPECTUS IS MAY 9, 1997 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional office is located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. The Company's Common Stock is listed on the NNM. Such material can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. Additional information regarding the Company and the Shares offered hereby is contained in the Registration Statement on Form S-3 (of which this Prospectus is a part) and the exhibits thereto filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. For further information pertaining to the Company and the Shares offered hereby, reference is hereby made to the Registration Statement (including documents incorporated by reference therein) and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance such statements are qualified in their entirety by reference to the copy of such contract or other document filed as an exhibit to the Registration Statement. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates by reference the following documents heretofore filed with the Commission pursuant to the Exchange Act: 1. Annual Report of the Company on Form 10-K for the fiscal year ended September 30, 1996; and 2. Amendment to Annual Report of the Company on Form 10-K/A for the fiscal year ended September 30, 1996, as filed on January 28, 1997; and 3. Quarterly Report of the Company on Form 10-Q for the quarter ended December 31, 1996. All documents filed by the Company pursuant to Sections 13(a), 13(c) 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Shares shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, in any accompanying Prospectus Supplement or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of all documents incorporated by reference herein (other than exhibits to such documents unless such exhibits are specifically incorporated by reference herein) will be provided without charge to each person, including any beneficial owner, who receives a copy of this Prospectus on the request of such person made to The Kushner-Locke Company, 11601 Wilshire Blvd., 21st Floor, Los Angeles, California 90025, Tel: (310) 445-1111, Attention: Donald Kushner. THE COMPANY GENERAL The Kushner-Locke Company (the "Company") is a leading independent entertainment company principally engaged in the development, production and distribution of original feature films and television programming. The Company's feature films are developed and produced for the made-for-video, pay cable and theatrical motion picture markets. The Company's television programming has included television series, mini-series, movies-for-television, animation and reality and game show programming for the major networks, pay cable television, first-run syndication and international markets. The Company established its feature film operations in April 1993. In September 1994, the Company employed certain new, experienced international theatrical film sales personnel to expand the Company into foreign theatrical distribution. In 1995, the Company formed KLC/New City Tele-Ventures ("KLC/New City") to acquire films for distribution through emerging new delivery systems, including pay cable, pay-per-view, basic cable, video-on-demand and satellite. The Company's feature film activities can be grouped into three areas: production and distribution of higher-budget films intended for wide-screen domestic theatrical release (historically, no more than one project per year), production and distribution licensing of low-to-moderate budget films released direct-to-video or on pay cable television and films, and distribution licensing of film rights acquired for distribution only. In certain cases, the Company's low-to-moderate budget films may have a limited theatrical release or a pay cable premiere before being released in home video. For fiscal 1996, in the higher-budget film category, the Company's feature film The Adventures of Pinocchio, starring Martin Landau, Jonathan Taylor Thomas and a puppet from Jim Henson's Creature Shop and budgeted at approximately $29 million, was released theatrically July 1996 in the U.S. by New Line Pictures (a division of Turner Entertainment Co., "New Line"). The Company's lower-budget feature slate for fiscal 1996 included Serpent's Lair starring Jeff Fahey, The Grave starring Gabrielle Anwar, Eric Roberts and Craig Sheffer, Freeway executive produced by Oliver Stone and starring Reese Witherspoon, Keifer Sutherland and Brooke Shields, The Whole Wide World starring Vincent D'Onofrio and Renee Zellweger and being distributed in the U.S. by Sony Classics, The Last Time I Committed Suicide starring Keanu Reeves, and five children's fantasy adventure films for Paramount Pictures under Paramount Pictures' Magic Adventures label. In various stages of production for the Company's fiscal 1997 slate as of April 28, 1997 are (a) the feature film Basil starring Christian Slater, (b) the feature film Denial, (c) the two animated feature films for Buena Vista Home Video, a division of the Walt Disney Company, entitled Brave Little Toaster Goes to Mars and Brave Little Toaster Goes to School, which are sequels to the Company's successful direct-to-video title The Brave Little Toaster, and (d) five additional new direct-to-video films under Paramount Pictures' Magic Adventures label. The Company's distribution activities consist primarily of foreign distribution of product produced, overseen or acquired by the Company and, through KLC/New City, domestic distribution of 85 low-budget feature films as of April 28, 1997 to the pay-per-view, pay cable, basic cable and other ancillary markets. In May 1996, the Company and Decade Entertainment ("Decade") entered into an agreement to produce four theatrical action motion pictures. The movies will be produced, subject to approval by the Company of certain creative aspects of such movies, by Decade and executive produced by Joel Silver (producer of EXECUTIVE DECISION and the LETHAL WEAPON and two DIE HARD action pictures) and Richard Donner (director/producer of THE OMEN and SUPERMAN). Under the agreement, the Company has agreed to guarantee payment up to $3,200,000 per picture payable upon the delivery of the "mandatory delivery items" (as defined in such agreement) for each picture in consideration of receipt of foreign distribution rights. The agreement may be extended, at Decade's option, to include a fifth picture. The initial film under the agreement is DOUBLE TAP starring Heather Locklear and Stephen Rea, which is currently expected to be delivered in calendar 1997. Since its inception in 1983, the Company has produced or distributed over 1,000 hours of original television programming, including various television series, movies-for-television and mini-series. The Company's movies-of-the-week which have aired during fiscal 1996 include Princess in Love, starring Julie Cox in the book version of Princess Diana's affair, for CBS, Every Woman's Dream starring Jeff Fahey for CBS, A Husband, A Wife and a Lover starring Judith Light, for CBS, and have aired or will air in fiscal 1997 include Echo starring Jack Wagner, for ABC, Jack Reed V starring Brain Dennehy, for NBC, and Unlikely Angel starring Dolly Parton, for CBS. The Company has also produced six one hour prime time episodes of a mid-season replacement series for ABC entitled Gun, including episodes starring Jennifer Tilly, Randy Quaid, Darryl Hannah, Rosanna Arquette and Peter Horton. The series is co- executive produced by Robert Altman (director of M*A*S*H, The Player and Pret-a-Porter). ABC aired the first episode on April 12, 1997. In addition, the Company is producing a pilot for ABC for the fall 1997 season entitled "Cracker" and starring Robert Pastorelli ("Murphy Brown"). Other television programs include "Could It Be A Miracle", a one-hour series in first-run syndication, hosted by Robert Culp, for which the Company is co-producer with Franklin/Waterman and has completed the first 24 episodes. In addition, the Company is producing "Mowgli's Jungle Book", 26 half hour episodes including 13 half-hour episodes for the Fox Network. As of April 28, 1997, the Company had 15 movies-for-television and various television series in different stages of development for potential production. The Company's 50% partnership, TVFirst, is also purchasing weekly media time for a Christian music infomercial. The partnership markets of compact discs and audio and video cassettes. Sales since March 1996 have exceeded $8,500,000. The Company's executive offices are located at 11601 Wilshire Boulevard, Suite 2100, Los Angeles, California 90025, and its telephone number is (310) 445-1111. Forward Looking Statements Except for the historical information contained herein, certain of the matters discussed in the registration statement of which this Prospectus is a part are "forward-looking statements" as defined in Section 27A of the Securities Act 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, prior losses, increased interest expense, dependence on a limited number of projects, certain accounting policies including amortization of film costs, dependence on key personnel, production deficits, the risk involved in the television and theatrical film industries, competition, government regulation, labor relations, absence of cash dividends, and no assurance of a public market for the Common Stock and the availability or the perception of the availability of shares for future use. See the relevant discussions elsewhere herein, and in 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. RISK FACTORS PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS WELL AS ALL OF THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE SHARES: 1. LIQUIDITY AND FINANCING REQUIREMENTS. The Company's business is capital intensive. The Company has experienced substantial negative cash flows from operating activities over the past three fiscal years which have been offset by equity and debt financings. As the Company expands its production and distribution activities, it may continue to experience negative cash flows from operating activities. In such circumstances, the Company may be required to fund at least a portion of production and distribution costs, pending receipt of anticipated future licensing revenues, from working capital, including its line of credit, or from additional debt or equity financings from outside sources. The Company had outstanding approximately $2.1 million of corporate guarantees as of December 31, 1996 on certain productions which project loans come due on or prior to December 31, 1997. Any required payments on such guarantees may negatively impact the Company's liquidity. If the funds available to the Company under its syndicated revolving credit agreement based upon the borrowing base formula set forth therein or from other sources prove to be insufficient or unavailable for any reason, the Company may be required to seek other sources of financing to meet its working capital requirements during the next 12 months. There is no assurance that the Company will be able to obtain such financing or that such financing, if available, will be on terms satisfactory to the Company. 2. VARIABILITY OF QUARTERLY RESULTS; PRIOR LOSSES. The Company's operating revenues, cash flow and net earnings historically have fluctuated significantly from quarter to quarter, depending in large part on the delivery or availability dates of its programs and product and the amount of production costs incurred and amortized in the period. Therefore, year-to-year comparisons of quarterly results may not be meaningful and quarterly results during the course of a fiscal year may not be indicative of results that may be expected for the entire fiscal year. In addition, primarily as a result of significant net losses in fiscal 1993, 1994, and 1995, the Company had an accumulated deficit of approximately $3.2 million at December 31, 1996. 3. INCREASED INTEREST EXPENSE. Increased borrowing by the Company under its syndicated revolving credit agreement with Chase will most likely increase interest expense and adversely affect the results of operations of the Company unless the Company is able to profitably use such increased borrowings. 4. DEPENDENCE ON A LIMITED NUMBER OF PROJECTS. The Company is dependent on a limited number of films, television programs and other projects that change from period to period for a substantial percentage of its revenues. The change in projects from period to period is due principally to the opportunities available to the Company and to audience response to its films and programs which are unpredictable and subject to change. During fiscal 1996, the Company recognized approximately 55% of revenues from the delivery and/or availability of 16 feature films and approximately 28% of revenues from the delivery and/or availability of 4 network movies, a network mini-series and a television pilot. During the three months ended December 31, 1996, the Company recognized approximately 30% of revenues from the delivery and/or availability of 10 feature films, and approximately 48% of revenues from the delivery and/or availability of 7 network movies, a network mini-series and a first run syndication television series. For the fiscal year ended September 30, 1995, 6 projects accounted for approximately 66% of the total revenue for such fiscal year. The loss of a major project, unless replaced by new projects, or the failure or less-than-expected performance of a major project could have a material adverse effect on the Company's results of operations and financial condition as well as the market price of the Company's securities. There is no assurance that the Company will continue to generate the same level of new projects or that any particular project released by the Company will be successful. 5. CERTAIN ACCOUNTING POLICIES; AMORTIZATION OF FILM COST. The Company generally recognizes revenues when a program or film is either delivered or available for delivery. Capitalized production costs are amortized each period in the ratio that the current period's gross revenues bear to management's estimate of anticipated total gross revenues from the program or film during its useful life. Accordingly, in the event management reduces its estimate of the future revenues of a program or film, a significant write-down and a corresponding decrease in the Company's earnings in the quarter and fiscal year in which such write-down is taken could result. 6. DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the efforts and abilities of Donald Kushner and Peter Locke, the Company's founders and principal executive officers, and certain other members of senior management. The Company has entered into employment agreements with each of Messrs. Kushner and Locke, which agreements expire in September 1998. The Company is currently in negotiations with Messrs. Kushner and Locke to extend their employment agreements through September 2002. There is no assurance that such extension will be agreed to or as to the terms such extensions will be made, although it is likely that such executive officers will require increased compensation. The Company has obtained and is the beneficiary of term life insurance policies on each of the lives of Messrs. Kushner and Locke in the amount of $5,000,000. The loss of the services of either Messrs. Kushner or Locke, or of other key personnel, could have a material adverse effect on the business of the Company if suitable replacements could not be found quickly. The syndicated revolving credit agreement with Chase also includes as events of default the failure of either Messrs. Kushner or Locke 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 an institutional investor able to report its holdings on Schedule 13G which holds no more than 15% of such voting power). There is no assurance that such event of default will not occur or that if it occurs, that the bank will waive such default. 7. PRODUCTION DEFICITS. The revenues from pre-sales, output arrangements and the initial licensing of television programming or film, particularly in the case of license fees for network series, may be less than the associated production costs. The ability of the Company to cover the production costs of particular programming or films is dependent upon the availability, timing and the amount of such revenues obtained from third parties, including revenues from foreign or ancillary markets where available. In any event, the Company generally is required to fund at least a portion of production costs, pending receipt of such revenues, out of its lines of credit or its working capital. Although the Company's strategy generally is not to commence principal photography without first obtaining commitments which cover all or substantially all of the budgeted production costs, from time to time the Company may commence principal photography without having obtained such commitments. In the past, the Company has commenced principal photography on a limited number of projects prior to first obtaining commitments which cover substantially all of the budgeted production costs but was able subsequently to obtain commitments to cover substantially all of such costs. Each such project was one which the Company believed would be successful and for which the Company determined it was necessary to begin principal photography on an expedited basis. There is no assurance that the Company will be able to cover project costs in the future if it was to undertake projects prior to obtaining adequate pre-sales. 8. TELEVISION AND FEATURE FILM INDUSTRIES. The production and distribution of feature films and television programs involves a substantial degree of risk. The success of an individual feature film or television program depends upon subjective factors, such as the personal tastes of the public and critics and alternative forms of entertainment, and does not necessarily bear a direct correlation to the costs of production and distribution. Therefore, there is a risk that some or all of the Company's projects will not be successful, resulting in costs not being recouped and losses being incurred. In addition, typically for television projects, the networks pay license fees equal to approximately 80-90% of the production budget as the project is being produced. The remainder of the production budget is usually covered by foreign sales which are typically paid when the project is made available or delivered to such entities. However, with feature film production, approximately 40-50% of the production budget is covered by domestic sales which are typically paid in thirds upon the project being available for release in different media. The remainder of the production budget is usually financed by foreign sales which are typically paid when the project is made available or delivered to such entities. Accordingly, as the Company has shifted a significant portion of its product mix from its traditional base of network-television programming to feature films (for the first three months of fiscal 1997 approximately 30% of revenues were from feature film activities versus approximately 19% of revenues for fiscal 1996 and 34% of revenues for fiscal 1995), the Company has become subject to the increased risk of feature film activities, including the longer lead times for completion of new product and receipt of related cash flow from exploitation of such product. 9. COMPETITION. Competition in the motion picture and television industries is intense. The Company competes with the major motion picture studios, numerous independent producers of feature films and television programming and the major U.S. networks for the services of actors, other creative and technical personnel and creative material and, in the case of network television programming, for a limited number of time slots for episodic series, movies-of-the-week and mini-series. Many of the Company's principal competitors have greater financial, distribution, technical and creative resources than the Company. 10. GOVERNMENT REGULATION. The Federal Communications Commission ("FCC") repealed its financial interest and syndication rules, effective as of September 21, 1995. Those FCC rules, which were adopted in 1970 to limit television network control over television programming and thereby foster the development of diverse programming sources, had restricted the ability of the three established, major U.S. television networks (i.e., ABC, CBS and NBC) to own and syndicate television programming. The ultimate impact of the repeal of the FCC's financial interest and syndication rules on the Company's operations cannot be predicted at the present time, although there has been an increase in in-house productions of programming for the networks' own use and potentially a decrease of programming from independent suppliers such as the Company. Under the Telecommunications Act of 1996 enacted in February 1996 (the "1996 Act"), manufacturers of television set equipment will be required to equip all new television receivers with a so-called "V-Chip" which would allow for parental blocking of violent, sexually-explicit or indecent programming based on a rating for any given program that would be broadcast along with the program. Unless the television industry establishes a voluntary ratings system by February 1998, the FCC is directed by the 1996 Act to develop a ratings system based upon the recommendations of an advisory committee selected by the FCC. A coalition of various segments of the entertainment industry introduced its proposed ratings guidelines in December 1996. The FCC and other regulatory and governmental agencies currently have these suggested ratings guidelines under review. Other provisions of the 1996 Act revise the multiple ownership broadcast rules, allow local exchange telephone companies to offer multichannel video programming service, subject to certain regulatory requirements, and allow for cable companies to offer local exchange telephone service. The impact on the Company of the changes brought about by the 1996 Act and by accompanying changes in FCC rules cannot be predicted at the present time, although it is expected that there will be an increase in the demand for video programming product as a result of the likelihood that these regulatory changes will facilitate the advent of additional exhibition sources for such programming. However, it is possible that recent alliances of certain program producers and television station group owners, coupled with the recent FCC rule revisions allowing a single television station licensee to own television stations reaching up to 35% of the nation's television households, may place additional competitive pressures on program suppliers, such as the Company, to the extent they are unaligned with the major networks or any television station group owners. In international markets, the Company's programming may be subject to local content and quota requirements, and/or other limitations, which prohibit or limit the amount of programming produced outside of the local market. Although the Company believes these requirements have not affected the Company's licensing of its programs in international markets to date, such restrictions, or new or different restrictions, could have an adverse impact on the Company's operations in the future should opportunities to obtain foreign content not be available. 11. LABOR RELATIONS. The Company and certain of its subsidiaries are parties to several collective bargaining agreements. The Company's union contracts are industry-wide and its labor relations are not entirely dependent on its activities or decisions alone. Future revenues and earnings could be adversely affected by a labor dispute or strike. 12. ABSENCE OF CASH DIVIDENDS. The Company has never paid any cash dividends and has no present intention to declare or to pay cash dividends. The payment of dividends also is restricted by covenants in the Company's credit agreement and the indentures and fiscal agency agreements under which the Company's Convertible Subordinated Debentures were issued. It is the resent policy of the Company to retain any earnings to finance the growth and development of the Company's business. 13. NO ASSURANCE OF PUBLIC MARKET. The Common Stock is currently listed on the NNM. There can be no assurance that such listing will be maintained or that an adequate market for the Common Stock will be maintained. 14. SHARES AVAILABLE FOR FUTURE SALE. Substantially all of the 54,252,810 shares of Common Stock outstanding as of April 28, 1997 and, subject to issuance, the 22,848,264 shares of Common Stock issuable upon exercise of outstanding options or warrants, or issuable upon conversion of outstanding convertible securities will be freely tradeable in the public markets, in certain cases pursuant to a registration statement or available exemption from registration. Of such shares issuable upon exercise or conversion of outstanding securities, approximately 16,941,609 shares are issuable at or below $1.27 per share, 5,706,655 additional shares are issuable at or below $1.58 per share and 200,000 additional shares are issuable at or below $2.00 per share. The availability of shares for public sale, or the perception of such availability, may have a depressive effect on the market price of the Common Stock. USE OF PROCEEDS The Company will use the proceeds received from the exercise of the Warrants and/or the Options, if any, for working capital and general corporate purposes. The Company will receive no proceeds from the conversion to Common Stock, if any, of the 8% Debentures or the 9% Debentures issued, if at all, upon the exercise of certain Warrants to purchase such securities. The Company will receive no proceeds from the sale of the Shares pursuant to this Prospectus. The Company expects to continue to use a significant amount of its working capital to finance its development, production and distribution activities, including those of its feature film division. The amount of working capital required for production activities will vary depending on, among other things , actual production costs, the timing of payments from, among others, proceeds from output arrangements, the networks and other third parties and the availability of additional licensing revenue. Additionally, the Company has expanded its distribution activities and may use a portion of the net proceeds to finance distribution activities in international or other markets. The Company from time to time considers the acquisition of assets or businesses complimentary to its current operations and may do so in the future. However, as of the date hereof, the Company does not have pending any agreements for the acquisition of any business (other than as described herein) nor has it allocated any portion of the net proceeds for any specific acquisitions. SELLING SHAREHOLDERS An aggregate of 3,437,809 shares of Common Stock are being registered in this offering for the account of the Selling Shareholders. The shares may be sold by the Selling Shareholders or their respective transferees commencing on the date of this Prospectus and, if applicable, after the prior exercise, if at all, of their respective Warrants or Options, and, in the case of the Warrants to purchase the 8% Debentures and the 9% Debentures, upon their subsequent conversion to Common Stock. Sale of the Shares may depress the price of the Common Stock in any market for the Common Stock. The following table sets forth certain information with respect to persons for whom the Company is registering the Shares for resale to the public. The Company will not receive any of the proceeds from the sale of the Shares to the public but will receive money upon the exercise, if any, of the Warrants and Options. See "Use of Proceeds." Each of the Selling Shareholders other than New City Releasing, Inc. ("New City") have acted as underwriter, placement agent or consultant for the Company in previous securities offerings or is an assignee of such underwriter, placement agent or consultant. New City and the Company are joint venturers in KLC/New City Tele-Ventures, a joint venture 82.5% owned by the Company, to acquire films for distribution through emerging new delivery systems, including pay cable, pay-per-view, basic cable, video-on-demand and satellite. None of the Selling Shareholders has had any other position, office or material relationship with the Company or its affiliates since the Company's inception in 1983. The Shares being registered pursuant to the registration statement of which this Prospectus is a part will be sold, if at all, by the Selling Shareholders listed below:
NUMBER OF SHARES OF NUMBER OF COMMON STOCK SHARES OF AMOUNT OF SHARES BENEFICIALLY OWNED COMMON STOCK OF COMMON STOCK BEFORE THE BEING OWNED AFTER NAME OFFERING (1) REGISTERED OFFERING (2) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - New City Releasing, Inc. 1,365,000 1,365,000 -0- RAS Securities Corp. 1,063,775 1,063,775 -0- Paul Morris 354,591 354,591 -0- Lawrence G. Williams 354,591 354,591 -0- Irwin Freidman 328,552 299,852 28,700
- - - - - - - - - - - - - (1) Assuming full exercise of the Warrants and Options, and as applicable, the full conversion into Common Stock of the 8% Debentures and the 9% Debentures issued upon exercise of certain Warrants to purchase such Debentures. (2) Assuming the full sale of all of the shares of Common Stock registered as part of the registration statement of which this Prospectus is a part. PLAN OF DISTRIBUTION The Shares may be offered by the Selling Shareholders commencing on the date of this Prospectus and, if applicable, after the exercise of their respective Warrants or Options, or portions thereof, and, in the case of the Warrants to purchase the 8% Debentures and the 9% Debentures, upon their subsequent conversion to Common Stock. There is no assurance that any of the Warrants or Options will be exercised or that if they are exercised, in the case of the Warrants to purchase the 8% Debentures and the 9% Debentures, they will be subsequently converted to shares of Common Stock. The sale of the Shares may be effected from time to time in transactions which may include block transactions by or for the account of the Selling Shareholders) in the over-the-counter market, on the NNM or in negotiated transactions, through the writing of options on the Shares, through a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. If any Selling Shareholder sells his, her or its Shares, or options thereon, pursuant to this Prospectus at a fixed price or at a negotiated price which is, in either case, other than the prevailing market price or in a block transaction to a purchaser who resells, or if any Selling Shareholder pays compensation to a broker-dealer that is other than the usual and customary discounts, concessions or commissions, or if there are any arrangements either individually or in the aggregate that would constitute a distribution of the Shares held by a Selling Shareholder, a post-effective amendment to the registration statement of which this Prospectus is a part would need to be filed and declared effective by the Commission before such Selling Shareholder could make such sale, pay such compensation or make such a distribution. The Company is under no obligation to file a post-effective amendment to the registration statement of which this Prospectus is a part under such circumstances. The Selling Shareholders may effect transactions in their Shares by selling their securities directly to purchasers, through broker-dealers acting as agents for the Selling Shareholders or to broker-dealers who may purchase the Selling Shareholde's Shares as principals and thereafter sell such securities from time to time in the over-the-counter market, on the NNM, in negotiated transactions, or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers for whom such broker-dealers may act as agents or to whom they may sell as principals or both. The Selling Shareholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of such securities might be deemed to be underwriting discounts and commissions under the Securities Act. In order to comply with the applicable securities laws of certain states, if any, the Shares will be offered or sold through registered or licensed broker-dealers in those states. In addition, in certain states the Shares may not be offered or sold unless they have been registered or qualified for sale in such states or an exemption from such registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of securities may not simultaneously engage in market making activities with respect to such securities for a period of two business days prior to the commencement of such distribution, In addition and without limiting the foregoing, the Selling Shareholders will be subject to appicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rule 10b-5, in connection with transactions in the Shares during the effectiveness of the registration statement of which this Prospectus is a part. All of the foregoing may affect the marketability of the Shares. The Company will pay all of the expenses, including, but not limited to, fees and expenses of compliance with state securities or blue sky laws, incident to the registration of the Shares, other than underwriting discounts and selling commissions, and fees or expenses, if any, of counsel or other advisors retained by the Selling Shareholders. DESCRIPTION OF SECURITIES COMMON STOCK The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock. At April 28, 1997, the Company had 54,252,810 shares of Common Stock issued and outstanding. Each share of Common Stock entitles the holder thereof to vote on all matters submitted to the shareholders; in electing directors, however, each shareholder is entitled to cumulate votes for any candidate if, prior to the voting, such candidate's name has been placed in nomination and any shareholder has given notice of an intention to cumulate votes. The Common Stock is not subject to redemption or to liability for further calls or assessment. Holders of Common Stock will be entitled to receive such dividends as may be declared by the Board of Directors of the Company out of funds legally available therefore and to share pro rata in any distribution to shareholders. The shareholders have no conversion, preemptive or other subscription rights. The warrants to purchase up to $1,643,330 aggregate principal amount of the 8% Debentures can be exercised at any time until March 10, 1999, at an exercise price of 120% of the principal amount of the 8% Debentures so purchased. Upon exercise, the 8% Debentures are convertible into shares of Common Stock at a conversion price of $0.975 per share of Common Stock, subject to adjustment under certain circumstances. The warrants to purchase up to $454,000 aggregate principal amount of the 9% Debentures can be exercised at any time until July 24, 1999, at an exercise price of 120% of the principal amount of the 9% Debentures so purchased. Upon exercise, the 9% Debentures are convertible into shares of Common Stock at a conversion price of $1.58 per share of Common Stock, subject to adjustment under certain circumstances. The options to purchase 100,000 shares of Common Stock can be exercised at any time until October 5, 2000, at an exercise price of $0.75 per share of Common Stock, subject to adjustment under certain circumstances. TRANSFER AGENT The Transfer Agent for the Common Stock is Corporate Stock Transfer, Denver, Colorado. SHARES ELIGIBLE FOR FUTURE SALE Substantially all of the 54,252,810 shares of Common Stock outstanding as of April 28, 1997, and, subject to issuance, the 22,848,264 shares of Common Stock issuable upon exercise of outstanding options or warrants, or issuable upon conversion of outstanding convertible securities will be freely tradeable in the public markets, in certain cases pursuant to a registration statement or available exemption from registration. Of such shares issuable upon exercise or conversion of outstanding securities, approximately 16,941,609 shares are issuable at or below $1.27 per share, 5,706,655 additional shares are issuable at or below $1.58 per share and 200,000 additional shares are issuable at or below $2.00 per share. The availability of shares for public sale, or the perception of such availability, may have a depressive effect on the market price of the Common Stock. EXPERTS The consolidated financial statements of The Kushner-Locke Company as of September 30, 1996 and 1995, and for each of the three years in the period ended September 30, 1996, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of such firm as experts in accounting and auditing. NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. TABLE OF CONTENTS
PAGE ---- Available Information.......... 2 Incorporation of Certain 2 Documents By Reference........... The Company...................... Risk Factors...................... 5 Use of Procee................... 8 Selling Shareholders............. 8 Plan of Distribution.............. 8 Desription of Securities.......... 10 Shares Eligible for Future Sale.... 11 Experts............................ 11
THE KUSHNER- LOCKE COMPANY 3,437,809 SHARES OF COMMON STOCK ---------------------------- PROSPECTUS ---------------------------- MAY 9, 1997 -----END PRIVACY-ENHANCED MESSAGE-----