-----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, QS8AlB3c2YQNPmR+Z4GEp7EKGnE+f9qKvH9fxGesnVYEr258yj07kCCdm8SJQeVz iT5GsZI6PCPJScMdv1+34w== 0000912057-96-002501.txt : 19960216 0000912057-96-002501.hdr.sgml : 19960216 ACCESSION NUMBER: 0000912057-96-002501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD SROS: PSE 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10661 FILM NUMBER: 96519130 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 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 DECEMBER 31, 1995 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) 445-1111 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 10% Convertible Subordinated Debentures, Series A due 2000 13 3/4% Convertible Subordinated Debentures, Series B due 2000 Common Stock Purchase Warrants ------------------------ 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 35,679,607 shares of outstanding Common Stock of the Registrant as of January 31, 1996. ------------------------ Total number of pages 21 Exhibit Index begins on page 21 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995 INDEX PART I. FINANCIAL INFORMATION 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 PART II. OTHER INFORMATION Items 1 through 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:10.44 10.45 10.46 10.47 10.48 10.49 10.50 10.51 (b) Reports on Form 8-K: None
2 PART I ITEM 1. THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
(UNAUDITED) (AUDITED) DECEMBER 31, SEPTEMBER 30, 1995 1995 -------------- -------------- Cash and cash equivalents........................................................ $ 1,705,000 $ 3,139,000 Restricted cash.................................................................. 1,959,000 1,162,000 Accounts receivable, net of allowance for doubtful accounts...................... 12,751,000 7,864,000 Due from affiliates.............................................................. 305,000 309,000 Notes receivable from August Entertainment, Inc.................................. 597,000 676,000 Film costs, net of accumulated amortization...................................... 72,416,000 73,716,000 Property and equipment, at cost, net of accumulated depreciation and amortization.................................................................... 494,000 515,000 Other assets..................................................................... 1,604,000 1,571,000 -------------- -------------- $ 91,831,000 $ 88,952,000 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS EQUITY Accounts payable and accrued liabilities......................................... $ 4,285,000 $ 3,245,000 Notes payable.................................................................... 30,807,000 28,398,000 Deferred film license fees....................................................... 2,990,000 2,753,000 Contractual obligations, principally participants' share payable and talent residuals....................................................................... 756,000 995,000 Production advances.............................................................. 14,962,000 16,609,000 Convertible subordinated debentures, net of deferred issuance costs.............. 17,622,000 17,745,000 -------------- -------------- Total liabilities............................................................ $ 71,422,000 $ 69,745,000 -------------- -------------- Stockholders' equity: Common stock, no par value. Authorized 80,000,000 shares, issued and outstanding 35,679,607 shares at December 31, 1995 and 35,466,599 shares at September 30, 1995............................................................ 23,527,000 23,337,000 Accumulated deficit.............................................................. (3,118,000) (4,130,000) -------------- -------------- Total stockholders' equity................................................... $ 20,409,000 $ 19,207,000 -------------- -------------- $ 91,831,000 $ 88,952,000 -------------- -------------- -------------- --------------
See accompanying Notes to condensed consolidated financial statements. 3 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ----------------------------- 1995 1994 -------------- ------------- Operating revenues................................................................. $ 16,107,000 $ 5,438,000 Costs related to operating revenues................................................ 13,313,000 4,297,000 Selling, general and administrative expenses....................................... 896,000 993,000 -------------- ------------- Earnings from operations......................................................... 1,898,000 148,000 Interest income.................................................................... 54,000 66,000 Interest expense................................................................... (929,000) (759,000) -------------- ------------- Earnings (loss) before income taxes.............................................. 1,023,000 (545,000) Provision for income taxes......................................................... 11,000 -- -------------- ------------- Net earnings (loss).............................................................. $ 1,012,000 $ (545,000) -------------- ------------- -------------- ------------- Net earnings (loss) per common and common equivalent share......................... $ 0.03 $ (0.02) -------------- ------------- -------------- ------------- Weighted average number of common and common equivalent shares outstanding......... 35,589,000 30,942,000 -------------- ------------- -------------- -------------
See accompanying Notes to condensed consolidated financial statements. 4 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1995 1994 --------------- -------------- Cash flows from operating activities: Net earnings (loss)........................................................... $ 1,012,000 $ (545,000) Adjustments to reconcile net earnings (loss) to net cash used by operating activities: Increase in restricted cash................................................. (797,000) -- Amortization of film costs.................................................. 13,310,000 4,244,000 Depreciation and amortization............................................... 52,000 53,000 Amortization of capitalized issuance costs and warrants..................... 107,000 108,000 Accounts receivable, net.................................................... (4,887,000) 243,000 Due from affiliates......................................................... 83,000 (708,000) Increase in film costs...................................................... (12,010,000) (9,853,000) Accounts payable and accrued liabilities.................................... 1,040,000 (74,000) Deferred film license fees.................................................. 237,000 114,000 Contractual obligations..................................................... (239,000) (126,000) Production advances......................................................... (1,647,000) 360,000 --------------- -------------- Net cash (used) by operating activities................................... (3,846,000) (6,184,000) --------------- -------------- Cash flows from investing activities: Increase in property and equipment, net....................................... (31,000) (94,000) Increase in other assets...................................................... (33,000) (250,000) --------------- -------------- Net cash (used) by investing activities................................... (64,000) (344,000) --------------- -------------- Cash flows from financing activities: Increase in notes payable..................................................... 5,009,000 7,763,000 Repayment of notes payable.................................................... (2,600,000) (8,200,000) Other......................................................................... 67,000 (60,000) --------------- -------------- Net cash provided (used) by financing activities............................ 2,476,000 (497,000) --------------- -------------- Net (decrease) in cash...................................................... (1,434,000) (7,025,000) Cash and cash equivalents at beginning of period................................ 3,139,000 15,681,000 --------------- -------------- --------------- -------------- Cash and cash equivalents at end of period...................................... $ 1,705,000 $ 8,656,000 --------------- -------------- --------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: (1) During the quarter ended December 31, 1994, $1,200,000 of convertible subordinated debentures before unamortized capitalized issuance costs of $136,000 were converted into 1,236,920 shares of Common Stock. (2) During the quarter ended December 31, 1995, $210,000 of convertible subordinated debentures before unamortized issuance costs of $20,000 were converted into 213,008 shares of common stock. See accompanying Notes to condensed consolidated financial statements. 5 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED DECEMBER 1995
STOCKHOLDERS' EQUITY ------------------------------------------------------------- RETAINED EARNINGS NUMBER OF COMMON (ACCUMULATED SHARES STOCK DEFICIT) TOTAL ------------- -------------- -------------- -------------- Balance at September 30, 1995..................... 35,466,599 $ 23,337,000 $ (4,130,000) $ 19,207,000 Conversions of convertible debentures............. 213,008 190,000 -- 190,000 Net earnings...................................... -- -- 1,012,000 1,012,000 ------------- -------------- -------------- -------------- Balance at December 31, 1995...................... 35,679,607 $ 23,527,000 $ (3,118,000) $ 20,409,000 ------------- -------------- -------------- -------------- ------------- -------------- -------------- --------------
See accompanying Notes to condensed consolidated financial statements. 6 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY The Kushner-Locke Company (the "Company") is principally engaged in the development, production and distribution of feature films, direct-to-video films, television series, movies-for-television, mini-series and animated programming. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of The Kushner-Locke Company, its subsidiaries and certain less than wholly-owned entities where the Company has control. All material intercompany balances and transactions have been eliminated. 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 December 31, 1995, the results of its operations for the three month periods ended December 31, 1995 and 1994, and its cash flows for the three month periods ended December 31, 1995 and 1994. Interim results are not necessarily indicative of results to be expected for a full fiscal year. Certain reclassifications have been made to conform prior year balances with the current presentation. RESTRICTED CASH During the quarter ended December 31, 1995, the Company had $1,959,000 in restricted cash related to advances made by the Company to film producers for the acquisition of distribution rights. These cash advances were being held in escrow accounts as collateral by financial institutions providing production loans to those producers. INCOME TAXES Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement supersedes SFAS No. 96, "Accounting for Income Taxes." Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in operating results in the period encompassing the enactment date. 7 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS (LOSS) PER SHARE Earnings (loss) per common and common equivalent share is based upon the weighted average number of shares of common stock outstanding plus common equivalent shares consisting of dilutive outstanding warrants and stock options. The weighted average number of common and common equivalent shares outstanding for the calculation of primary earnings per share was 35,589,000 and 30,942,000 for the quarters ended December 31, 1995 and 1994, respectively. The inclusion of the additional shares, assuming the conversion of the Company's convertible subordinated debentures, would have been anti-dilutive for the first quarters ended December 31, 1995 and December 31, 1994. (2) FILM COSTS Film costs consist of the following:
DECEMBER 31, SEPTEMBER 30, 1995 1995 -------------- -------------- In process or development.............................................. $ 40,280,000 $ 42,115,000 Released, principally television productions, net of accumulated amortization.......................................................... 32,136,000 31,601,000 -------------- -------------- $ 72,416,000 $ 73,716,000 -------------- -------------- -------------- --------------
(3) NOTES PAYABLE Notes payable are comprised of the following:
DECEMBER 31, SEPTEMBER 30, 1995 1995 -------------- -------------- Note payable to bank, revolving credit facility secured by substantially all Company assets, interest at prime (8.25% at February 1, 1996) plus 1.25%, outstanding principal balance due December 31, 1996.................................................................. $ 15,000,000 $ 14,804,000 Notes payable to banks and/or financial institutions consisting of six production loans secured by certain film rights held by producers, priced at different rates for each loan; approximately $1,480,281 of principal is payable before March 1996, $3,370,441 before July 1996, $1,737,704 before August 1996 and $9,218,623 before October 1996...... 15,807,000 13,594,000 -------------- -------------- $ 30,807,000 $ 28,398,000 -------------- -------------- -------------- --------------
8 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) CONVERTIBLE SUBORDINATED DEBENTURES
DECEMBER 31, SEPTEMBER 30, 1995 1995 -------------- -------------- Series A Convertible Subordinated Debentures due December 15, 2000, bearing interest at 10% per annum payable June 15 and December 15, net of unamortized capitalized issuance costs and warrants of $11,000 and $13,000, respectively................................................. $ 76,000 $ 84,000 Series B Convertible Subordinated Debentures due December 15, 2000, bearing interest at 13 3/4% per annum payable monthly, net of unamortized capitalized issuance costs of $337,000 and $354,000, respectively.......................................................... 2,969,000 2,972,000 Convertible Subordinated Debentures due December 15, 2000, bearing interest at 8% per annum payable February 1 and August 1, net of unamortized capitalized issuance costs of $988,000 and $1,058,000, respectively.......................................................... 9,999,000 10,129,000 Convertible Subordinated Debentures due July 1, 2002, bearing interest at 9% per annum payable January 1 and July 1, net of unamortized capitalized issuance costs of $472,000 and $490,000, respectively..... 4,578,000 4,560,000 -------------- -------------- $ 17,622,000 $ 17,745,000 -------------- -------------- -------------- --------------
SERIES A DEBENTURES As of December 31, 1995, the Company had outstanding $87,000 principal amount of Series A Debentures. The debentures are recorded net of unamortized underwriting discounts, expenses associated with the offering and warrants totaling $11,000 which are amortized using the interest method to interest expense over the term of the debentures. Approximately $2,000 of capitalized issuance costs have been amortized to interest expense for the three months ended December 31, 1995. SERIES B DEBENTURES As of December 31, 1995 the Company had outstanding $3,306,000 principal amount of Series B Debentures due 2000. The Series B Debentures are recorded net of unamortized underwriting discounts and expenses associated with the offering totaling $337,000, which are amortized using the interest method to interest expense over the term of the debentures. Approximately $17,000 of capitalized issuance costs had been amortized as interest expense for the three months ended December 31, 1995. 8% DEBENTURES As of December 31, 1995, the Company had outstanding $10,987,000 principal amount of 8% Debentures. The debentures are recorded net of unamortized underwriting discounts and expenses associated with the offering totaling $988,000 which are amortized using the interest method to interest expense over the term of the debentures. Approximately $70,000 of capitalized issuance costs had been amortized as interest expense for the three months ended December 31, 1995. 9 THE KUSHNER-LOCKE COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED) 9% DEBENTURES As of December 31, 1995, the Company had outstanding $5,050,000 principal amount of 9% Debentures. The debentures are recorded net of unamortized underwriting discounts and expenses associated with the offering totaling $472,000, which are amortized using the interest method to interest expense over the term of the debentures. Approximately $18,000 of capitalized issuance costs had been amortized as interest expense for the three months ended December 31, 1995. (5) INCOME TAXES Income taxes for the three month periods ended December 31, 1995 and 1994 were computed using the effective income tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. Management believes that all taxable income for the fiscal year will be offset by a deferred tax asset which will keep the effective federal tax rate at approximately 0%. (6) CONTINGENCIES The Company is involved in certain legal proceedings and claims arising out of the normal conduct of its business. Reference is made to the Company's annual report on Form 10-K for the fiscal year ended September 30, 1995 for a description of certain legal proceedings. Management of the Company believes that the ultimate resolution of these matters will not have a material adverse effect upon the Company's results of operations or financial condition. In its normal course of business as a entertainment distributor, the Company makes contractual down payments for the acquisition of distribution rights upon signature of documentation. This initial advance for rights ranges for 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 film or video materials and proof of rights held and insurance policies that may be required for the Company to begin exploitation of the product. As of December 31, 1995 the Company had made contractual agreements for an aggregate of approximately $1,315,000 in payments due should those third party producers complete delivery to the Company. If such third parties use the Company's distribution agreement as collateral for a production loan, then the Company may be obligated to make such payments to financial institutions or others instead of such third party producers. More than one half of these obligations have originated from the acquisition personnel in the Company's cable joint venture known as KLC/New City. These amounts are payable over the next eighteen months. 10 PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's revenues are currently derived primarily from the production or the acquisition of distribution rights of films released in the U.S. by studios, pay cable, basic cable, and videocassette companies; and from the development, production and distribution of television programming for the major U.S. television networks, basic and pay cable television and first-run syndication; as well as from the licensing of all rights to the films and television programs in international territories. While the Company generally finances all or a substantial portion of the budgeted production costs of its programming through domestic and international licensing and other arrangements, the Company typically retains rights in its programming which may be exploited in future periods or in additional territories. In April 1993, the Company established a feature film operation to produce and distribute low and medium budget films for theatrical and/or home video or cable release. The Company also 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. The Company's revenues and results of operations are significantly affected by accounting policies required for the industry and management's estimates of the ultimate realizable value of its films and programs. Production advances received prior to delivery or completion of a program are treated as deferred revenues and are recorded as either production advances or deferred license fees. Production advances are generally recognized as revenue on the date the program is delivered or available for delivery. Deferred license fees are recognized as revenue on the date of availability and/or delivery of the item of product. The Company generally capitalizes all costs incurred to produce a film, including the interest expense funded under production loans. Such costs also include the actual direct costs of production, certain exploitation costs and production overhead. 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 in future markets. These costs, as well as participation 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 from all sources for the program bear to management's estimate of anticipated total gross revenues for such film or program from all sources. In the event management reduces its estimates of the future gross revenues associated with a particular item of product, which had been expected to yield greater future proceeds, a significant write-down and a corresponding decrease in the Company's earnings for the quarter and fiscal year end in which such write-down is taken could result. 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 results of operations may occur from period to period. Thus, a change in the amount of entertainment product available for delivery from period to period have materially affected 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 product mix during this 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. 11 RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 The Company's operating revenues for the first quarter ended December 31, 1995 were $16,107,000, an increase of $10,699,000, or 196%, from $5,438,000 from the prior fiscal year's first quarter ended December 31, 1994. This increase was due primarily to the timing of delivery and/or availability of films and television programs. The Company has shifted its current product mix towards a greater percentage of feature films due to opportunities available to the Company. The Company recognized approximately $6,157,000 of revenues during the first quarter of fiscal 1996 from the delivery and/or availability of the ABC network mini-series INNOCENT VICTIMS starring Hal Holbrook and Rick Schroder; and $3,071,000 from the delivery and/or availability of four feature films: (a) SERPENT'S LAIR starring Jeff Fahey for WarnerVision, (b) THE GRAVE starring Gabrielle Anwar, Eric Roberts and Craig Sheffer, and (c) two of the six "Josh Kirby: Time Warrior" films for Paramount entitled THE HUMAN PETS and PLANET OF THE DINO KNIGHTS. The majority of remaining revenues for the period came from a license to a German distributor of rights to distribute the Company's library in Germany and from continuing licenses of completed product from the Company's library to domestic cable channel operators and international sub-distributors. Operating revenues for the first quarter of fiscal 1995 were primarily attributable to the delivery and/or availability of the theatrical feature film WES CRAVEN PRESENTS: MINDRIPPER and the television movie for CBS entitled DANGEROUS INTENTIONS, which together made up $3,650,000 of revenues for the period. In various stages of production for the Company's slate of projects currently scheduled for distribution during the balance of the fiscal year are (a) the major theatrical feature film THE LEGEND OF PINOCCHIO starring Martin Landau and Jonathan Taylor Thomas, (b) two animated feature films for Buena Vista Home Video, a division of The Walt Disney Company, that are sequels to the successful direct-to-video title THE BRAVE LITTLE TOASTER, (c) the feature film THREE MEN AND A JOB starring Jeff Fahey and Rae Dawn Chong, (d) a television movie for CBS called NO EASY ANSWERS starring Judith Light and (e) an infomercial on the subject of Christian music through the Company's partnership called TVFirst. Currently in pre-production and scheduled for principal photography starting in the second quarter are two television movies for CBS entitled PRINCESS DIANA and EVERY WOMAN'S DREAM, and a pilot for ABC called THE GUN. In addition, the Company has acquired domestic cable rights for a package of over 50 films, the majority of which are scheduled to be delivered during fiscal 1996, for distribution through a joint venture of the Company called KLC/New City; and acquired the international distribution rights to an additional 14 films for distribution through Kushner-Locke International, Inc. Since December 31, 1995, the projects recently completed and available for delivery, or actually delivered to the Company include (a) the feature film FREEWAY executive produced by Oliver Stone and starring Kiefer Sutherland, Reese Witherspoon and Brooke Shields, (b) the feature film WHOLE WIDE WORLD starring Vincent D'Onofrio and (c) an infomercial on the subject of romantic relationships through the Company's partnership called TVFirst. During the first quarter of 1996, approximately $12,010,000 was expended for new projects. Film costs in process or development at December 31, 1995 increased to $40,280,000 from $7,606,000 at December 31, 1994. Costs relating to operating revenues were $13,313,000 during the first quarter of fiscal 1996 as compared to $4,297,000 during the first quarter of fiscal 1995. As a percentage of operating revenues, costs relating to operating revenues were approximately 83% for the first quarter of fiscal 1996 compared to approximately 79% for the first quarter of fiscal 1995. The increased costs in the most recent period reflect a weighting of the product mix toward titles which, in general, are amortized more rapidly than titles determined to have a longer product life cycle and a greater number of related revenue sources. Selling, general and administrative expenses decreased to $896,000 in the first quarter of fiscal 1996 from $993,000 in the first quarter of fiscal 1995. The decrease resulted from additional capitalization of overhead in connection with increased production and distribution levels. This higher level 12 of operating activity has been provided by the Company's increased staffing and personnel, primarily in the feature film and international distribution divisions, and the Company's funding of overhead and development costs associated with joint ventures or partnerships related to interactive/multimedia applications, cable distribution and infomercial production. Overhead for the first quarter of fiscal 1996 did not include the 8% aggregate pre-tax profit performance bonus (in the maximum amount of $200,000 each per year) accruing to Messrs. Locke and Kushner under their employment agreements as amended in March 1994. Subject to approval by the Board of Directors, Messrs. Locke and Kushner have agreed to waive their pre-tax profit performance bonus in the event the Company's annual net income in fiscal 1996 is less than $1,000,000 and will receive such bonuses through an increased pre-tax profit percentage if the Company's net income for fiscal 1996 exceeds $1,000,000; but in no event shall they be entitled to receive a higher performance bonus than they would have received under the original employment agreements. Interest expense for the first quarter ended December 31, 1995 was $929,000 as compared to $759,000 for the first quarter ended December 31, 1994. The increase was due to higher average borrowings under the Company's line of credit primarily associated with increased production and acquisition financing of non-network movies. Total indebtedness for borrowed money increased to $30,807,000 at December 31, 1995 from $9,163,000 at December 31, 1994 The Company's estimated effective income tax expense was approximately 1% for the first quarter ended December 31, 1995 compared to an estimated effective income tax expense of approximately 0% for the year ended December 31, 1994. The $11,000 tax expense in first quarter of fiscal 1996 consisted of state taxes related to the number of active subsidiary companies. The Company reported earnings of $1,012,000, or $.03 per share, for the first quarter ended December 31, 1995 as compared to a net loss of $(545,000), or $(.02) per share, for the first quarter ended December 31, 1994. Weighted number of common shares for the compared first quarters were 35,589,000 in 1996 and 30,942,000 for 1995. The earnings in first quarter of fiscal 1996 resulted primarily from the Company completing a portion of its film and television projects in process and recognition of revenues on existing contracts receivable ("presales") made to third parties licensing the rights to distribute those projects in certain media and territories. The losses in the first quarter of fiscal 1994 resulted primarily from the delivery and or availability of fewer titles and certain expenses related to the expansion of the Company's feature film and international distribution divisions. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased to $3,664,000 (including $1,959,000 of restricted cash being used as collateral for certain production loans) at December 31, 1995 from $4,301,000 (including $1,162,000 of restricted cash) at September 30, 1995 primarily from utilization of working capital in the development, production, acquisition and distribution of feature films and, to a lesser extent, television programs; and expansion of the Company's business lines into related ancillary markets for its product. At December 31, 1995, the Company had net negative liquid assets of approximately $(18,372,000) consisting of cash and cash equivalents, accounts receivable and amounts due from affiliates less accounts payable and accrued liabilities, short-term production loans and the $15,000,000 current portion of the Company's existing line of credit which was then due to mature on January 31, 1996. The Company's line of credit subsequently was extended to December 31, 1996. The Company's production and distribution operations are capital intensive. The Company has funded its working capital requirements through receipt of third party domestic license payments and international licensing, as well as other operating revenues, and proceeds from debt and equity financing, 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 13 international markets. In addition, the expansion of the Company's international distribution business and the establishment of a new feature film division have significantly increased the Company's working capital requirements and use of related production loans. The Company experienced net negative cash flows from operating activities (resulting from the Company's significant expansion of production) of $(3,846,000) during the three months ended December 31, 1995, which was partially offset by net cash of $2,476,000 provided by financing activities from production loans and greater usage of the Company's revolving line of credit. As a result primarily of the foregoing factors, net unrestricted cash decreased during the three month period by $1,434,000 to $1,705,000 on December 31, 1995. As the Company expands 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. CREDIT FACILITY The Company's current line of credit with Imperial Bank provides for borrowings up to $15,000,000 based on specified percentages of eligible domestic and international accounts and contracts receivable and net film costs balances through December 31, 1996. The line of credit is secured by substantially all of the Company's assets and bears interest at an annual rate of prime (8.25% as of February 1, 1996) plus 1.25%. The Company is required to pay a commitment fee of .5% per annum of the unused portion of the credit line. As of December 31, 1995, the Company had drawn down $15,000,000 under this facility and had no further availability. The Imperial credit agreement, as amended and restated in August 1993, had an original maturity date of June 2, 1995. The original maturity date was extended in March 1995 to September 30, 1995, then subsequently extended in September 1995 to December 29, 1995 and further extended in December 1995 to January 31, 1996. On January 12, 1996, Imperial Bank provided to the Company its commitment to extend the existing credit line through December 31, 1996 and the Company paid a loan fee to the bank in connection with such commitment and agreed to issue warrants to purchase 500,000 shares of common stock to the bank at an exercise price no less than fair market value. The related amendment to the existing credit agreement became effective on January 31, 1996 upon payment of the balance of the loan fee. The third amendment to the Credit Agreement eliminated existing financial covenants as of September 30, 1995 and substituted revised quarterly net worth and net income requirements and set a minimum liquidity level. The outstanding credit agreement contains various covenants in addition to those mentioned above to which the Company must adhere. These covenants, among other things, include limitations on additional indebtedness, liens, investments, disposition of assets, guarantees, deficit financing, affiliate transactions and the use of proceeds and prohibit payment of dividends and prepayment of subordinated debt. The outstanding credit agreement also contains a provision permitting the bank to declare an event of default if the services of either of Messrs. Locke or Kushner are not available to the Company unless a replacement acceptable to the bank is named. The Company has commenced discussions with Imperial Bank concerning arranging or participating in a multi-year increased syndicated credit facility to amend or replace the existing facility by May 31, 1996 in which it is expected that Imperial Bank would continue to participate in a decreased amount. If such facility is not in place by such time, as required by the amendment to the facility, the existing line of credit will be reduced in size from $15,000,000 to $12,500,000 during the period from May 31, 1996 to October 31, 1996 and will mature December 31, 1996. SECURITIES OFFERINGS From December 1990 through April 1991, the Company sold an aggregate of $5,700,000 principal amount of Series A Debentures and an aggregate of $6,000,000 principal amount of Series B Debentures. In connection with the issuance of certain of the Series A Debentures, the Company issued warrants to purchase an aggregate of 2,100,000 shares of Common Stock at an exercise price of $2.00 14 per share. In November 1995, the Company elected to extend the expiration date of such warrants from March 20, 1996 to March 20, 1997. As of September 30, 1995, approximately $97,000 principal amount of Series A Debentures and $3,326,000 of Series B Debentures were outstanding. The Series A Debentures are convertible into shares of Common Stock at the rate of approximately $1.27 per share and the Series B Debentures into shares of Common Stock at the rate of approximately $1.54 per share. The reduction in Series A and Series B Debentures has resulted primarily from conversions to Common Stock. The Company currently has the right to redeem the Series A Debentures at redemption prices at 103% of par after September 30, 1995 and declining to par after September 30, 1997. The indentures under which the Company's outstanding debentures described above were issued contain various covenants to which the Company must adhere. These covenants, among other things, also impose certain limitations on additional indebtedness and dividend payments by the Company. In November 1992, the Company completed an offering of 8,050,000 shares of its common stock for which the Company received net proceeds of approximately $6,640,000. During March and April 1994, the Company sold $16,437,000 principal amount of 8% Convertible Subordinated Debentures due 2000. In connection with the issuance of the 8% Debentures, the Company issued warrants to purchase up to 10% of the aggregate principal amount of Debentures sold at an exercise price equal to 120% of the principal amount of the Debentures. The 8% Debentures are convertible into shares of common stock at the rate of $.975 per share, subject to customary anti-dilutive provisions and provisions in the event of certain payment defaults. The Company will have the right to redeem the 8% Debentures at redemption prices commencing at 102.7% of par on or after February 1, 1998 and declining to par on or after February 1, 2000. The Debentures are subordinated in right of payment to all Senior Indebtedness (as defined) of the Company and rank pari passu with the Company's Series A and Series B Debentures. The fiscal agency agreement, under which the Company's 8% Debentures were issued, contains various covenants to which the Company must adhere. During July 1994, the Company sold $5,050,000 principal amount of 9% Convertible Subordinated Debentures due 2002. In connection with the issuance of the 9% Debentures, the Company issued warrants to purchase up to 9% of the aggregate principal amount of Debentures sold at an exercise price equal to 120% of the principal amount of the Debentures. The 9% Debentures are convertible into shares of common stock at the rate of $1.58 per share, subject to customary anti-dilutive provisions and provisions in the event of certain payment defaults. The Company has the right to redeem the 9% Debentures at redemption prices commencing at 103% of par on or after July 1, 1998 and declining to par on or after July 1, 2000. The Debentures are subordinated in right of payment to all Senior Indebtedness (as defined) of the Company and rank pari passu with the Company's Series A, Series B and 8% Debentures. The fiscal agency agreement, under which the Company's 9% Debentures were issued, contains various covenants to which the Company must adhere. In September 1994, the Company filed a registration statement covering an aggregate of 21,388,064 shares of common stock comprising the shares of common stock issuable upon conversion of the 8% Convertible Subordinated Debentures and the 9% Convertible Subordinated Debentures and certain warrants issued to underwriters. Since the end of the fiscal year, primarily as a result of the conversion of the 8% and 9% Debentures, the number of outstanding shares of common stock has increased from 30,069,101 to 35,679,607 as of December 31, 1995. PRODUCTION/DISTRIBUTION LOANS The Company's other short term borrowings, totaling $15,807,019 as of December 31, 1995, consist of production loans from Newmarket Capital Group L.P. ("Newmarket"), Banque Paribas (Los Angeles Agency) ("Paribas") and Imperial Bank ("Imperial") to consolidated production entities. The Kushner-Locke Company provides limited corporate guarantees for a portion of the Newmarket and Paribas loans which are callable in the event that the production companies' loan amounts (including a reserve for fees, interest and financing costs) are not adequately collateralized with acceptable 15 contracts receivable from third party domestic and/or foreign sub-distributors by certain dates or by the maturity date of the loan. Deposits on the purchase price paid by these sub-distributors are held as restricted cash collateral by the Lenders. The table below shows production loans as of December 31, 1995. Corporate guarantees have been reduced as of December 22, 1995 due to the Company reaching certain sales milestones as allowed under the Newmarket loans. Three of the production loans were scheduled to mature before April 1996. The Company requested, and Newmarket agreed, to extend the maturity dates by approximately 90 days on the production loans for SERPENT'S LAIR, THE GRAVE and WHOLE WIDE WORLD for customary delays in the process of delivering and collecting cash from foreign territories.
AMOUNTS WEIGHTED FILM LENDER LOAN AMOUNT OUTSTANDING INTEREST GUARANTY MATURITY - --------------------------- -------------- -------------- -------------- ----------- -------------- ---------- THE LEGEND OF PINOCCHIO.... Newmarket $ 12,500,000 $ 9,218,623 8.75% $2,175,000 9-30-96 SERPENT'S LAIR............. Newmarket $ 1,005,000 $ 763,100 9.25% $ 345,000 6-30-96 THE GRAVE.................. Newmarket $ 2,100,000 $ 1,554,684 10.25% $ 300,000 6-30-96 WHOLE WIDE WORLD........... Newmarket $ 1,550,000 $ 1,052,627 8.00% $ 500,000 6-30-96 FREEWAY.................... Paribas $ 1,983,333 $ 1,737,704 7.00% $ 961,667 7-5-96 TIME WARRIORS.............. Imperial $ 1,950,000 $ 1,480,281 9.60% *$1,480,281 2-28-96 -------------- -------------- -------------- $ 21,088,333 $ 15,807,019 $5,761,948 -------------- -------------- -------------- -------------- -------------- --------------
* The TIME WARRIORS loan was reduced to $606,607 as of February 1, 1996. In October 1994, The Kushner-Locke Company obtained a production loan in the amount of $1,950,000 from Imperial Bank to cover a portion of the budget of the JOSH KIRBY: TIME WARRIORS series. The Imperial loan bears interest at Prime (8.25% as of February 1, 1996) plus 3% payable monthly plus loan fees of $97,500 plus a net profit participation. The loan is secured solely by the rights, title and assets related to the film series which has been completely and is in the process of being delivered to domestic and international sub-distributors. Collection of cash from sales has been reducing the loan balance. At December 31, 1995, the outstanding loan balance was $1,480,281 under the TIME WARRIOR production loan. The loan matures on February 28, 1996 but was partially prepaid in January 1996. The remaining principal balance as of February 1, 1996 was approximately $606,607. The Company entered into a long form agreement dated as of February 6, 1995 with Savoy Pictures, Inc. ("Savoy") relating to the development, production, financing and distribution of a live-action feature-length theatrical motion picture currently titled THE LEGEND OF PINOCCHIO. The film commenced principal photography in July 1995. The film will be distributed in foreign territories by the Company. The film will be distributed domestically by New Line Pictures (a subsidiary of Turner Entertainment Co.) which has acquired the domestic and 50% of certain ancillary rights from Savoy. Pursuant to the February 6, 1995 letter agreement, the Company licensed those domestic and ancillary rights to Savoy in exchange for Savoy funding 50% of the budget to the production entity up to $25,000,000 (which budget has been subsequently increased to approximately $28,450,000 of which the majority of such increase has been financed by Savoy in exchange for certain profit participations). In order to fund the Company's up to $12,850,000 share of the budgeted negative costs, the Company has assisted the film's production company, a consolidated entity, in obtaining loan documentation from Newmarket which agreed to provide for financing in the amount of 50% of the film's original budget up to $12,500,000, a portion of which is reserved to pay the lender's financing fees and costs. The loan bears interest at LIBOR plus 2% and fees were determined on a sliding scale related to the amount of acceptable contracts receivable at the time of initial funding. As of December 31, 1995 $2,175,000 of the obligations of the production company to Newmarket under the loan facility, other than the portion of the loan covered by more than $13,000,000 of foreign pre-sales, was guaranteed by The Kushner-Locke Company. 16 There is no assurance that THE LEGEND OF PINOCCHIO, which represents the Company's biggest budget theatrical motion picture to date, will be successful. The Company has obtained completion bond insurance to guaranty that the film will be completed and delivered to the technical specifications of Savoy (as assigned to New Line Pictures) and international sub-distributors. New Line Pictures has agreed to accept the technical specifications ordered by Savoy as its delivery requirements. The Company's ability to complete this project is materially dependent upon both funding by Savoy (against domestic distribution rights it licensed) and by Newmarket (against the Company's foreign pre-sales and remaining foreign rights). In May and June 1995 the Company, in its role as world wide distributor, agreed to guaranty a portion of two production loans to film producers, which are consolidated entities, from Newmarket with respect to the feature films SERPENT'S LAIR and THE GRAVE. The loans of $1,005,000 and $2,100,000 each bear interest at an annual rate of Prime (8.25% as of February 1, 1996) plus 1% on the first $500,000 advanced under the loan, then pricing options are at either (a) Prime plus 1% or (b) LIBOR plus 3% on the remaining loan balance through February 1, 1996 when the loans have a pricing increase to Prime + 3% through the maturity date of such loans, plus loan fees of $60,000 per loan, plus a net profit participation. The loans are secured by the rights, title and assets of the production companies related to those films. The loans mature on June 30, 1996. The Kushner-Locke Company's corporate guaranty is reducible by substitution of contracts receivable from sub-distributors licensing rights to these films in certain media and territories. Milestone dates for aggregate acceptable contracts receivable were set by Newmarket within the loan documentation. In September and December 1995, Newmarket granted waivers to the borrower for not reaching these milestones and amended its Loan and Security Agreements accordingly. At December 31, 1995, the outstanding balance on The Kushner-Locke Company's corporate guaranty of principal and interest for SERPENT'S LAIR was reduced to $345,000 and for THE GRAVE was reduced to $300,000 as a result of reaching certain acceptable sales levels. In August 1995 the Company, in its role as world wide distributor, agreed to guaranty a portion of two other production loans to film producers, which are consolidated entities, provided by Newmarket and Banque Paribas, Los Angeles Agency ("Paribas") with respect to the films WHOLE WIDE WORLD and FREEWAY. The $1,550,000 loan from Newmarket for WHOLE WIDE WORLD bears interest at rate of Prime (8.25% as of February 1, 1996) plus 1% on the first $500,000 advanced under the loan, then pricing options are at either (a) Prime plus 1% or (b) LIBOR plus 3% on the remaining loan balance through February 1, 1996 when the loan has a pricing increase to Prime + 3% through the maturity date of June 30, 1996, plus loan fees of $60,000, plus a net profit participation. The Kushner-Locke Company's corporate guaranty is reducible by the substitution of acceptable contracts receivable. Milestone dates for aggregate acceptable contracts receivable were set by Newmarket within the loan documentation. In September and December 1995, Newmarket granted waivers to the Borrower for not reaching these milestones and amended its Loan and Security Agreement accordingly. As of December 31, 1995 The Kushner-Locke Company's outstanding corporate guaranty of principal for WHOLE WIDE WORLD was $500,000 and Newmarket required that the loan be repaid by $500,000 of principal. The Paribas loan for $1,983,333 for FREEWAY bears interest at either (a) Reference Rate (8.25% as of February 1, 1996) plus 1/2% or (b) LIBOR + 2% until the maturity date of July 5, 1996. In this case, there are no milestone dates for aggregate contracts receivable and The Kushner-Locke Company's corporate guaranty of $961,667 is not reducible during the life of the loan. The amount of the difference between the cash collected and $961,667 is collectable at the maturity date by Paribas from The Kushner-Locke Company. In December 1994, the Company advanced August Entertainment, Inc. ("August") $650,000 against distribution rights to third party product. August is majority owned by Gregory Cascante, who joined the Company as head of its new international film distribution division. The agreement is secured by all assets of August, including a pledge of all sales commissions due to August from the producers thereof on the films SLEEP WITH ME, LAWNMOWER MAN II and NOSTRADAMUS. While the right of August to receive such commissions with respect to the film LAWNMOWER MAN II is subordinate to 17 the interests of the production lenders, The Allied Entertainments Group PLC, and its subsidiaries which produced the film, has guaranteed payment of such commissions to the extent they would be payable had there been no production loan on that film. The loan bears interest at the lesser of (a) Prime (8.25% at February 1, 1996) plus 2% or (b) 10%. Repayment of principal and interest is by collection of commissions assigned as collateral. As of December 31, 1995 the Company had been repaid approximately $170,000 toward interest and principal. The loan matures in December 1996. SUMMARY While the Company believes that it will obtain a multi-year increased syndicated credit facility by May 31, 1996, there is no assurance that the Company will obtain such credit accommodation. If the Company is unable to obtain such increased credit facility, the Company will seek alternative financing. However, there is no guarantee that alternative financing will be available on acceptable terms. If such increased credit facility and/or alternative financing is not available, Management believes that existing resources and cash generated from operating activities, after a reduction of the level of Company's investment in film costs, will be adequate to comply with the terms of the extension of the Imperial credit facility through December 1996. To the extent that existing resources and a reduction in the level of Company's investment in film costs are not adequate, Management has the ability and intent to reduce operating expenses. In the event that the Company is unable to comply with the terms of such extension or obtain an additional extension or alternative financing after the current maturity date of December 31, 1996, the Company would seek to restructure its obligations under the facility. This would have a significant effect on the Company's operations. The Company's business and operations have not been materially affected by inflation. 18 PART II OTHER INFORMATION 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 page hereto. (b) Reports on Form 8-K: None. 19 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. THE KUSHNER-LOCKE COMPANY (Registrant) Dated: February 12, 1996 /s/ PETER LOCKE -------------------------------------- Peter Locke CO-CHAIRMAN OF THE BOARD, CO-CHIEF EXECUTIVE OFFICER AND PRESIDENT Dated: February 12, 1996 /s/ DONALD KUSHNER -------------------------------------- Donald Kushner CO-CHAIRMAN OF THE BOARD, CO-CHIEF EXECUTIVE OFFICER AND SECRETARY Dated: February 12, 1996 /s/ LENORE NELSON -------------------------------------- Lenore Nelson CHIEF FINANCIAL OFFICER, EXECUTIVE VICE PRESIDENT AND ASSISTANT SECRETARY 20 INDEX TO EXHIBITS EXHIBITS: 10.44 Amendment to the 1988 Stock Incentive Plan dated May 17, 1994 10.45 Amendment No. 3 dated December 31, 1995 between The Kushner-Locke Company and Imperial Bank for the Third Amended and Restated Credit Agreement dated as of February 9, 1990, as amended and restated as of December 14, 1990, as of May 1, 1992 and as of August 31, 1993 10.46 First Amendment to Credit Documents dated December 22, 1995 between Allied Pinocchio Productions, Limited, Newmarket Capital Group L.P., Bank of America National Trust and Savings Association, The Kushner-Locke Company and Kushner-Locke International, Inc. (THE LEGEND OF PINOCCHIO) 10.47 Third Amendment to Credit Documents dated December 22, 1995 between Dayton Way Pictures II, Inc., Newmarket Capital Group L.P. and Kushner-Locke International, Inc., a division of The Kushner-Locke Company (SERPENTS LAIR) 10.48 Second Amendment to Credit Documents dated December 22, 1995 between Dayton Way Pictures, Inc., Newmarket Capital Group L.P. and Kushner-Locke International, Inc., a division of The Kushner-Locke Company. (THE GRAVE) 10.49 Second Amendment to Credit Documents dated December 22, 1995 between Dayton Way Pictures IV, Inc. and Newmarket Capital Group L.P. (WHOLE WIDE WORLD) 10.50 Cross Collateralization Agreement dated as of July 7, 1995 between The Kushner-Locke Company, Allied Pinocchio Productions Ltd., Dayton Way Pictures, Inc., Dayton Way Pictures II, Inc., Dayton Way Pictures IV, Inc. and Newmarket Capital Group, L.P. 10.51 First Amendment to Cross Collateralization Agreement dated January 10, 1996 between The Kushner-Locke Company, Allied Pinocchio Productions Ltd., Dayton Way Pictures, Inc., Dayton Way Pictures II, Inc., Dayton Way Pictures IV, Inc. and Newmarket Capital Group, L.P.
21 EX-10.44 2 EXHIBIT 10.44 (EXHIBIT 10.44) THE KUSHNER-LOCKE COMPANY 11601 Wilshire Boulevard, 21st Floor Los Angeles, California 90025 _______________ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 17, 1994 _______________ To the Shareholders: Notice is hereby given that the Annual Meeting of Shareholders of The Kushner-Locke Company (the "Company") will be held at The Loews Santa Monica Beach Hotel, 1700 Ocean Avenue, Santa Monica, California on May 17, 1994, at 2:00 p.m. local time, to consider and vote upon the following: (i) The election of Directors; (ii) To approve the appointment of KPMG Peat Marwick as the Company's independent accountants for the fiscal year ending September 30, 1994; (iii) To amend the Company's Amended Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company from the present amount of 50,000,000 shares to 80,000,000 shares; (iv) To amend the Company's 1988 Stock Incentive Plan (the "Plan") to (a) increase the number of shares of Common Stock of the Company authorized under the Plan from 1,500,000 shares to 4,500,000 shares and (b) to extend the term of the Plan from October 15, 1998 to May 15, 2004; (v) To ratify the Option Committee's grant of options under the Plan to purchase 900,000 shares of Common Stock to each of Donald Kushner and Peter Locke; and (vi) Such other business as may properly come before the meeting or any adjournment(s) thereof. Information concerning these matters, including the names of the nominees for the Company's Board of Directors, is set forth in the attached Proxy Statement, which is a part of this Notice. The Board of Directors of the Company has fixed April 4, 1994 as the record date for the determination of the shareholders entitled to notice of, and to vote at the Annual Meeting. Accordingly, only those shareholders of record at the close of business on that date are entitled to vote at the Annual Meeting or any adjournment(s) thereof. The Company's Board of Directors urges that all shareholders of record exercise their right to vote at the meeting personally or by proxy. Your proxy will continue in full force and effect unless and until you revoke such proxy prior to the vote such proxy pertains to. You may revoke your proxy by a writing delivered to the Company stating that the proxy is revoked or by a subsequent proxy executed by you, or by attending the meeting and voting in person. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. By Order of the Board of Directors [SIGNATURE OF DONALD KUSHNER] Donald Kushner CO-CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND SECRETARY April 21, 1994 Los Angeles, California TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE, SIGN (DO NOT PRINT) YOUR NAME AND DATE THE ENCLOSED PROXY CARD(S) AS PROMPTLY AS POSSIBLE AND RETURN IT (THEM) IN THE ENCLOSED PRE-ADDRESSED ENVELOPE. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. EXHIBIT B PROPOSED AMENDMENTS TO THE 1988 STOCK INCENTIVE PLAN OF THE KUSHNER-LOCKE COMPANY SECTION 2.4 of the Company's 1988 Stock Incentive Plan is amended to read as follows: The stock to be offered under this Plan shall be shares of the Corporation's authorized but unissued Common Stock. The aggregate amount of Common Stock that may be issued or transferred pursuant to Awards granted under this Plan shall not exceed 4,500,000 shares, subject to adjustment as set forth in Section 7.2. If any Option and any related Stock Appreciation Right shall lapse or terminate without having been exercised in full, or any Common Stock subject to a Restricted Stock Award shall not vest or any Common Stock subject to a Performance Share Award shall not have transferred, the unpurchased shares subject thereto shall again be available for purposes of this Plan. SECTION 3.1 of the Company's 1988 Stock Incentive Plan is amended to read as follows: (a) One or more Options may be granted to any Eligible Person. Each Option so granted shall be designated by the Committee as either a Nonqualified Stock Option or an Incentive Stock Option. (b) Nonqualified Stock Options shall be granted to each of Donald Kushner and Peter Locke to purchase 900,000 of Common Stock. The duration of each such Option shall be for a period of ten years from the date of grant. No such Option may be exercised until the first anniversary of the date of grant. Such Options shall be granted as of March 7, 1994 and will vest over a five-year period with 20% of the shares of Common Stock subject to the Option vesting on the first anniversary of the date of grant and an additional 20% of the shares of Common Stock subject to the Option may be purchased on the second, third, fourth and fifth anniversaries of the date of grant. The purchase price for the shares of Common Stock to be purchased pursuant to the exercise of any Option granted under this Section 3.1(b) shall be paid in cash or bank cashier's check at an exercise price equal to the fair market value at the date of grant. Notwithstanding any provision of this Plan to the contrary, the provisions of this Section 3.1(b) may not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder. SECTION 7.10 of the Company's 1988 Stock Incentive Plan is amended to read as follows: Unless previously terminated by the Board, this Plan shall terminate at the close of business on May 15, 2004, and no Awards shall be granted under it thereafter, but such termination shall not affect any Award theretofore granted. EX-10.45 3 EXHIBIT 10.45 (EXHIBIT 10.45) AMENDMENT NO. 3 (the "Amendment") dated as of December 31, 1995 to the Third Amended and Restated Credit Agreement, dated as of February 9, 1990, as amended and restated as of December 14, 1990, as of May 1, 1992 and as of August 31, 1993, (as heretofore amended, the "Credit Agreement"), among THE KUSHNER-LOCKE COMPANY, a California corporation (the "Company"), the other Individual Borrowers referred to therein (collectively with the Company, "Borrower"), the Lenders referred to therein (the "Lenders") and IMPERIAL BANK, a California banking corporation as Agent (the "Agent"). INTRODUCTORY STATEMENT All capitalized terms not otherwise defined in this Amendment are as defined in the Credit Agreement. The Company has requested that certain provisions of the Credit Agreement be amended and waived as hereinafter set forth. Accordingly, the parties hereby agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT. Subject to the conditions set forth in Section 4, the Credit Agreement is hereby amended as follows: (A) The definition of "Borrowing Base Availability" appearing in Article 1 of the Credit Agreement is hereby amended in its entirety to read as follows: "'BORROWING BASE AVAILABILITY' shall mean, at any date of determination, the LESSER of: (i) an amount equal to the sum of (a) the lesser of the Tier 1 Borrowing Base or $15,000,000; PLUS (b) the lesser of the Tier 2 Borrowing Base or $4,000,000; PLUS (c) the least of the Tier 3 Borrowing Base, $6,000,000 or 40% of the Borrowing Base; PLUS (d) the lesser of the Tier 4 Borrowing Base or $2,500,000, or (ii) the Commitment then in effect, MINUS, in both cases, the sum of (A) the aggregate then outstanding principal amount of all Advances and Letter of Credit Usage under the Credit Facility, and (B) aggregate amount of any then imposed Third Party Financing Reserve." (B) Clause (xiv) of the definition of "Ineligible Receivable(s)" appearing in Article 1 of the Credit Agreement is hereby amended by adding the following proviso at the end thereof: ", provided, however, that aggregate receivables owing from TaurusFilm GmbH & Company included in the Borrowing Base may exceed 15% of the Borrowing Base but may not exceed $3,000,000." (C) The following definition is hereby added to Article 1 of the Credit Agreement in the correct alphabetical sequence" " 'NET INCOME' shall mean, for any period for which such amount is being determined, the net income of the Borrower for such period in accordance with GAAP." (D) The definition of "Maturity Date" appearing in Article l of the Credit Agreement is amended in its entirety to read as follows: "'Maturity Date' shall mean December 31, 1996." (E) Section 2.2.2 of the Credit Agreement is hereby amended by changing the date appearing therein to December 31, 1996. (F) The following clause (c) is hereby added at the end of Section 2.12.2 of the Credit Agreement: "(c) The Commitment shall automatically be reduced to the amount set forth in column (y) below as of the date set forth in column (x) below: Column (x) Column (y) ---------- ---------- May 31, 1996 $14,583,000 June 28, 1996 14,166,000 July 31, 1996 13,749,000 August 30, 1996 13,332,000 September 30, 1996 12,915,000 October 31, 1996 12,500,000 December 31, 1996 0 (G) Section 5.4 of the Credit Agreement is hereby amended as follows: (i) to amend the heading of such Section in its entirety to read as follows: "Borrowing Base Certificates and Liquidity Certificates"; (ii) to insert "(a)" at the beginning of the existing text of such Section, immediately preceding the word "Concurrently"; and (iii) to add the following paragraph at the end thereof: "(b) On a monthly basis no later than the last day of each calendar month, Borrower shall deliver to the Agent a liquidity certificate (in a form mutually agreed upon by Borrower and the Agent and certified as true and correct by the Chief Financial Officer of KLC) - 2 - demonstrating in reasonable detail compliance with the provisions of Section 5.8 hereof as of the last day of the applicable calendar month, provided, however, that in demonstrating such compliance, additional availability under the Facility shall be determined using the Borrowing Base set forth in the Borrowing Base Certificate most recently delivered to the Agent. Failure by Borrower to fully comply with the foregoing within ten (10) days of the last day of each calendar month shall constitute an Event of Default hereunder, and, without limiting the Agent's, the Issuing Bank's or the Lenders' rights and remedies, shall entitle the Agent, the Issuing Bank or the Lenders, as the case may be, without notice, to thereafter refrain from making any Advances or issuing any Letters of Credit hereunder until such liquidity certificate has been delivered to the Agent." (H) Sections 5.7, 5.8, 5.9, 5.10 and 5.11 appearing in Article 5 of the Credit Agreement are hereby amended by deleting them in their entirety and replacing them with the following: "5.7. MINIMUM CONSOLIDATED CAPITAL BASE. Borrower's Consolidated Capital Base shall not be less than $36,000,000 during the period from 12/31/95 through 3/30/96; $37,000,000 during the period from 3/31/96 through 6/29/96; $39,650,000 during the period from 6/30/96 through 9/29/96; $40,900,000 during the period from 9/30/96 through 12/30/96 and $43,400,000 thereafter. For purposes hereof, Consolidated Capital Base shall mean Tangible Net Worth plus Subordinated Debt. In the event any item of Product with a budget in excess of $1,500,000 has not been released or aired within 12 months of its completion, Tangible Net Worth shall be reduced by the book value of such item of Product. In addition, to the extent that Subordinated Debt increases at any time due solely to accreted interest, the amount of such accreted interest shall also be deducted for purposes of this calculation. 5.8. LIQUIDITY. Borrower shall maintain a minimum total amount of cash, cash equivalents and Borrowing Base Availability of not less than $2,000,000 at all times. For purposes of this Section 5.8 only, if the Borrower shall have cash and cash equivalents which total $1,000,000 or more, then Borrowing Base Availability shall be determined using only clause (i) of the definition of Borrowing Base Availability and disregarding clause (ii) of such definition. - 3 - 5.9. MINIMUM NET INCOME. Borrower shall not permit Net Income for the period ended on the dates listed below in column (x) to be less than the amount listed opposite such period in column (y) below: Column (x) Column (y) ---------- ---------- 12/31/95 $1,000,000 3/31/96 750,000 6/30/96 2,650,000 9/30/96 1,250,000 12/31/96 2,400,000 5.10 [Intentionally omitted] 5.11 [Intentionally omitted]" (I) Article 5 of the Credit Agreement is hereby amended by adding the following new Section 5.31 thereto: "5.31. ING NOTICES AND DOCUMENTS. No later than February 29, 1996, the Borrower shall have taken all appropriate and necessary action (as determined by the Agent in its reasonable discretion) in connection with the various notices and documents previously distributed by Internationale Nederlanden (U.S.) Capital Corporation ("ING") or the Company relating to a possible financing transaction between ING and the Borrower." (J) The second sentence of Section 7.2 of the Credit Agreement is hereby amended as follows: (i) to add the words "and Section 5.4(b)" after the words "under Section 5.2" appearing therein; and (ii) to insert "(a)" after the number 5.4 appearing therein. (K) Article 7 of the Credit Agreement is hereby amended by adding the following Sections 7.17, 7.18 and 7.19 at the end thereof: "7.17. CHAIN OF TITLE REVIEW. On or prior to March 31, 1996, the Agent shall not have received such copyright search reports and chain of title material on such titles as the Agent shall have reasonably requested, which reports and materials shall be satisfactory to the Agent in its reasonable discretion. 7.18. WARRANT AGREEMENT. On or prior to March 31, 1996, the Agent shall not have received a Warrant Agreement executed by the Borrower in form and - 4 - substance reasonably satisfactory to the Agent with respect to 500,000 shares of KLC's common stock at an exercise price no less than the fair market value of such stock on the date the warrant is granted. 7.19. INDEBTEDNESS OF KLC OR IO INTERNATIONAL LTD. KLC or IO International Ltd. shall default in the payment when due of any indebtedness or other obligation owed to Imperial Bank (individually or as agent) or any other lender in connection with the series "Time Warrior", including, without limitation, the payment of the unpaid balance of the backend profit participation and the consideration for the release by Imperial Bank of its participation in the future revenue stream thereof." SECTION 2. WAIVERS. The Lenders hereby waive the Borrowers' compliance with Sections 5.7, 5.8, 5.9, 5.10 and 5.11 of the Credit Agreement as of and for the period from 9/30/95 through 12/30/95. SECTION 3. LOAN FEE. The Borrower hereby agrees to pay to the Agent a loan fee (the "Loan Fee") equal to 2% of the amount of the Commitment upon the earlier of (i) February 12, 1996 and (ii) execution of this Amendment. The Agent acknowledges that it has received fifty percent (50%) of the Loan Fee. SECTION 4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject to the satisfaction in full of the following conditions: (A) The Agent shall have received executed counterparts of this Amendment from all the Borrowers and the Lenders; (B) The Borrower shall have paid to the Agent the unpaid balance of the Loan Fee referred to in Section 3 of this Amendment in full; and (C) All legal matters in connection with this Amendment shall be satisfactory to Morgan Lewis & Bockius LLP, counsel for the Agent. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants that: (A) 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 such representations and warranties expressly relate to an earlier date; and - 5 - (B) After giving effect to the provisions of this Amendment, no Event of Default or event which with the passage of time, or the giving of notice or both would constitute an Event of Default has occurred and is continuing. SECTION 6. FULL FORCE AND EFFECT. Except as expressly amended or waived hereby, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof on the date hereof, and the Credit Agreement as so amended is hereby ratified and confirmed. As used in the Credit Agreement, the terms "Agreement", "this Agreement" "herein", "hereinafter", "hereto", "hereof", and words of similar import, shall, unless the context otherwise requires, mean the Credit Agreement as amended by this Amendment. SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. SECTION 8. 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 9. EXPENSES. Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Agent and/or the Lenders in connection with the preparation, execution and delivery of this Amendment, including, but not limited to, the reasonable fees and disbursements of Morgan Lewis & Bockius LLP, counsel for the Agent. SECTION 10. HEADINGS. The headings of this Amendment are for the purposes of reference only and shall not affect the construction of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the date and year first above written. IMPERIAL BANK Individually and as Agent By: /s/ Janice Zeitinger ---------------------------- Name: Janice Zeitinger Title: Vice President - 6 - BORROWERS: THE KUSHNER-LOCKE COMPANY KL INTERNATIONAL, INC. (formerly known as AKL Distributing, Inc., AKL Distribution, Inc. and KL Distribution, Inc.) ACME PRODUCTIONS, INC. (formerly Acme Game Shows, Inc.) KL PRODUCTIONS, INC. (formerly AKL Productions, Inc. and Kushner/Locke Company, Inc.) KUSHNER-LOCKE PRODUCTIONS, INC. (formerly Brave Little Co. and Atlantic/Kushner-Locke Productions, Inc.) THE RELATIVES COMPANY POST AND PRODUCTION SERVICES, INC. (formerly Post Production Services, Inc., KW Acquisitions Corporation and KL Acquisition Corp.) L-K ENTERTAINMENT, INC. FAMILY PICTURES, INC. INTERNATIONAL COURTROOM NEWS SERVICE TROPICAL HEAT, INC. KL SYNDICATION, INC. (formerly D.I., Inc.) ANDRE PRODUCTIONS, INC. TKLC NO. 2, INC. TWILIGHT ENTERTAINMENT, INC. (formerly GENTOX FILMS, INC.) KLC FILMS, INC. KL FEATURES, INC. (formerly KLC, Inc.) KLF GUILD COMPANY (formerly KLF Guild Co., Inc.) KLF DEVELOPMENT CO. KLTV GUILD CO. KLTV DEVELOPMENT CO. KUSHNER-LOCKE INTERNATIONAL, INC. (formerly KLC Worldwide, Inc.) KL INTERACTIVE MEDIA, INC. By: /s/ Donald Kushner ------------------------------ Name: Title: Authorized Signatory - 7 - EX-10.46 4 EXHIBIT 10.46 (EXHIBIT 10.46) FIRST AMENDMENT TO CREDIT DOCUMENTS This First Amendment to Credit Documents ("Amendment") is made as of December 22, 1995 by and among Newmarket Capital Group, L.P. ("Newmarket"), Bank of America National Trust and Savings Association (together with Newmarket, the "Lenders"), Allied Pinocchio Productions Limited (the "Borrower"), The Kushner- Locke Company ("KL") and Kushner-Locke International, Inc. ("KLI"). R E C I T A L S Reference is hereby made to the following documents and agreements in connection with that certain motion picture presently entitled "THE LEGEND OF PINOCCHIO" (the "Picture"): A. Borrower and Lenders entered into that certain Loan Agreement dated as of July 7, 1995, (the "Loan Agreement") relating to the Picture; and B. The other Credit Documents, including without limitation, that certain Note, that certain Security Agreement, that certain Interparty Agreement and that certain KL Guaranty, as each of such terms is defined in the Loan Agreement, together with all documents and agreements entered into in connection with each of the foregoing. WHEREAS, Borrower and Lenders now wish to amend the Loan Agreement, the Interparty Agreement and the other Credit Documents and Lenders wish to repay the KL Investment; NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Borrower and Lenders hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein are used herein as defined in the Loan Agreement. 2. WAIVER. Lenders agree, upon Borrower's fulfillment of the conditions precedent set forth on the attached Exhibit A, to waive any Event of Default which has occurred and is continuing as of the date hereof under Section 8.11 of the Loan Agreement as a result of Borrower's failure to cash collateralize the KL Guaranty. This waiver shall be effective only for the specific Event of Default(s) specified above, and in no event shall this waiver be deemed to be a waiver of (a) enforcement of the Lenders' rights with respect to any other Event(s) of Default now existing or hereafter arising or (b) Borrower's compliance with any other covenants or provisions of the Credit Documents. Nothing contained herein nor any communications between the Lenders and the Borrower shall be a waiver of any rights or remedies the Lenders have or may have against the Borrower, except as specifically provided herein. The Lenders hereby reserve and preserve all of their rights and remedies against the Borrower under the Loan Agreement, the other Credit Documents, and applicable law. 3. AMENDMENTS. (a) The parties hereto agree that the Loan Agreement is hereby amended as follows: (i) SECTION 2.2(b). Section 2.2(b) is hereby amended by adding the following new subsection immediately following subsection 2.2(b)(iv): "(v) reimbursement to Newmarket of $300,000 of amounts owing to Newmarket under that certain Loan Agreement dated as of July 31, 1995 between Newmarket and Dayton Way Pictures IV in connection with the motion picture "THE WHOLE WIDE WORLD" ("Whole Wide World Loan")". (ii) SECTION 2.8(b). Section 2.8(b) is hereby amended by adding the following at the end of such subsection: "Notwithstanding the foregoing, Lenders agree to waive the above-referenced fee provided the KL Investment is repaid pursuant to the provisions of this Agreement, as amended." (iii)SECTION 8.11. Section 8.11 is hereby amended by (i) deleting the phrase: "Section 3" in the second and third lines thereof and replacing it with "Section 4(b)"; (ii) adding "(a)" before "Borrower" in the first line thereof; and (iii) adding at the end of such Section 8.11: "or (b) Borrower has not delivered to Lenders on or before March 15, 1996 Distribution Agreements together with Distributor's Acceptances with a minimum guarantee of at least $400,000 for the territory of Scandinavia." (b) The parties hereto agree that the Interparty Agreement is hereby amended as follows: (i) SECTION 4(b). Section 4(b) is hereby amended by deleting the references to "November 30, 1995" in the fourth and fourteenth line thereof and replacing it with "January 31, 1996". (ii) NEW SECTION 4(d). Section 4(d) is hereby further amended by adding the following new subsection immediately following subsection 4(c): "(d) Failure of Borrower, KL and/or KLI to deliver to Lenders by January 31, 1996 executed Distribution Agreements together with executed Distributor's Acceptances and any applicable letters of credit in form and substance acceptable to Lenders and guaranteed pursuant to the Completion Guaranty for all sales made as of December 22, 1995 shall be deemed an Event of Default under the Loan Agreement." (iii) SECTION 5(b)(i). Section 5(b)(i) is hereby amended by adding the following at the end of such subsection: "Notwithstanding the foregoing, upon Borrower's, KL's and/or KLI's fulfillment of the conditions precedent set forth in Exhibit A attached to the First Amendment to Credit Documents relating hereto, (A) the amount of the KL Guaranty shall be reduced from $2,800,000 to $1,500,000 and (B) Lenders shall repay the entire amount of the KL Investment by advances under the Loan Agreement, PROVIDED that $300,000 of such repayment shall be used 2 solely to reimburse Newmarket for amounts owing under the Whole Wide World Loan and $40,000 shall be used to pay the fee required in Section 2.8(b) of the Loan Agreement (as amended). The KL Guaranty shall be released in full if and when the Acceptable Pre-Sale Value of all Distribution Agreements delivered to Lender are equal to or greater than the amount of the Production Facility." (iv) SECTION 5(d). Section 5(d) is hereby amended by adding the following at the end of such subsection: "Notwithstanding the foregoing, Lenders agree to waive the above-referenced fee provided the KL Investment is repaid pursuant to the provisions of this Agreement, as amended." The Credit Documents and any and all documents and agreements entered into in connection with any of the Credit Documents shall be deemed amended hereby to the extent (and only to the extent) necessary to conform them to the terms contained herein; except as expressly herein agreed, all of the foregoing documents and agreements shall remain unchanged and in full force and effect except that each reference in such documents and agreements to the Loan Agreement, the Security Agreement, the Note, the Interparty Agreement, the KL Guaranty, any other Credit Document, or any other document or agreement entered into in connection with any of the foregoing shall be deemed to refer to such document or agreement, respectively, as amended hereby. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that all of the representations and warranties set forth in the Loan Agreement are true and correct and that no Event of Default under the Loan Agreement has occurred or is continuing as of the date hereof except as specifically waived herein. 5. EFFECTIVE DATE. This Amendment shall become effective upon delivery to the Lenders of a fully executed copy of this Amendment. Except as specifically set forth herein, the parties hereto agree and confirm that the Loan Agreement and the other documents related thereto remain in full force and effect as executed except that each reference in the Credit Documents to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby. 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California. No amendment hereto shall be effective unless in writing and executed by the parties hereto. 7. COUNTERPARTS. This Amendment may be executed in counterparts all of which when taken together shall constitute one and the same instrument. 3 IN WITNESS WHEREOF, this Amendment is duly executed by an authorized signatory of each of the parties hereto as of the date first above written. ALLIED PINOCCHIO PRODUCTIONS LIMITED By: /s/ Bruce Lilliston ------------------------------------- Name: Bruce Lilliston Title: Authorized Signatory NEWMARKET CAPITAL GROUP, L.P. By: BFB,LLC Its: Managing General Partner By: /s/ Will Tyrer ------------------------------------- Name: Title: President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Sheryl Bond ------------------------------------- Name: Sheryl Bond Title: Vice President THE KUSHNER-LOCKE COMPANY By: /s/ Donald Kushner ------------------------------------- Name: Title: KUSHNER-LOCKE INTERNATIONAL, INC. By: /s/ Donald Kushner ------------------------------------- Name: Title: 4 EXHIBIT "A" ------------ CONDITIONS PRECEDENT -------------------- 1. Delivery to Lenders by Borrower, KL and/or KLI of the following: (a) With respect to Benelux, executed Distribution Agreement and a Distributor's Acceptance, in form and substance acceptable to Lenders, and guaranteed pursuant to the Completion Guaranty. (b) With respect to France, a letter of credit, in form and substance acceptable to Lenders, guarantying payment of amounts due under the Distribution Agreement relating thereto. (c) With respect to Italy, executed Distribution Agreement and a Distributor's Acceptance, in form and substance acceptable to Lenders, providing for final payment of all amounts due under the Distribution Agreement no later than April 30, 1997, and guaranteed pursuant to the Completion Guaranty. (d) With respect to Spain, (i) executed Distribution Agreement and a Distributor's Acceptance, in form and substance acceptable to Lenders and guaranteed pursuant to the Completion Guaranty; (ii) an executed Guaranty from Antenae 3 in favor of Lenders, in form and substance acceptable to Lenders; and (iii) indefeasible payment to Lenders of the amount due under the Distribution Agreement on signature of the Distribution Agreement ($206,250)("First Payment"). (e) With respect to Taiwan, executed Distribution Agreement and a Distributor's Acceptance, in form and substance acceptable to Lenders, and guaranteed pursuant to the Completion Guaranty. 2. Notwithstanding anything to the contrary in this Agreement, if all conditions precedent on this Exhibit A, other than the condition listed in paragraph 1.(d)(iii) above, are fulfilled, the Waiver referenced in Paragraph 2 of this Agreement shall be effective and Lenders shall repay only $1,300,000 of the KL Investment. Upon indefeasible payment of the First Payment, Lenders shall repay the remaining $100,000 of the KL Investment. 3. Delivery to Lenders of an executed copy of that certain side letter of even date herewith among INTER ALIA, Lenders, Borrower and KL relating to the Collection Account and cross-collateralization. 5 EX-10.47 5 EXHIBIT 10.47 (EXHIBIT 10.47) THIRD AMENDMENT TO CREDIT DOCUMENTS This Third Amendment to Credit Documents ("Amendment") is made as of December 22, 1995 by and between Newmarket Capital Group, L.P. (the "Lender"), Dayton Way Pictures II, Inc. (the "Borrower") and Kushner-Locke International, a division of the Kushner-Locke Company ("KL"). R E C I T A L S Reference is hereby made to the following documents and agreements in connection with that certain motion picture presently entitled "THE NESTING" (the "Picture"): A. Borrower and Lender entered into that certain Loan Agreement dated as of May 24, 1995 as amended by that certain First Amendment to Loan Agreement dated as of June 14, 1995 and that certain Second Amendment to Loan Agreement dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to the Picture; and B. The other Credit Documents, including without limitation, that certain Note, that certain Security Agreement, that certain Interparty Agreement and that certain KL Guaranty, as each of such terms is defined in the Loan Agreement, together with all documents and agreements entered into in connection with each of the foregoing. WHEREAS, Borrower and Lender now wish to amend the Loan Agreement, the Interparty Agreement and the other Credit Documents and Lender wishes to repay the KL L/C; NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein are used herein as defined in the Loan Agreement. 2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions precedent set forth on the attached Exhibit A, to waive any Event of Default which has occurred and is continuing as of the date hereof (i) under Section 8.11 (a) of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or before November 30, 1995 sufficient Distribution Agreements together with Distributor's Acceptances related thereto with an Acceptable Pre- Sale Value of at least $400,000 and (ii) under Section 8.11 (b) of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or before December 15, 1995 sufficient Distribution Agreements together with Distributor's Acceptances related thereto with an aggregate Acceptable Pre-Sale Value together with the face amount of the KL L/C of at least $960,000. This waiver shall be effective only for the specific Event of Default(s) specified above, and in no event shall this waiver be deemed to be a waiver of (a) enforcement of the Lender's rights with respect to any other Event(s) of Default now existing or hereafter arising or (b) Debtor's compliance with any other covenants or provisions of the Credit Documents. Nothing contained herein nor any communications between the Lender and the Debtor shall be a waiver of any rights or remedies the Lender has or may have against the Debtor, except as specifically provided herein. The Lender hereby reserves and preserves all of its rights and remedies against the Debtor under the Loan Agreement, the other Credit Documents, and applicable law. 3. AMENDMENTS. (a) The parties hereto agree that the Loan Agreement is hereby amended as follows: (i) SECTION 2.2. Section 2.2(b) is hereby amended by adding the following new subsection immediately following Section 2.2(b)(iii): "(iv) reimbursement to Lender of $200,000 of amounts owing to Lender under that certain Loan Agreement dated as of July 31, 1995 between Lender and Dayton Way Pictures IV in connection with the motion picture "THE WHOLE WIDE WORLD" ("Whole Wide World Loan")". (ii) SECTION 2.3. Section 2.3 is hereby amended by deleting the reference to "February 28, 1996" in the seventh line thereof and replacing it with "March 31, 1996". (iii) SECTION 2.4(a). Section 2.4(a) is hereby amended by adding the following at the end of such subsection: "Notwithstanding the foregoing, effective February 1, 1996, the Loans shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate equal to the sum of three percent (3.0%) per annum plus the "Prime Rate."" (iv) SECTION 8.11. Section 8.11 of the Loan Agreement is hereby amended by deleting the current text in its entirety and replacing it with the following: "Borrower and/or KL fails to deliver to Lender on or before January 31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and letters of credit, if applicable, all in form and substance acceptable to Lender and guaranteed pursuant to the Completion Guaranty, for all sales of distribution rights in connection with the Picture made as of December 22, 1995 as set forth on Schedule I to the Third Amendment." (b) The parties hereto agree that the Interparty Agreement is hereby amended as follows: (i) SECTION 5(b). Section 5(b) of the Interparty Agreement is hereby amended by adding the following at the end of the paragraph: "Notwithstanding the foregoing, upon Borrower's and/or KL's fulfillment of the conditions set forth on Exhibit A attached to the Third Amendment to Credit Documents relating hereto, Lender shall repay the entire amount of the KL Investment by advances under the Loan Agreement, PROVIDED that $200,000 of such repayment shall be used solely to reimburse Lender for amounts owing under the Whole Wide World Loan. The KL Guaranty shall be 2 released in full if and when the Acceptable Pre-Sale Value of all Distribution Agreements delivered to Lender are equal to or greater than the amount of the Production Facility." The Credit Documents and any and all documents and agreements entered into on connection with any of the Credit Documents shall be deemed amended hereby to the extent (and only to the extent) necessary to conform them to the terms contained herein; except as expressly herein agreed, all of the foregoing documents and agreements shall remain unchanged and in full force and effect except that each reference in such documents and agreements to the Loan Agreement, the Security Agreement, the Note, the Interparty Agreement the KL Guaranty any other Credit Document, or any other document or agreement entered into in connection with any of the foregoing shall be deemed to refer to such document or agreement, respectively, as amended hereby. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that all of the representations and warranties set forth in the Loan Agreement are true and correct and that no Event of Default under the Loan Agreement has occurred or is continuing as of the date hereof except as specifically waived herein. 5. EFFECTIVE DATE. This Amendment shall become effective upon delivery to the Lender of a fully executed copy of this Amendment. Except as specifically set forth herein, the parties hereto agree and confirm that the Loan Agreement and the other documents related thereto remain in full force and effect as executed except that each reference in the Credit Documents to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby. 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California. No amendment hereto shall be effective unless in writing and executed by the parties hereto. 7. COUNTERPARTS. This Amendment may be executed in counterparts all of which when taken together shall constitute one and the same instrument. 3 IN WITNESS WHEREOF, this Amendment is duly executed by an authorized signatory of each of the parties hereto as of the date first above written. DAYTON WAY PICTURES II, INC. By: /s/ Alan Abrams ------------------------------------- Name: Title: NEWMARKET CAPITAL GROUP, L.P. By: BFB,LLC Its: Managing General Partner By: /s/ Will Tyrer ------------------------------------- Name: Title: President KUSHNER-LOCKE INTERNATIONAL, a division of the Kushner-Locke Company By: /s/ Donald Kushner ------------------------------------- Name: Title: 4 EXHIBIT "A" ------------ 1. Delivery to Lender by Borrower and/or KL of the following: (a) With respect to Germany, executed Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty, signed by all parties thereto and providing for a final payment no later than delivery of the Initial Delivery Materials (as defined in the Distributor's Acceptance). (b) With respect to Spain, executed Distribution Agreement and Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty and signed by all parties thereto and providing for a final payment no later than delivery of the Initial Delivery Materials (as defined in the Distributor's Acceptance). Notwithstanding Section 5(b) of the Interparty Agreement, the amount of the KL Investment which Lender is obligated to repay shall be reduced by the amount of the minimum guarantee for any territory listed in paragraphs (a) and (b) above for which Borrower and/or KL does not deliver all items listed in such paragraph. 2. Delivery to Lender of an executed copy of that certain side letter of even date herewith among, INTER ALIA, Lender, Borrower and KL relating to the Collection Account and cross-collateralization. 5 EX-10.48 6 EXHIBIT 10.48 (EXHIBIT 10.48) SECOND AMENDMENT TO CREDIT DOCUMENTS This Second Amendment to Credit Documents ("Amendment") is made as of December 22, 1995 by and among Newmarket Capital Group, L.P. (the "Lender"), Dayton Way Pictures, Inc. (the "Borrower") and Kushner-Locke International, a division of the Kushner-Locke Company ("KL"). R E C I T A L S Reference is hereby made to the following documents and agreements in connection with that certain motion picture presently entitled "THE GRAVE" (the "Picture"): A. Borrower and Lender entered into that certain Loan Agreement dated as of June 12, 1995 as amended by that certain First Amendment to Loan Agreement dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to the Picture; and B. The other Credit Documents, including without limitation, that certain Note, that certain Security Agreement, that certain Interparty Agreement and that certain KL Guaranty, as each of such terms is defined in the Loan Agreement, together with all documents and agreements entered into in connection with each of the foregoing. WHEREAS, Borrower and Lender now wish to further amend the Loan Agreement, the Interparty Agreement and the other Credit Documents and Lender wishes to repay a portion of the KL Investment; NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein are used herein as defined in the Loan Agreement. 2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions precedent set forth on the attached Exhibit A, to waive any Event of Default which has occurred and is continuing as of the date hereof (i) under Section 8.11 (a) of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or before November 30, 1995 sufficient Distribution Agreements together with Distributor's Acceptances related thereto with an Acceptable Pre- Sale Value of at least $700,000 and (ii) under Section 8.11 (b) of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or before December 15, 1995 sufficient Distribution Agreements together with Distributor's Acceptances related thereto with an Acceptable Pre-Sale Value of at least $1,400,000. This waiver shall be effective only for the specific Event of Default(s) specified above, and in no event shall this waiver be deemed to be a waiver of (a) enforcement of the Lender's rights with respect to any other Event(s) of Default now existing or hereafter arising or (b) Debtor's compliance with any other covenants or provisions of the Credit Documents. Nothing contained herein nor any communications between the Lender and the Debtor shall be a waiver of any rights or remedies the Lender has or may have against the Debtor, except as specifically provided herein. The Lender hereby reserves and preserves all of its rights and remedies against the Debtor under the Loan Agreement, the other Credit Documents, and applicable law. 3. AMENDMENTS. (a) The parties hereto agree that the Loan Agreement is hereby amended as follows: (i) SECTION 2.3. Section 2.3 of the Loan Agreement is hereby amended by deleting the reference to "March 14, 1996" in the seventh line thereof and replacing it with "March 31, 1996". (ii) SECTION 2.4(a). Section 2.4(a) of the Loan Agreement is hereby amended by adding the following at the end of such section: "Notwithstanding the foregoing, effective February 1, 1996, the Loans shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate equal to the sum of three percent (3.0%) per annum plus the "Prime Rate."" (iii)SECTION 8.11. Section 8.11 of the Loan Agreement is hereby amended by deleting the current text in its entirety and replacing it with the following: "Borrower and/or KL fails to deliver to Lender on or before January 31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and letters of credit, if applicable, all in form and substance acceptable to Lender and guaranteed pursuant to the Completion Guaranty, for all sales of distribution rights in connection with the Picture made as of December 22, 1995 as reflected on Schedule I to the Second Amendment to Credit Documents relating hereto." (b) The parties hereto agree that the Interparty Agreement is hereby amended as follows: (i) SECTION 5(b). Section 5(b) of the Interparty Agreement is hereby amended by deleting the current text of Section 5(b) in its entirety and replacing it with the following: "The KL Guaranty shall be reduced from $690,000 to $250,000 and $287,500 of the KL Investment shall be repaid by the Lender advancing funds therefor under the Loan Agreement upon Borrower's fulfillment of the conditions precedent set forth on Exhibit A to the Second Amendment to Credit Documents relating hereto. Notwithstanding the foregoing, the KL Guaranty shall be released in full and the remainder of the KL Investment shall be repaid by the Lender advancing funds therefor under the Loan Agreement if and when the Acceptable Pre-Sale Value of all Distribution Agreements delivered to Lender are equal to or greater than the amount of the Production Facility." The Credit Documents and any and all documents and agreements entered into on connection with any of the Credit Documents shall be deemed amended hereby to the extent (and only to the extent) necessary to 2 conform them to the terms contained herein; except as expressly herein agreed, all of the foregoing documents and agreements shall remain unchanged and in full force and effect except that each reference in such documents and agreements to the Loan Agreement, the Security Agreement, the Note, the Interparty Agreement the KL Guaranty any other Credit Document, or any other document or agreement entered into in connection with any of the foregoing shall be deemed to refer to such document or agreement, respectively, as amended hereby. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that all of the representations and warranties set forth in the Loan Agreement are true and correct and that no Event of Default under the Loan Agreement has occurred or is continuing as of the date hereof except as specifically waived herein. 5. EFFECTIVE DATE. This Amendment shall become effective upon delivery to the Lender of a fully executed copy of this Amendment. 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California. No amendment hereto shall be effective unless in writing and executed by the parties hereto. 7. COUNTERPARTS. This Amendment may be executed in counterparts all of which when taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment is duly executed by an authorized signatory of each of the parties hereto as of the date first above written. DAYTON WAY PICTURES, INC. By: /s/ Alan Abrams ----------------------------------- Name: Title: NEWMARKET CAPITAL GROUP, L.P. By: BFB,LLC Its: Managing General Partner By: /s/ Will Tyrer ----------------------------------- Name: Title: KUSHNER-LOCKE INTERNATIONAL, a division of The Kushner-Locke Company By: /s/ Donald Kushner ----------------------------------- Name: Title: 3 EXHIBIT "A" ------------ 1. Delivery to Lender by Borrower and/or KL of the following: (a) With respect to Germany, executed Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty and signed by all parties thereto. (b) With respect to Japan, executed Distribution Agreement and Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty and signed by all parties thereto. (c) With respect to Home Box Office, Inc., executed Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty and signed by all parties thereto. (d) With respect to Cabin Fever, executed Distribution Agreement providing for a minimum guarantee of at least $450,000 and a Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty and signed by all parties thereto. The $287,500 portion of the KL Investment to be repaid by the Lender pursuant to Section 5(b) of the Interparty Agreement (as amended) shall be reduced by the amount of the minimum guarantee for any territory listed in paragraphs (a) through (d) above for which Borrower and/or KL does not deliver all items listed in such paragraph. 2. Delivery to Lender of an executed copy of that certain side letter of even date herewith among, INTER ALIA, Lender, Borrower and KL relating to the Collection Account and cross-collateralization. 4 EX-10.49 7 EXHIBIT 10-49 (EXHIBIT 10.49) SECOND AMENDMENT TO LOAN AGREEMENT This Second Amendment to Loan Agreement ("Amendment") is made as of December 22, 1995 by and between Newmarket Capital Group, L.P. (the "Lender") and Dayton Way Pictures IV, Inc. (the "Borrower"). R E C I T A L S Reference is hereby made to the following documents and agreements in connection with that certain motion picture presently entitled "THE WHOLE WIDE WORLD" (the "Picture"): A. Borrower and Lender entered into that certain Loan Agreement dated as of July 31, 1995 as amended by that certain First Amendment to Loan Agreement dated as of September 29, 1995, (collectively, the "Loan Agreement") relating to the Picture; and B. The other Credit Documents, including without limitation, that certain Note, that certain Security Agreement, that certain Interparty Agreement and that certain KL Guaranty, as each of such terms is defined in the Loan Agreement, together with all documents and agreements entered into in connection with each of the foregoing. WHEREAS, Borrower and Lender now wish to further amend the Loan Agreement and the other Credit Documents; NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Borrower and Lender hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein are used herein as defined in the Loan Agreement. 2. WAIVER. Lender agrees, upon Borrower's fulfillment of the conditions precedent set forth on the attached Exhibit A, to waive any Event of Default which has occurred and is continuing as of the date hereof under Section 8.11(a) of the Loan Agreement as a result of Debtor's failure to deliver to Lender on or before November 30, 1995 sufficient Distribution Agreements together with Distributor's Acceptances related thereto with an Acceptable Pre-Sale Value of at least $675,000 excluding any sale of the United States. This waiver shall be effective only for the specific Event of Default(s) specified above, and in no event shall this waiver be deemed to be a waiver of (a) enforcement of the Lender's rights with respect to any other Event(s) of Default now existing or hereafter arising or (b) Debtor's compliance with any other covenants or provisions of the Credit Documents. Nothing contained herein nor any communications between the Lender and the Debtor shall be a waiver of any rights or remedies the Lender has or may have against the Debtor, except as specifically provided herein. The Lender hereby reserves and preserves all of its rights and remedies against the Debtor under the Loan Agreement, the other Credit Documents, and applicable law. 3. AMENDMENT. The parties hereto agree that the Loan Agreement is hereby amended as follows: (a) SECTION 2.4(a) Section 2.4(a) is hereby amended by adding the following at the end of such section: "Notwithstanding the foregoing, effective February 1, 1996, the Loans shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate equal to the sum of three percent (3.0%) per annum plus the "Prime Rate."" (b) SECTION 8.11. Section 8.11 of the Loan Agreement is hereby amended by deleting the current text in its entirety and replacing it with the following: "Borrower and/or KL fails to deliver to Lender on or before January 31, 1996 fully executed Distribution Agreements, Distributors' Acceptances and letters of credit, if applicable, all in form and substance acceptable to Lender and guaranteed pursuant to the Completion Guaranty, for all sales of distribution rights in connection with the Picture made as of December 22, 1995 as set forth on Schedule I attached to the Second Amendment to Loan Agreement relating hereto." 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants that all of the representations and warranties set forth in the Loan Agreement are true and correct and that no Event of Default under the Loan Agreement has occurred or is continuing as of the date hereof except as specifically waived herein. 5. EFFECTIVE DATE. This Amendment shall become effective upon delivery to the Lender of a fully executed copy of this Amendment. Except as specifically set forth herein, the parties hereto agree and confirm that the Loan Agreement and the other documents related thereto remain in full force and effect as executed except that each reference in the Credit Documents to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby. 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California. No amendment hereto shall be effective unless in writing and executed by the parties hereto. 7. COUNTERPARTS. This Amendment may be executed in counterparts all of which when taken together shall constitute one and the same instrument. 2 IN WITNESS WHEREOF, this Amendment is duly executed by an authorized signatory of each of the parties hereto as of the date first above written. DAYTON WAY PICTURES IV, INC. By: /s/ Alan Abrams ------------------------------------ Name: Title: NEWMARKET CAPITAL GROUP, L.P. By: BFB,LLC Its: Managing General Partner By: /s/ Will Tyrer ------------------------------------ Name: Title: President 3 EXHIBIT "A" ------------ 1. Delivery to Lender by Borrower and/or KL of the following: (a) With respect to Germany, executed Distributor's Acceptance, in form and substance acceptable to Lender, guaranteed pursuant to the Completion Guaranty, signed by all parties thereto and providing for a final payment no later than delivery of the Initial Delivery Materials (as defined in the Distributor's Acceptance). (b) Executed copy of that certain side letter of even date herewith among, INTER ALIA, Lender and Borrower relating to the Collection Account and cross- collateralization. 4 EX-10.50 8 EXHIBIT 10.50 (EXHIBIT 10.50) CROSS COLLATERALIZATION AGREEMENT --------------------------------- Dated as of July 7, 1995 Newmarket Capital Group, L.P. 202 North Canon Drive Beverly Hills, California 90210 Attention: Will Tyrer Gentlemen: A. Reference is hereby made to the following agreements: 1. That certain Loan Agreement dated as of July 7, 1995 (the "Pinocchio Loan Agreement") between Newmarket Capital Group, L.P. ("Newmarket") and Bank of America National Trust and Savings Association on the one hand and Allied Pinocchio Productions Limited ("APPL") relating to that certain motion picture currently entitled "THE LEGEND OF PINOCCHIO," and the Security Agreement executed in connection therewith (the "Pinocchio Security Agreement"); 2. That certain Loan Agreement dated as of May 24, 1995 (the "Nesting Loan Agreement") between Newmarket and Dayton Way Pictures II, Inc. ("DWII") relating to that certain motion picture currently entitled "THE NESTING" (a/k/a "SERPENT'S LAIR") and the Security Agreement executed in connection therewith (the "Nesting Security Agreement"); 3. That certain Loan Agreement dated as of June 12, 1995 (the "Grave Loan Agreement") between Newmarket and Dayton Way Pictures, Inc. ("DW") realting to that certain motion picture currently entitled "THE GRAVE" and the Security Agreement executed in connection therewith (the "Grave Security Agreement"); 4. That certain Loan Agreement dated as of July 31, 1995 (the "WWW Loan Agreement") between Newmarket and Dayton Way Pictures IV, Inc. ("DWIV") realting to that certain motion picture currently entitled "THE WHOLE WIDE WORLD" and the Security Agreement executed in connection therewith (the "WWW Security Agreement"); B. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Each of DWII, DW and DWIV agree that the "Secured Obligations" under each of the Nesting Security Agreement, the Grave Security Agreement and the WWW Security Agreement shall include all of the obligations of DWII, DW and DWIV under the Nesting Loan Agreement, the Grave Loan Agreement and the WWW Loan Agreement and all such obligations shall, as of the date hereof, be cross- collateralized. As a result, all of DWII, DW and DWIV agree that the Lender is entitled to use the proceeds of any Collateral, whether granted pursuant to the Grave Security Agreement, the Nesting Security Agreement or the WWW Security Agreement, in order to satisfy the obligations arising under the Grave Loan Agreement, the Nesting Loan Agreement or the WWW Loan Agreement. 2. In the event that The Kushner-Locke Company ("K-L") does not conclude its loan facility with ING Bank ("ING") on or before January 15, 1996 or all of the conditions precedent to ING advancing funds thereunder have not been satisfied or waived on r before January 15, 1996, then APPL agrees that the "Secured Obligations" under the Pinocchio Security Agreement shall include all of the obligations of DWII to Newmarket under the Nesting Loan Agreement, of DW to Newmarket under the Grave Loan Agreement and of DWIV to Newmarket under the WWW Loan Agreement and DWII, DW and DWIV agree that the "Secured Obligations" under each of the Nesting Security Agreement, the Grave Security Agreement and the WWW Security Agreement shall include the obligations of APPL to Newmarket under the Pinocchio Loan Agreement. 3. Each of DW, DWII, DWIV, APPL and K-L hereby appoint Newmarket as the Collection Agent for all proceeds derived from the exploitation of "THE GRAVE," "THE NESTING," "WHOLE WIDE WORLD" and "THE LEGEND OF PINOCCHIO" and hereby agree that Newmarket shall be entitled to deduct from all such proceeds a fee equal to 0.75% of all proceeds derived from such pictures in excess of the amounts required to repay the obligations of DW, DWII, DWIV and APPL under the Grave Loan Agreement, the Nesting Loan Agreement, the WWW Loan Agreement and the Pinocchio Loan Agreement, respectively. Each of DW, DWII, DWIV, APPL and K-L agree that they will enter into a more complete Collection Agreement with Newmarket relating to each of the above-referenced motion picture on or before January 30, 1996. 4. Except as specifically amended hereby, the Grave Security Agreement, the Nesting Security Agreement, the WWW Security Agreement and the Pinocchio Security Agreement remain in full force and effect (as each of the same may have been amended by fully-executed amendment agreements) and are enforceable against the respective parties thereto. 5. Each of DW, DWII, DWIV and APPL agree that they shall execute any further instruments or documents necessary or reasonably requested by Newmarket to effectuate the foregoing provisions. 6. None of this Agreement or any provision hereof may be amended, waived, discharged or terminated unless such amendment, waiver, discharge or termination is in writing signed by the parties hereto. This Agreement shall be deemed to be a "Credit Document" as defined in each of the Pinocchio Loan Agreement, the Grave Loan Agreement, the Nesting Loan Agreement and the WWW Loan Agreement. 7. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA OF THE UNITED STATES OF AMERICA WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. IN WITNESS WHEREOF, this Agreement is entered into this __ day of December, 1995 and is executed by an authorized signatory of each of the parties set out below. THE KUSHNER-LOCKE COMPANY By: /s/ Donald Kushner ------------------------------------- Its: DAYTON WAY PICTURES, INC. By: /s/ Alan Abrams ------------------------------------- Its: DAYTON WAY PICTURES II, INC. By: /s/ Alan Abrams ------------------------------------- Its: Authorized Signatory DAYTON WAY PICTURES IV, INC. By: /s/ Alan Abrams ------------------------------------- Its: ALLIED PINOCCHIO PRODUCTIONS LTD. By: /s/ Bruce Lilliston ------------------------------------- Its: ACKNOWLEDGED AND AGREED: NEWMARKET CAPITAL GROUP, L.P. By: BFB, LLC. Its: Its Managing General Partner By: /s/ Will Tyrer - ------------------------------------- Its: President 3 EX-10.51 9 EXHIBIT 10.51 (EXHIBIT 10.51) FIRST AMENDMENT TO CROSS COLLATERALIZATION AGREEMENT This First Amendment to Cross Collateralization Agreement ("Amendment") is dated as of January 10, 1996 among Newmarket Capital Group, L.P. ("Newmarket"), Dayton Way Pictures, Inc. ("DW"), Dayton Way Pictures II, Inc. ("DWII"), Dayton Way Pictures IV, Inc. ("DWIV"), Allied Pinocchio Productions, Ltd. ("APPL") and The Kushner-Locke Company ("K-L"). R E C I T A L S WHEREAS, Newmarket, DW, DWII, DWIV, APPL and K-L have entered into that certain Cross Collateralization Agreement dated as of July 7, 1995, (the "Agreement") relating to those certain motion pictures presently entitled "THE GRAVE", "THE NESTING", "THE WHOLE WIDE WORLD" and "THE LEGEND OF PINOCCHIO"; and WHEREAS, Newmarket, DW, DWII, DWIV and K-L now wish to amend the Agreement; NOW, THEREFORE, for good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, Newmarket, DW, DWII, DWIV, APPL and K-L hereby agree as follows: 1. DEFINITIONS. All capitalized terms not otherwise defined herein are used herein as defined in the Agreement. 2. AMENDMENT. The parties hereto acknowledge that K-L and ING have been unable to conclude their loan facility as of the date hereof and therefore APPL hereby agrees that notwithstanding the provisions of Section 2 of the Agreement, the "Secured Obligations" under the Pinocchio Security Agreement shall, as of the date hereof, include all of the obligations of DWII to Newmarket under the Nesting Loan Agreement, of DW to Newmarket under the Grave Loan Agreement and of DWIV to Newmarket under the WWW Loan Agreement and DWII, DW and DWIV agree that the "Secured Obligations" under each of the Nesting Security Agreement, the Grave Security Agreement and the WWW Security Agreement shall include the obligations of APPL to Newmarket under the Pinocchio Loan Agreement. 3. EFFECTIVE DATE. This Amendment shall become effective upon delivery to Newmarket of a fully executed copy of this Amendment. Except as specifically set forth herein, the parties hereto agree and confirm that the Agreement, the Grave Security Agreement, the Nesting Security Agreement, the WWW Security Agreement and the Pinocchio Security Agreement and the other documents related thereto remain in full force and effect as executed. 4. Each of DW, DWII, DWIV and APPL agree that they shall execute any further instruments or documents necessary to effectuate the foregoing provisions. 5. None of this Amendment or any provision hereof may be amended, waived, discharged or terminated unless such amendment, waiver, discharge or waiver is in writing signed by the parties hereto. This Amendment shall be deemed to be a "Credit Document" as defined in each of the Pinocchio Loan Agreement, the Grave Loan Agreement, the Nesting Loan Agreement and the WWW Loan Agreement. 6. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of California. No amendment hereto shall be effective unless in writing and executed by the parties hereto. 7. COUNTERPARTS. This Amendment may be executed in counterparts all of which when taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment is executed by an authorized signatory of each of the parties below on the date first set forth above. DAYTON WAY PICTURES, INC. By: /s/ Alan Abrams ------------------------------- Name: Title: DAYTON WAY PICTURES II, INC. By: /s/ Alan Abrams ------------------------------- Name: Title: DAYTON WAY PICTURES IV, INC. By: /s/ Alan Abrams ------------------------------- Name: Title: ALLIED PINOCCHIO PRODUCTIONS LTD. By: /s/ Bruce Lilliston ------------------------------- Name: Bruce Lilliston Title: Authorized Signatory THE KUSHNER-LOCKE COMPANY By: /s/ Donald Kushner ------------------------------- Name: Title: NEWMARKET CAPITAL GROUP, L.P. By: BFB,LLC Its: Managing General Partner By: /s/ Will Tyrer ------------------------------- Name: Title: President 2 EX-27 10 EXHIBIT 27 (FDS)
5 0000842009 KUSHNER-LOCKE 1,000 3-MOS SEP-30-1995 OCT-01-1995 DEC-31-1995 3,664 0 12,751 0 72,416 0 1,975 1,481 91,831 0 30,807 0 0 23,527 (3,118) 91,831 0 16,107 0 13,313 896 0 929 1,023 11 1,012 0 0 0 1,012 .028 0 (15) THE COMPANY DOES NOT ISSUE A CLASSIFIED BALANCE SHEET. (19) THE COMPANY DOES NOT ISSUE A CLASSIFIED BALANCE SHEET. (14) INCLUDED AS INVENTORY WAS COMPLETED FILM COSTS: PRODUCTIONS IN PROCESS AND DEVELOPMENT.
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