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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13D
(RULE 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934(1)
KINGS ROAD ENTERTAINMENT, INC.
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(Name of Issuer)
Common Stock, $.01 par value per share
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(Title of Class of Securities)
496162-10-8
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(CUSIP Number)
With a copy to:
---------------
Executor of the Will of
Stephen Friedman, Theodore E. Guth, Esq.
William Immerman Guth Rothman & Christopher LLP
1999 Avenue of the Stars 10866 Wilshire Blvd.
Suite 1250 Suite 1250
Los Angeles, CA 90067 Los Angeles, CA 90024
Tel: (310) 552-0808 Tel: (310) 474-8809
Fax: (310) 277-0653 Fax: (310) 470-8354
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
January 5, 1998
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note. Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
(Continued on following pages)
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(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter the disclosures provided in a prior cover page.
The information required in the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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SCHEDULE 13D
CUSIP No. 496162-10-8 PAGE 2 OF 9 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
EXECUTOR OF THE WILL OF STEPHEN FRIEDMAN
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
Not Applicable (b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
Not Applicable
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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7 SOLE VOTING POWER: 3,182,871 shares
The information set forth in Item 6 of this Schedule
13D is hereby incorporated by reference herein.
NUMBER OF ----------------------------------------------------------
SHARES 8 SHARED VOTING POWER:
BENEFICIALLY 0
OWNED BY ----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER: 3,182,871 shares
REPORTING The information set forth in Item 6 of this Schedule
PERSON 13D is hereby incorporated by reference herein.
WITH ---------------------------------------------------------
10 SHARED DISPOSITIVE POWER:
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
3,182,871 shares
The information set forth in Item 6 of this Schedule 13D is hereby
incorporated by reference herein.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN SHARES* [ ]
Not Applicable
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9): 56.3%
The information set forth in Item 6 of this Schedule 13D is hereby
incorporated by reference herein.
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14 TYPE OF REPORTING PERSON*:
00
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*SEE INSTRUCTIONS BEFORE FILLING OUT
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ITEM 1. SECURITY AND ISSUER.
Common stock, $.01 par value per share ("Common Stock"),
of Kings Road Entertainment, Inc. ("Kings Road").
ADDRESS OF ISSUER'S PRINCIPAL EXECUTIVE OFFICES:
Kings Road Entertainment, Inc.
1901 Avenue of the Stars
Suite 1545
Los Angeles, CA 90067
ITEM 2. IDENTITY AND BACKGROUND.
(a) Name: Executor (the "Executor") of the Will of
Stephen Friedman.
(b) Address of Principal Business Office:
Executor of the Will of Stephen Friedman
William Immerman
1999 Avenue of the Stars
Suite 1250
Los Angeles, CA 90067
(c) Present principal occupation or employment and
the name, principal business and address of any
corporation or other organization in which such
employment is conducted:
The Executor, Mr. William Immerman, is Of
Counsel to the law firm of Kenoff & Machtinger.
(d) During the last five years, such person has not
been convicted in a criminal proceeding
(excluding traffic violations or similar
misdemeanors).
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(e) The Executor has not, during the last five years,
been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction
resulting in the Executor being subject to a
judgment, decree or final order enjoining future
violations of, or prohibiting or mandating
activities subject to, Federal or State
securities laws or finding any violation with
respect to such laws.
(f) Citizenship:
United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The information set forth in Item 6 of this Schedule 13D
is hereby incorporated by reference herein.
ITEM 4. PURPOSE OF TRANSACTION.
The information set forth in Item 6 of this Schedule 13D
is hereby incorporated by reference herein.
The Executor expects to distribute holdings of Common
Stock of the Estate of Stephen Friedman (the "Estate")
to the Estate's beneficiaries, Susan Aguado (50%),
Kenneth Aguado (25%) and Joan Shapiro (25%)
(collectively, the "Beneficiaries"), as soon as
practicable.
In addition, depending on price, availability, the
Executor's evaluation of Kings Road and other factors,
the Estate may make purchases of shares of Common Stock
in open market or privately negotiated transactions or
may alternatively seek to sell its shares of Common
Stock in open market or privately negotiated
transactions. The Executor reserves the right to
increase or decrease its holdings on such terms and at
such times as it may decide.
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Except as set forth above or in Item 6 of this Schedule
13D, the Executor has no plans or proposals which
relate to or would result in:
(a) The acquisition by any person of additional
securities of Kings Road or the disposition of
securities of Kings Road;
(b) An extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving
Kings Road or any of its subsidiaries;
(c) A sale or transfer of a material amount of assets
of Kings Road or any of its subsidiaries;
(d) Any change in the present boards of directors or
managements of Kings Road, including any plans or
proposals to change the number of term of
directors or to fill any existing vacancies on
the boards;
(e) Any material change in the present capitalization
or dividend policy of Kings Road;
(f) Any other material change in Kings Road's
business or corporate structure;
(g) Changes in Kings Road's charter, bylaws or
instruments corresponding thereto or other
actions which may impede the acquisition of
control of Kings Road by any person;
(h) Causing a class of securities of Kings Road to be
delisted from a national securities exchange or
to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered
national securities association;
(i) A class of equity securities of Kings Road
becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended; or
(j) Any action similar to any of those enumerated
above.
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Page 6 of 9 Pages
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in Item 6 of this Schedule 13D
is hereby incorporated by reference herein.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
Following the death of Stephen Friedman, Kings Road's
then Chief Executive Officer and principal shareholder,
in October 1996, the Estate became the beneficial holder
of Mr. Friedman's holdings. Mr. William Immerman is the
executor of the will of Mr. Friedman. See Exhibit 1
(Letters Testamentary).
On December 24, 1997, Kings Road and Morgan Kent Group,
Inc. ("Morgan Kent") entered into a Stock Purchase
Agreement, dated as of December 11, 1997 (the "Stock
Purchase Agreement"), and a side letter relating thereto,
dated as of December 11, 1997 (the "Side Letter"),
whereby Morgan Kent agreed to purchase 6,374,007
newly-issued shares of Common Stock, providing Morgan
Kent with 53% of the shares of Common Stock outstanding
after such issuance by Kings Road and purchase by Morgan
Kent.
In recognition of the benefit that such purchase by
Morgan Kent would confer upon the Estate as a stockholder
of Kings Road and for other good and valuable
consideration, on January 5, 1998, the Executor delivered
a letter agreement to Morgan Kent, dated December 11,
1997 (the "Estate Agreement"), whereby the Executor
agreed that, except to the extent permitted in accordance
with the volume limitations of Rule 144 of the Securities
Act of 1933, as amended, for a period of one year from
the date of the Stock Purchase Agreement, the Executor
will not dispose of any interest of the Estate in any
shares of Common Stock other than to the Beneficiaries or
to acquire any shares of Common Stock.
In addition, the Executor appointed Morgan Kent as its
proxy with full power of substitution (the "Proxy Power")
to vote and represent all shares of Common Stock
registered in the name of the Estate in favor of the
execution of the Stock Purchase Agreement and the
performance by Kings Road of the transactions
contemplated thereby, including the election of Mr. J.
Gerald Combs (the chief executive officer of Morgan Kent)
and Mr. Combs's nominee to the Board of Directors of
Kings Road and the effectuation of a reverse stock split
by Kings Road as contemplated in the Side Letter. The
Proxy Power is irrevocable but will terminate as of the
termination of the Stock Purchase Agreement.
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The Beneficiaries agreed, with respect to any shares of
Common Stock delivered to the Beneficiaries by the
Executor, to be bound by the provisions of the Estate
Agreement.
The full texts of the Stock Purchase Agreement, the Side
Letter and the Estate Agreement are filed herewith as
Exhibits 2, 3 and 4, respectively, and are incorporated
herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Letters Testamentary regarding the Estate of Stephen J.
Friedman, aka Stephen Friedman, filed December 16, 1996
(Los Angeles Superior Court).
Stock Purchase Agreement, dated as of December 11, 1997,
entered into by and between Kings Road and Morgan Kent on
December 24, 1997;
Side Letter to the Stock Purchase Agreement, dated as of
December 11, 1997, entered into by and between Kings Road
and Morgan Kent on December 24, 1997; and
Letter Agreement, dated as of December 11, 1997, entered
into by the Estate, Susan Aguado, Kenneth Aguado and Joan
Shapiro, and delivered to Morgan Kent on January 5, 1998.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
January 5, 1998
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(Date)
/s/ Executor of the Will of Stephen Friedman
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(Signature)
By: /s/ William Immerman
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William Immerman, Executor
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Page 9 of 9 Pages
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EXHIBIT INDEX
1. Letters Testamentary regarding the Estate of Stephen J. Friedman, aka
Stephen Friedman, filed December 16, 1996 (Los Angeles Superior Court).
2. Stock Purchase Agreement, dated as of December 11, 1997, entered into by
and between Kings Road and Morgan Kent on December 24, 1997.
3. Side Letter to the Stock Purchase Agreement, dated as of December 11,
1997, entered into by and between Kings Road and Morgan Kent on December
24, 1997.
4. Letter Agreement, dated as of December 11, 1997, entered into by the
Estate, Susan Aguado, Kenneth Aguado and Joan Shapiro, and delivered to
Morgan Kent on January 5, 1998.
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_____________________________________________________________________________
Attorney or Party Without Attorney Telephone No:
(Name and Address) 213/935-9458
HARRY A. OLIVAR (#035125) Fax: 213/935-9475
ATTORNEY AT LAW
426 S. ARDEN BLVD.
LOS ANGELES, CA 90020
Attorney For (Name): WILLIAM IMMERMAN
_____________________________________________________________________________
Superior Court of California, County of Los Angeles
Street Address: 111 N. HILL ST.
Mailing Address: 111 N. HILL ST.
City and Zip Code: LOS ANGELES, CA 90012
Branch Name: CENTRAL
_____________________________________________________________________________
Estate of (Name):
STEPHEN J. FRIEDMAN,
aka STEPHEN FRIEDMAN Decedent
_____________________________________________________________________________
Letters
XX Testamentary of Administration
- --- ---
of Administration with Will Annexed of Administration
- --- ---
_____________________________________________________________________________
For Court Use Only
FILED
LOS ANGELES SUPERIOR COURT
DEC. 16, 1996
JOHN A. CLARKE, CLERK
By: /s/ M. Rios
----------------------------
Deputy
Case Number
BP-043,333
_____________________________________________________________________________
LETTERS
1. X The last will of the decedent named above having been proved, the
---- court appoints (name)
WILLIAM IMMERMAN
a. X Executor
----
b. Administrator with will annexed
----
2. The court appoints (name):
----
a. Administrator of the decedent's estate
----
b. Special administrator of decedent's estate
----
(1) with the special powers specified in the Order
---- for Probate
(2) with the powers of a general administrator
----
3. X The personal representative is authorized to administer the estate
---- under the Independent Administration of Estates Act X with full
---
authority with limited authority (no authority, without court
---
supervision, to (1) sell or exchange real property or (2) grant an
option to purchase real property or (3) borrow money with the loan
secured by an encumbrance upon real property).
WITNESS, clerk of the court, with seal of the court affixed.
Date: DEC. 16, 1996 JOHN A. CLARKE
Clerk, by /s/ M. Rios , Deputy
-----------------------
[SEAL AFFIXED]
AFFIRMATION
1. Public Administrator: No affirmation required (Prob. Code,
---- Section 1140(b)).
2. X Individual: I solemnly affirm that: I will perform the duties of
---- personal representative according to law.
3. Institutional Fiduciary (name):
----
I solemnly affirm that the institution will perform the duties of
personal representative according to law.
I make this affirmation for myself as an individual and on behalf of the
Institution as an officer
(Name and title):
4. Executed on (date): DECEMBER 4, 1996
at (place): LOS ANGELES, CALIFORNIA
/s/ WILLIAM IMMERMAN
------------------------------
(Signature)
WILLIAM IMMERMAN
CERTIFICATION
I certify that this document is a correct copy of the original on file in my
office and the letters issued the personal representative appointed above
have not been revoked, annulled, or set aside, and are still in full force
and effect.
Date: DEC. 16, 1996
Clerk, by JOHN A. CLARKE
/s/ J. KNIGHT
----------------------------
Deputy
J. KNIGHT
______________________________________________________________________________
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EXHIBIT 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
December 11, 1997, by and between Kings Road Entertainment, Inc., a Delaware
corporation (the "Company") and Morgan Kent Group, Inc., a Delaware corporation
("Buyer").
WHEREAS, the Company and Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Section 4(2) under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the Company is authorized to issue up to 12 million
shares of common stock, par value $.01 per share (the "Common Stock");
WHEREAS, Buyer desires to purchase and the Company desires to
issue and sell, upon the terms and conditions set forth in this Agreement, an
aggregate of 6,374,007 shares of Common Stock (the "Stock"), for an aggregate
purchase price as set forth herein;
WHEREAS, the Board of Directors of the Company has determined
that it is advisable and for the benefit and in the best interests of the
Company and its stockholders that Buyer purchase a controlling interest in the
Company by means of the purchase of the Stock (the "Stock Purchase"), on the
terms and conditions hereinafter set forth; and
WHEREAS, the Board of Directors of the Company approved this
Agreement, the Stock Purchase and the other transactions contemplated hereby.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the Company
and Buyer hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
SECTION 1.1 Purchase of Stock. The Company shall issue
and sell to Buyer and Buyer agrees to purchase from the Company the Stock at a
purchase price of $2,967,738 (the "Purchase Price"). The issuance, sale and
purchase of the Stock shall take place at the closing (the "Closing"). Subject
to the satisfaction (or waiver) of the conditions thereto set forth in Sections
5 and 6 below, at the Closing the Company shall issue and sell to Buyer and
Buyer shall purchase from the Company the Stock for the Purchase Price.
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SECTION 1.2 Form of Payment. On the Closing Date (as
defined below), (i) Buyer shall pay the Purchase Price for the Stock to be
issued and sold to it at the Closing by wire transfer of immediately available
funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
the number of shares of Stock which Buyer is purchasing, and (ii) the Company
shall deliver such certificate(s) against delivery of payment of such Purchase
Price.
SECTION 1.3 Closing. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Sections 5 and 6 below, the date
and time of the issuance and sale of the Stock pursuant to this Agreement (the
"Closing Date") shall be 10:00 a.m. Eastern Standard Time on December 31, 1997
or such other mutually agreed upon time. The Closing shall occur on the
Closing Date at the offices of Werbel & Carnelutti, 711 Fifth Avenue, New York,
New York 10022.
SECTION 1.4 Legends. The Stock shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Stock):
"The Stock represented by this certificate has not been
registered under the Securities Act of 1933, as amended. The
Stock has been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective
registration statement for the Stock under said Act, or an
opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any shares of
Stock upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) such Stock is registered for sale under an effective
registration statement filed under the 1933 Act or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Stock may be made without registration under the 1933 Act and such Stock is so
sold or transferred or (c) such holder provides the Company with reasonable
assurances that such Stock can be sold pursuant to Rule 144 under the 1933 Act
(or a successor rule thereto) without any restriction as to the number of
shares of Stock acquired as of a particular date that can then be immediately
sold. Buyer agrees to sell all shares of Stock, including those represented by
a certificate(s) from which the
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legend has been removed, in compliance with applicable prospectus delivery
requirements, if any.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
SECTION 2.1 Organization and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, with the power and
authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, used, operated and
conducted. The Company has no Subsidiaries. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary. "Subsidiaries" means any corporation or other
business entity, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
SECTION 2.2 Authorization; Enforcement. (i) The Company
has all requisite corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby and to issue
the Stock in accordance with the terms hereof, (ii) the execution and delivery
of the Agreement by the Company and the consummation by it of the transactions
contemplated hereby (including without limitation the issuance of the Stock)
have been duly authorized by the Company's Board of Directors and the Majority
Stockholder and no further consent or authorization by the Company, its Board
of Directors or its shareholders is required, (iii) this Agreement has been
duly executed and delivered by the Company, and (iv) this Agreement constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
SECTION 2.3 Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 12 million shares of
Common Stock of which 5,652,422 are issued and outstanding and 83,125 shares
are reserved for issuance pursuant to the Company's stock option plans and (ii)
1,988,618 shares of Convertible Preferred Stock, par value $1.00 per share,
consisting of 1,755,000 shares of Series A Convertible Preferred Stock and
233,618 shares of Series B Convertible Preferred Stock, of which no shares are
issued and outstanding. Other than options to purchase 83,125 shares of Common
Stock, there are no securities exercisable for, or convertible into or
exchangeable for, shares of Common Stock. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid
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and nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed on Schedule 2.3, as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, rights,
scrip rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company, or arrangements by
which the Company is or may become bound to issue additional shares of capital
stock of the Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the 1933 Act, and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Stock. The Company has furnished to Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Certificate of Incorporation"), the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into
or exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
SECTION 2.4 Issuance of Shares. The Stock is duly
authorized and, upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens and charges with respect to the issue thereof and shall not be subject to
preemptive rights, or other similar rights of stockholders of the Company.
SECTION 2.5 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company is a party, or result
in a violation of any material law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected. The Company is not in violation of its Certificate of Incorporation,
By-laws or other organizational documents and is not in default (and no event
has occurred which with notice or lapse of time or both could put the Company
in default) under, nor has the Company taken any action or failed to take any
action that would
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give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company is a party or by which any material property or assets of the Company
is bound or affected. The business of the Company is not being conducted in
violation of any material law, ordinance or regulation of any governmental
entity. Except as disclosed on Schedule 2.5 hereto, the Company is not
required to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under this Agreement in accordance with the terms hereof.
Except as disclosed on Schedule 2.5, all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not in violation of the listing
requirements of the Nasdaq SmallCap Market ("Nasdaq") and, except as set forth
in Schedule 2.5, has received no notice regarding the delisting or potential
delisting of the Common Stock by Nasdaq.
SECTION 2.6 Reports; Financial Statements. Since May 1,
1995, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with (i) the Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents") and (ii) any other applicable state securities authorities. The
Company has delivered to Buyer true and complete copies of the SEC Documents.
As of their respective dates, the SEC Documents, including all SEC Documents
filed after the date of this Agreement and prior to the Closing Date, were or
will be prepared in all material respects in accordance with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were or will be filed with the SEC, contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied or will comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been or will be prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be
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otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present or will
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the financial statements
of the Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to April 30, 1997, and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
SECTION 2.7 Taxes. Except for such matters as are
disclosed on Schedule 2.7, the Company has timely filed or will timely file all
returns and reports required to be filed by it with any taxing authority with
respect to Taxes for any period ending on or before the Closing Date, taking
into account any extension of time to file granted to or obtained on behalf of
the Company, (a) all Taxes shown to be payable on such returns or reports that
are due prior to the Closing Date have been paid or will be paid when due, (b)
as of the date hereof and as of the Closing Date, no deficiency for any
material amount of Tax has been asserted in an oral or written notice to the
Company or assessed by a taxing authority against the Company, (c) all
liability for Taxes of the Company that are or will become due or payable with
respect to periods covered by the financial statements referred to in Section
2.6 hereof have been paid or adequately reserved for on such financial
statements, and (d) to the Company's knowledge, no Tax return or reports of the
Company are under examination. "Tax" or "Taxes" means any and all taxes,
charges, fees and levies, payable to any federal, state, local or foreign
taxing authority or agency, including, without limitation, i) income,
franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, ii) customs duties, imposts,
charges, levies or other similar assessments of any kind, and iii) interest,
penalties and additions to tax imposed with respect thereto.
SECTION 2.8 Board Recommendation and Consent of Majority
Stockholder. The Board of Directors of the Company, at a meeting duly called
and held, has by requisite vote under applicable laws (i) determined that this
Agreement and the
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transactions contemplated hereby, including the Stock Purchase, and the
transactions contemplated thereby, taken together, are fair to and in the best
interests of the stockholders of the Company and (ii) resolved to recommend
that the holders of the shares of Common Stock approve this Agreement and the
transactions contemplated herein, including the Stock Purchase. The Company
has received the irrevocable consent of the Majority Stockholder to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 2.9 Books and Records. The books of account and
other financial records of the Company are in all material respect complete and
correct, are maintained in accordance with good business practices and all Laws
applicable to the Company, and are accurately reflected in the consolidated
financial statements of the Company contained in the SEC Reports. The minute
books of the Company contain accurate records of all meetings, and accurately
reflect all other corporate action of the shareholders and directors of the
Company. "Laws" shall mean all applicable federal, state, local or foreign
laws, regulations or orders or any other requirements of any governmental,
regulatory or administrative agency or authority or court or other tribunal.
SECTION 2.10 Absence of Certain Changes. Since April 30,
1997, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or
change by the Company in its accounting methods, principles or practices.
SECTION 2.11 Contracts. Listed on Schedule 2.11 hereto
are all contracts and agreements of the Company which require or could result
in the payment by or to the Company of more than $25,000 annually (the
"Contracts"), whether oral (in which case a summary thereof should be provided)
or written, in either case including, but not limited to, employment contracts,
leases and management agreements. The Company has provided Buyer with a true
and complete copy of each Contract. Each of the Contracts constitutes the
valid and binding obligation of the Company and, to the Company's knowledge,
the other party thereto, and is in full force and effect. The Company has
performed and fulfilled all of its obligations under each of such Contracts
required to be performed as of the date hereof, is not in default or material
breach thereunder, and, to the knowledge of the Company, no other party is in
default or material breach thereunder.
SECTION 2.12 Absence of Litigation. Except as disclosed
in Schedule 2.12, there is no action, suit, claim, proceeding, inquiry or
investigation at law or in equity (including actions or proceeding seeking
injunctive relief) pending before or by any court, public board, government
agency, self-regulatory
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organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company.
SECTION 2.13 No Materially Adverse Contracts. The Company
is not subject to any charter, corporate or other legal restriction, or any
judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or can reasonably be expected in the future to have a
material adverse effect on the operations, assets, financial condition or
prospects of the Company. The Company is not a party to any contract or
agreement which in the judgment of the Company's officers has or can reasonably
be expected to have a material adverse effect on the operations, assets,
financial condition or prospects of the Company.
SECTION 2.14 Certain Transactions. Except as set forth on
Schedule 2.14 and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 2.3, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors)
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
SECTION 2.15 No Integrated Offering. Neither the Company,
nor any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Stock to Buyer. The
issuance of the Stock to Buyer will not be integrated with any other issuance
of the Company's securities (past, current or, to the extent under the control
of the Company's stockholders and directors as of the date hereof, future)
which requires stockholder approval under the rules of The Nasdaq Stock Market,
Inc.
SECTION 2.16 No Brokers. The Company has taken no action
which would give rise to any reasonable claim by any person for brokerage
commissions, finder's fees or similar payments relating to this Agreement or
the transactions contemplated hereby whose commissions and fees will be paid
for by the Company.
SECTION 2.17 Permits, Compliance. The Company is in
possession of all material franchises, grants, authorizations,
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licenses, permits, casements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
The Company is not in conflict with, or in default or violation of, any of the
Company Permits. During the period commencing on April 30, 1997 and ending on
the date hereof, the Company has received no notification with respect to
possible conflicts, defaults or violations of applicable laws.
SECTION 2.18 Disclosure. To the Company's knowledge, all
information relating to or concerning the Company set forth in this Agreement
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein,
in light of the circumstances under which they were made, not misleading. To
the Company's knowledge, no event or circumstance has occurred or exists with
respect to the Company or its business, properties, prospects, operations or
financial conditions, which under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
SECTION 2.19 Intellectual Property. To the Company's
knowledge, the Company possesses all intellectual property rights necessary to
conduct the business of the Company as it is being conducted on the date
hereof, except to the extent that the failure to possess such intellectual
property rights would not have a material adverse effect on the operations,
assets, financial condition or prospects of the Company. To the Company's
knowledge, the Company is not infringing upon, and has not been charged with
the infringement or violation of, the intellectual property rights of any other
party, except as disclosed on Schedule 2.12 and for matters not material to the
Company.
ARTICLE 3
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to the Company that:
SECTION 3.1 Investment Purpose. As of the date hereof,
Buyer is purchasing the Stock for its own account for investment only and not
with a present view toward the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act or exempt from the registration
requirements thereof.
SECTION 3.2 Information. Buyer and its advisors, if any,
have been furnished with all materials relating to the
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<PAGE> 10
business, finances and operations of the Company and materials relating to the
offer and sale of the Stock which have been requested by Buyer or its advisors.
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received what Buyer believes to be
satisfactory answers to any such inquiries. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 2 above. Buyer
understands that its investment in the Stock involves a significant degree of
risk.
SECTION 3.3 Governmental Review. Buyer understands that
no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement
of the Stock.
SECTION 3.4 Transfer or Resale. Buyer understands that
(i) the Stock has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and may not be transferred unless (a)
subsequently included in an effective registration statement thereunder or (b)
Buyer shall have delivered to the Company an opinion of counsel (which opinion
shall be reasonably acceptable to the Company) to the effect that the Stock to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (c) sold pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule), (ii) any sale of such Stock made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Stock under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Stock under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing or anything else contained
herein to the contrary, and in conformity with all Laws, the Stock may be
pledged as collateral in connection with a bona fide margin account or any
other lending arrangement.
SECTION 3.5 Organization and Qualification. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, with the power and
authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, used, operated and
conducted. Schedule 3.5 sets forth a list of all of the Subsidiaries of Buyer
and the jurisdiction in which each is incorporated. Buyer and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the
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nature of the business conducted by it makes such qualification necessary.
SECTION 3.6 Authorization; Enforcement. (i) Buyer has
all requisite corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby, (ii) the
execution and delivery of the Agreement by Buyer and the consummation by it of
the transactions contemplated hereby have been duly authorized by Buyer's Board
of Directors and no further consent or authorization by Buyer, its Board of
Directors or its shareholders is required, (iii) this Agreement has been duly
executed and delivered by Buyer, and (iv) this Agreement constitutes a legal,
valid and binding obligation of Buyer enforceable against Buyer in accordance
with its terms.
SECTION 3.7 No Conflicts. The execution, delivery and
performance of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby will not (i) conflict with or result in a
violation of any provision of the Buyer's Certificate of Incorporation or
By-laws in each case as in effect on the date hereof or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which Buyer is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to Buyer or by which any property or asset of Buyer is
bound or affected, where such conflict, violation, breach or default would have
a material adverse effect on the operations, assets, financial condition or
prospects of Buyer. Buyer is not in violation of its Certificate of
Incorporation, By-laws or other organizational documents and is not in default
(and no event has occurred which with notice or lapse of time or both could put
Buyer in default) under, nor has Buyer taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which Buyer is a party or by which any material property or assets of Buyer is
bound or affected where such violation, default, action or failure to take
action would have a material adverse effect on the operations, assets,
financial condition or prospects of Buyer. The business of Buyer is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity where such violation would have a material adverse effect on the
operations, assets, financial condition or prospects of Buyer. Except as
specifically contemplated by this Agreement and not required under the 1933 Act
and any applicable state securities laws, Buyer is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform
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<PAGE> 12
any of its obligations under this Agreement in accordance with the terms
hereof. Except as disclosed on Schedule 3.7, all consents, authorizations,
orders, filings and registrations which Buyer is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. Buyer is unaware of any facts or circumstances which might give rise
to any of the foregoing.
SECTION 3.8 Disclosure. To Buyer's knowledge, all
information relating to or concerning Buyer set forth in this Agreement is true
and correct in all material respects and Buyer has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading. To
Buyer's knowledge, no event or circumstance has occurred or exists with respect
to Buyer or its business, properties, prospects, operations or financial
conditions, which under applicable law, rule or regulation, requires public
disclosure or announcement by Buyer but which has not been so publicly
announced or disclosed.
ARTICLE 4
COVENANTS
SECTION 4.1 Affirmative Covenants of the Company. (a)
The Company hereby covenants and agrees that, during the period commencing on
the date hereof and continuing until the Closing Date unless otherwise
expressly contemplated by this Agreement or consented to in writing by the
other party, it will:
(i) operate its business only in the
usual and ordinary course consistent with past practices (except that the
Company may make the Pre-Closing Distribution (as defined in Section 4.6 below)
and may take any reasonable and lawful action outside the usual and ordinary
course in connection with making the collections contemplated in clauses (B)(i)
and (B)(ii) of such definition of Pre- Closing Distribution);
(ii) preserve substantially intact its
business organizations, maintain its rights and franchises, and otherwise
operate its business in a manner that materially breaches no Contract;
(iii) maintain and keep its business
relationships intact and unimpaired, and its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
(iv) promptly advise the other party of
the commencement of, or threat of (to the extent that such threat comes to its
knowledge), any claim, action, suit, proceeding or investigation against,
relating to or involving it or any of its
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<PAGE> 13
directors, officers, employees, agents or consultants in connection with its
business or the transactions contemplated hereby;
(v) provide Buyer with unaudited
quarterly consolidated balance sheets and income statements and unaudited
quarterly statements of cash position for each fiscal quarter following the
date of this Agreement as soon as practicable following the end of each such
fiscal quarter; and
(vi) promptly provide the other party
with copies of any and all reports or documents filed with the SEC.
(b) The Company will cause its transfer agent to
make stock transfer records relating to, and stockholder lists of, the Company
available to the extent reasonably necessary to effectuate the intent of this
Agreement.
SECTION 4.2 Information Statement. (a) The Company
shall use its best efforts to file with the SEC, within ten business days after
the date of this Agreement, an Information Statement (together with any
amendment thereof or supplement thereto, the "Information Statement") prepared
and filed with the SEC in accordance with the requirements of the 1934 Act and
promptly take all action required by Delaware Law, the Nasdaq Stock Market,
Inc. and its Certificate of Incorporation and By-Laws to consummate this
Agreement and the transactions contemplated hereby. The Company shall give
Buyer the opportunity to comment on the Information Statement prior to its
filing with the SEC and delivery to the Company's stockholders, as applicable.
As soon as practicable following clearance with the SEC, the Company shall mail
the Information Statement to its stockholders.
(b) The information supplied by the Company for
inclusion in the Information Statement (except to the extent such information
was provided to the Company by Buyer) shall not, at the time the Information
Statement is delivered to the Company's stockholders, or at the Closing Date,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The information supplied by Buyer for inclusion in the
Information Statement (as defined below) (except to the extent such information
was provided to Buyer by the Company) shall not, at the time the Information
Statement is delivered to the Company's stockholders, or at the Closing Date,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. All documents that the Company is responsible for
filing with the SEC in connection with the transactions contemplated herein
will comply as to form and substance in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
thereunder and the 1934 Act and the rules and regulations thereunder.
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<PAGE> 14
SECTION 4.3 Appropriate Action; Consents; Filings. (a)
Each of the Company and Buyer shall use its best efforts to (i) take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate,
satisfy the conditions to, and make effective the transactions contemplated by
this Agreement, (ii) obtain from any governmental or regulatory authorities or
other persons any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by the Company and
Buyer, as applicable, in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the Stock Purchase (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Stock Purchase required under (A) the
1933 Act and the 1934 Act and the rules and regulations thereunder, and any
other applicable federal or state securities laws, and (B) any other applicable
Law. The Company and Buyer, as applicable, shall furnish all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable Law (including all information required to be
included in the Information Statement) in connection with the transactions
contemplated by this Agreement.
(b) Each of the Company and Buyer, as applicable,
agrees to contest and resist any action, including administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that is in effect and that restricts, prevents or
prohibits the consummation of the Stock Purchase or any other transactions
contemplated by this Agreement, including, without limitation, by pursuing all
available avenues of administrative and judicial appeal; provided, however,
that in no event shall the Company or Buyer take, or be required to take, any
action that would have a material adverse effect on the operations, assets,
financial condition or prospects of the Company or Buyer, as the case may be.
(c) Each of the Company and Buyer, as applicable,
shall give any notices to third parties, and use its best efforts to obtain any
third party consents (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement, (ii) disclosed or required to be
disclosed on the Schedules hereto, (iii) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated herein or (iv) required to
prevent a material adverse effect on the operations, assets, financial
condition or prospects of the Company or Buyer, as the case may be, from
occurring prior to or after the Closing Date.
(d) In the event that either the Company or
Buyer, as applicable, shall fail to obtain any third party consent
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<PAGE> 15
described in subsection (c) above, such party shall use its best efforts, and
shall take any such actions reasonably requested by the other party hereto, to
minimize any adverse effect upon the parties hereto, their respective
Subsidiaries, and their respective businesses resulting, or which could
reasonably be expected to result, after the Closing Date, from the failure to
obtain such consent.
SECTION 4.4 Public Announcements. The Company and Buyer
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Stock Purchase and the
transactions contemplated thereby and shall not issue any such press release or
make any such public statement prior to such consultation; provided, however,
that no such disclosure shall be required if applicable Law, stock exchange
requirements or the requirements of the NASD do not permit such prior
consultation or impose timing obligations that would render such consultation
impracticable.
SECTION 4.5 Nasdaq Listing. The Company shall use its
best efforts to cause the shares of Common Stock to be issued in connection
with the Stock Purchase to be approved for quotation on the Nasdaq SmallCap
Market prior to the Closing Date or as soon as practicable thereafter.
SECTION 4.6 Negative Covenants of the Company. Except as
expressly contemplated by this Agreement or otherwise consented to in writing
by Buyer (which consent shall not be unreasonably withheld), from the date of
this Agreement until the Closing Date, the Company will not do any of the
following:
(a) (i) increase the compensation payable to
or to become payable to any director, officer or employee; (ii) grant any
severance or termination pay (other than pursuant to its normal severance
policy as in effect on the date of this Agreement) to, or enter into any
employment or severance agreement with, any director, officer or employee other
than employment agreements entered into with the consent of Buyer, which
consent shall not be unreasonably withheld; or (iii) establish, adopt, enter
into or amend any employee benefit plan or arrangement except as may be
required by applicable Law;
(b) declare or pay any dividend on, or make any
other distribution (however characterized) in respect of, outstanding shares of
its capital stock, except for the Pre-Closing Distribution (as defined below)
to be paid on a pro-rata basis to shareholders of the Company (other than
Buyer) subsequent to the date of this Agreement but prior to the Closing Date;
(c) (i) redeem, purchase or otherwise
acquire any shares of its capital stock or equity interest or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock or equity interest or any options, warrants or
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<PAGE> 16
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations (except in connection with the exercise of
outstanding stock options or stock purchase warrants referred to herein, in
accordance with their terms or, in connection with the conversion of
convertible debentures, in accordance with their terms); (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares of
its capital stock;
(d) (i) issue, deliver, award, grant or
sell, or authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims, pledges,
limitations in voting rights, charges or other encumbrances) of, any shares of
any class of its capital stock or other securities (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire, any such shares
(except for the issuance of shares upon the exercise of outstanding stock
options, stock purchase warrants or the conversion of outstanding convertible
debentures, in accordance with their terms); (ii) amend or otherwise modify the
terms of any such rights, warrants or options the effect of which shall be to
make such terms more favorable to the holders thereof; or (iii) take any action
to accelerate the vesting of any of the stock options;
(e) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division (other than
a wholly-owned subsidiary) thereof, or otherwise acquire or agree to acquire
any assets of any other person;
(f) sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its assets outside of the
ordinary course of business;
(g) propose or adopt any amendments to its
Certificate of Incorporation or By-Laws;
(h) (i) change any of its methods of
accounting in effect, or (ii) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes
(except where the amount of such settlements or controversies, individually or
in the aggregate, does not exceed $10,000), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for
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<PAGE> 17
the taxable year ended April 30, 1997, except as may be required by Law or
generally accepted accounting principles;
(i) incur any obligation for borrowed money or
purchase money indebtedness, whether or not evidenced by a note, bond,
debenture or similar instrument, of $25,000 or more;
(j) enter into any material arrangement,
agreement or contract with any third party which requires the payment of the
Company of in excess of $25,000;
(k) amend any of the material terms or provisions
of its capital stock; and
(l) discuss or enter into negotiations with any
entity (other than Buyer), or agree in writing or otherwise, to do any of the
foregoing.
The "Pre-Closing Distribution" shall consist of (A) an
aggregate of $2,492,922, the value of the Company's cash and marketable
securities as of August 31, 1997, (B) plus, to the extent collected prior to
the Closing, (i) an amount estimated to be approximately $187,000 owed to the
Company by World Icon Distribution Enterprises C.V. and (ii) an amount
estimated to be approximately $44,000 owed to the Company in connection with
the sale of certain foreign licenses by Moonstone Entertainment, Inc., an agent
of the Company, (C) less the aggregate amount of the costs associated with the
preparation of the proxy statement and solicitation of stockholders to be
effected in connection with the transactions contemplated hereby and the
Company's legal fees and other expenses incurred in connection with the
negotiation and consummation of the Stock Purchase.
SECTION 4.7 Access and Information. Between the date of
this Agreement and the Closing Date or earlier termination of this Agreement,
the Company shall (i) afford Buyer and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "Representatives") reasonable access upon reasonable prior
notice to its officers, employees, agents, properties, offices and other
facilities and to the books and records thereof and (ii) furnish promptly to
Buyer and its Representatives such information in its possession or control
concerning its business, properties, contracts, records and personnel
(including, without limitation, financial, operating and other data and
information) as may reasonably be requested, from time to time, by Buyer. All
of such data and information shall be subject to the terms and conditions of
the confidentiality agreement each party signed for the benefit of the other
party dated March 18, 1997 (the "Confidentiality Agreement").
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<PAGE> 18
SECTION 4.8 Confidentiality. The parties will comply
with all of their respective obligations under the Confidentiality Agreement.
SECTION 4.9 Restrictions on Transfers by the Majority
Stockholder. The Company shall obtain from the Majority Stockholder an
executed agreement in form and substance satisfactory to Buyer that, except to
the extent permitted in accordance with the volume limitations of Rule 144 of
the 1933 Act, for a period of one year from the date hereof, the Majority
Stockholder shall not directly or indirectly offer to sell, grant any option
for the sale of, assign, transfer, pledge, hypothecate, or otherwise encumber
or dispose of any legal or beneficial interest in any shares of Common Stock,
any securities convertible into or exercisable or exchangeable for shares of
Common Stock, or any warrants, options or other rights to purchase, subscribe
for, or otherwise acquire any shares of Common Stock (including, without
limitation, any such shares, securities or rights that may be deemed to be
beneficially owned by the Majority Stockholder in accordance with the Rules and
Regulations of the SEC promulgated under the 1933 Act).
SECTION 4.10 Irrevocable Proxy of the Majority
Stockholder. The Company shall obtain the irrevocable proxy of the Majority
Stockholder appointing Buyer its attorney-in-fact with power and authority to
vote the shares of Common Stock owned by it in favor of execution of this
Agreement and the performance by the Company of the transactions contemplated
hereby.
SECTION 4.11 Board of Directors. As soon as practicable
following the Closing Date, the members of the Company's Board of Directors on
the date hereof, other than Mr. Kenneth I. Aguado, shall resign, and Buyer (on
its own behalf and as attorney-in-fact of the Majority Stockholder) shall elect
Mr. Gerald Combs and a nominee of Mr. Gerald Combs, and shall re-elect Mr.
Aguado, to serve on the Company's Board of Directors.
ARTICLE 5
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the
Stock to Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
SECTION 5.1 Representations and Warranties. The
representations and warranties of the Buyer contained in this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date and
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<PAGE> 19
the Buyer shall have delivered to Company a certificate to that effect.
SECTION 5.2 Agreements and Covenants. The Buyer shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it in all material respects prior
to the Closing Date and the Buyer shall have delivered to the Company a
certificate to that effect.
SECTION 5.3 Consents and Approvals. All material
consents, approvals and authorizations legally required to be obtained to
consummate the Stock Purchase shall have been obtained from all required
governmental or regulatory authorities and any other third party.
SECTION 5.4 Opinion of the Buyer's Counsel. The Company
shall have received an opinion, dated the Closing Date, of Werbel and
Carnelutti, counsel to the Buyer, in form and substance reasonably satisfactory
to the Company substantially in the form set forth as Exhibit 5.4.
SECTION 5.5 No Order. No governmental entity or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Stock
Purchase illegal or otherwise prohibiting consummation of the Stock Purchase.
SECTION 5.6 Information Statement. Buyer shall have
furnished to the Company all information relating to it required by law to be
included in the Information Statement.
ARTICLE 6
CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE
The obligation of Buyer hereunder to purchase the Stock at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for Buyer's
sole benefit and may be waived by Buyer at any time in its sole discretion:
SECTION 6.1 Delivery of the Information Statement. The
definitive Information Statement shall have been prepared and filed with the
SEC and mailed to the Company's stockholders in accordance with the applicable
rules and regulations of the SEC. All necessary state securities and blue sky
permits, approvals and exemption orders required in connection with the
transactions contemplated by this Agreement, if any, shall have been obtained.
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<PAGE> 20
SECTION 6.2 Employment Agreement. The Company shall have
entered into an employment agreement with Kenneth I. Aguado, substantially in
the form of Exhibit 6.2 hereto.
SECTION 6.3 Representations and Warranties. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date and the Company shall have delivered to
Buyer a certificate to that effect.
SECTION 6.4 Agreements and Covenants. The Company shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it in all material respects prior
to the Closing Date and the Company shall have delivered to Buyer a certificate
to that effect.
SECTION 6.5 Consents and Approvals. All material
consents, approvals and authorizations legally required to be obtained to
consummate the Stock Purchase shall have been obtained from all required
governmental or regulatory authorities and any other third party.
SECTION 6.6 Opinion of the Company's Counsel. Buyer
shall have received an opinion, dated the Closing Date, of Guth Rothman &
Christopher LLP, counsel to the Company, in form and substance reasonably
satisfactory to Buyer substantially in the form set forth as Exhibit 6.6.
SECTION 6.7 No Material Adverse Effect. Since April 30,
1997, there shall have been no event, change or effect that, individually or
when taken together with all other such events, changes or effects, would be
materially adverse to the condition (financial or otherwise), prospects,
properties, assets, business or operations of the Company, taken as a whole, at
the time of such event, change or effect; provided, however, that for purposes
of this Agreement, any change occurring between the date of this Agreement and
the Closing Date in the amount of cash held by the Company as a direct result
of payment of expenses relating to the Stock Purchase (including the
Pre-Closing Distribution) shall not be deemed a material adverse effect, nor
shall there have occurred prior to the Closing Date any change, occurrence or
circumstance in the business, results of operations or financial condition of
the Company likely to have, individually or in the aggregate, a material
adverse effect.
SECTION 6.8 Certificates. In addition to the
certificates referred to in Sections 6.3 and 6.4 hereof, Buyer shall have
received such certificates from officers and representatives of the Company as
it shall have reasonably requested.
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<PAGE> 21
SECTION 6.9 No Order. No governmental entity or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Stock Purchase
illegal or otherwise prohibiting consummation of the Stock Purchase.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1 Indemnity by the Company. Until one year
from the date hereof and to the extent set forth in Section 7.3 hereof, the
Company agrees to indemnify and hold harmless Buyer and its successors and
assigns and its and their respective officers, directors, controlling persons
(if any), employees, attorneys, agents, affiliates, partners and stockholders,
in each case past, present, or as they may exist at any time after the date of
this Agreement (including Buyer, the "Buyer Indemnitees") against and in
respect of any and all claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, losses, costs and legal and other expenses (collectively,
"Losses") arising out of or based upon (i) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement or
in any other agreement executed and delivered by the Company hereunder or in
connection herewith that remains uncured for a period of ten days following the
delivery by a Buyer Indemnitee of written notice thereof to the Company and
(ii) any action by any stockholder of the Company relating to the Stock
Purchase and the transactions contemplated hereby and thereby which, in either
case, results in Losses to Buyer in excess of $75,000.
SECTION 7.2 Defense of Claims. Any Buyer Indemnitee (the
"Indemnified Party") seeking indemnification under this Agreement shall give to
the party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder promptly upon
learning of the existence of such claim and in no event later than one year
from the date of this Agreement. Upon receipt by the Indemnitor of a Claim
Notice from an Indemnified Party with respect to any claim of a third party,
such Indemnitor may assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party and, in such event, shall agree to pay
and otherwise discharge with the Indemnitor's own assets all judgments,
deficiencies, damages, settlements, liabilities, losses, costs and legal and
other expenses related thereto; and the Indemnified Party shall cooperate in
the defense or prosecution thereof and shall furnish such records, information
and testimony and attend all such conferences, discovery proceedings, hearings,
trials and appeals as
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<PAGE> 22
may be reasonably requested in connection therewith. If the Indemnitor does
not assume the defense thereof, the Indemnitor shall similarly cooperate with
the Indemnified Party in such defense or prosecution. The Indemnified Party
shall have the right to participate in the defense or prosecution of any
lawsuit with respect to which the Indemnitor has assumed the defense and to
employ its own counsel therein, but the fees and expenses of such counsel shall
be at the expense of the Indemnified Party unless (i) the Indemnitor shall not
have promptly employed counsel reasonably satisfactory to such Indemnified
Party to take charge of the defense of such action or (ii) such Indemnified
Party shall have reasonably concluded that there exists a significant conflict
of interest with respect to the conduct of such Indemnified Party's defense by
the Indemnitor, in either of which events such fees and expenses shall be borne
by the Indemnitor and the Indemnitor shall not have the right to direct the
defense of any such action on behalf of the Indemnified Party. The Indemnitor
shall not have the right to settle any claim solely for monetary damages for
which indemnification has been sought and is available hereunder without the
prior written consent of the Indemnified Party. The Indemnified Party shall
give written notice to the Indemnitor of any proposed settlement of any suit,
which settlement the Indemnitor may, if it shall have assumed the defense of
the suit, reject in its reasonable judgment within 10 days of receipt of such
notice. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any suit for which indemnification has been sought and
is available hereunder; provided, that, if the defense of such claim shall have
been assumed by the Indemnitor, the Indemnified Party shall automatically be
deemed to have waived any right to indemnification hereunder.
SECTION 7.3 Indemnification Amount. In the event that
Buyer has suffered Losses under Section 7.1, the Company shall issue to Buyer a
number of additional shares of Common Stock equal to (A) the amount of Losses
suffered by Buyer in excess of $75,000, (B) divided by $.4656.
SECTION 7.4 Composition of Board of Directors in
Connection with Indemnification. In connection with any matter for which
indemnification is sought or any proceeding for indemnification brought by a
Buyer Indemnitee, the actions of the Company shall be controlled by those
members of the Company's Board of Directors who were members of the Company's
Board of Directors on the date of this Agreement and not by the entire Board of
Directors on such date.
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<PAGE> 23
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by mutual written consent of the Company and
Buyer;
(b) by Buyer, if any representation or warranty
made by the Company in this Agreement shall not have been true when made or the
failure of the Company to satisfy its obligations under Articles 1 and 4
hereof, where such breach or failure results in Losses to Buyer in excess of
$75,000 and which breach or failure has not been cured within ten days from the
date written notice thereof is delivered to the breaching party by the other
party;
(c) by the Company, if any representation or
warranty made by Buyer in this Agreement shall not have been true when made and
or the failure of Buyer to satisfy its obligations under Articles 1 and 4
hereof, which breach or failure has not been cured within ten days from the
date written notice thereof is delivered to the breaching party by the other
party;
(d) by the Company or Buyer, if there shall be
any Order which is final and nonappealable preventing the consummation of the
Stock Purchase, except if the party relying on such Order has not complied with
its obligations under Article 4 hereof;
(e) by the Company or Buyer, if the Closing Date
shall not have occurred before December 31, 1997; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.1(e) shall not be
available to any party whose (or whose affiliates(s)) breach of any
representation or warranty or failure to perform or comply with any obligation
under this Agreement has been the proximate cause of, or proximately resulted
in, the failure of the Closing Date to occur on or before such date; or
(f) by the Company or Buyer at any time prior to
the Closing Date if (i) in the case of termination by Buyer, any of the
conditions specified in Article 6 shall not have been met or waived prior to
such time as such condition can no longer be satisfied or (ii) in the case of
termination by the Company, any of the conditions specified in Article 5 shall
not have been met or waived prior to such time as such condition can no longer
be satisfied.
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party
hereto, any person controlling any such party
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<PAGE> 24
or any of their respective officers or directors, whether prior to or after the
execution of this Agreement.
SECTION 8.2 Effect of Termination. Subject to the
provisions of Section 9.1, in the event of the termination of this Agreement
pursuant to Section 8.1, the parties to this Agreement shall have no rights and
obligations hereunder; provided, however, that all rights and obligations
pursuant to Sections 4.7, 4.8 and 8.5 hereof shall survive termination of this
Agreement.
SECTION 8.3 Amendment. To the extent permitted by
applicable law, this Agreement may be amended by the parties hereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Closing Date. This Agreement may not be amended except by an instrument
in writing signed by the parties hereto.
SECTION 8.4 Waiver. At any time prior to the Closing
Date, any party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance by
the other party with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby and no alteration,
modification or impairment will be implied by reason of any previous waiver,
extension of time, delay or omission on exercise or other indulgence.
SECTION 8.5 Fees, Expenses and Other Payments. (a)
Except as provided in Section 8.5(c), all Expenses (as defined in paragraph (b)
of this Section 8.5) incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred such Expenses.
(b) "Expenses" as used in this Agreement shall
include all reasonable out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Information Statement, the communication
with stockholders and all other matters related to the closing of the
transactions contemplated herein.
(c) If this Agreement shall be terminated by
Buyer pursuant to Section 8.1(b) or by the Company pursuant to Section 8.1(c),
then the non-terminating party shall pay to the terminating party, in
consideration of the time, effort and resources expended in connection
herewith, an amount equal to the sum of $75,000, plus any fees or expenses
incurred by the non-terminating party in
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<PAGE> 25
connection with the collection of such amount (the "Collection Expenses"). The
remedies set forth in this Section 8.5(c) shall be the sole and exclusive
remedy of a party in the event of termination of this Agreement as described
herein.
(d) Any payment required to be made pursuant to
Section 8.5(c) shall be made to Buyer not later than three business days after
delivery to the Company of notice of demand for payment and an itemization
setting forth in reasonable detail all Collection Expenses, if any, and shall
be made by wire transfer of immediately available funds to an account
designated by the Buyer in the notice of demand for payment delivered pursuant
to this Section 8.5(d).
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Effectiveness of Representations, Warranties
and Agreements. Except as may be limited as set forth in Article 7 and Section
8.2, the representations, warranties and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement, and shall survive until the first anniversary of
the date of this Agreement.
SECTION 9.2 Notices. Any notices required or permitted
to be given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile and
shall be effective five days after being placed in the mail, if mailed by
regular U.S. mail, or upon receipt, if delivered personally, by courier
(including a recognized overnight delivery service) or by facsimile, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
Kings Road Entertainment, Inc.
1901 Avenue of the Stars
Suite 1545
Los Angeles, California 90067
Attention: Kenneth I. Aguado
Fax: (310) 277-4468
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<PAGE> 26
with a copy to:
Guth Rothman & Christopher LLP
10866 Wilshire Boulevard
Suite 1250
Los Angeles, California 90024
Attention: Theodore E. Guth, Esq.
Fax: (310) 470-8354
If to Buyer:
Morgan Kent Group, Inc.
545 Madison Avenue
14th Floor
New York, New York 10022
Attention: J. Gerald Combs
Fax: (212) 486-6972
with a copy to:
Werbel & Carnelutti
A Professional Corporation
711 Fifth Avenue
New York, New York 10022
Attention: Stephen M. Davis, Esq.
Fax: (212) 832-3353
Each party shall provide notice to the other party of any
change in address.
SECTION 9.3 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties and their successors
and assigns. Neither the Company nor Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, Buyer may assign its rights hereunder to any of
its "affiliates" as that term is defined under the 1934 Act that it controls or
with respect to which it holds controlling voting or dispositive power, without
the consent of the Company. Notwithstanding the foregoing or anything else
contained herein to the contrary and in conformity with all applicable Laws,
the Stock may be pledged as collateral in connection with a bona fide margin
account or other lending arrangement.
SECTION 9.4 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.5 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless
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<PAGE> 27
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.6 Entire Agreement. This Agreement (together
with the Exhibits and Schedules hereto) constitutes the entire agreement of the
parties and supersedes all prior agreements, warranties, statements, promises,
understandings and undertakings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof.
SECTION 9.7 Assignment. This Agreement shall not be
assigned by operation of law or otherwise.
SECTION 9.8 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.9 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed to be a
waiver of, or acquiescence in, any breach of any representation, warranty or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 9.10 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware without regard to the conflicts of laws rules of the State of Delaware
or any other jurisdiction that would call for the application of the laws of
any jurisdiction other than the State of Delaware.
SECTION 9.11 Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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<PAGE> 28
SECTION 9.12 Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 29
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be duly executed as of the date first above written.
KINGS ROAD ENTERTAINMENT, INC.
By: /s/ Kenneth I. Aguado
----------------------------
Name: Kenneth I. Aguado
Title: President
MORGAN KENT GROUP, INC.
By: /s/ J. Gerald Combs
----------------------------
Name: J. Gerald Combs
Title: President
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<PAGE> 1
EXHIBIT 3
December 11, 1997
Morgan Kent Group, Inc.
545 Madison Avenue, Suite 1400
New York, NY 10022
Attn: J. Gerald Combs
Re: Stock Purchase Agreement
Dear Gerry:
Each of the parties to the Stock Purchase Agreement (the "Agreement")
entered into by and between Kings Road Entertainment, Inc. (the "Company") and
Morgan Kent Group, Inc., dated as of the same date hereof, acknowledges that,
as of the date hereof, the Company does not have authorized a sufficient number
of shares of its common stock, par value $.01 per share (the "Common Stock"),
to consummate the transactions contemplated by the Agreement. To induce Morgan
Kent to enter into the Agreement, the Company hereby undertakes to use its best
efforts to obtain the consent of holders of a majority of the outstanding
shares of Common Stock to effect a reverse stock split (the "Split") with
respect to outstanding shares of Common Stock that will result in the Company's
having a sufficient number of shares of Common Stock authorized and, assuming
such consent is obtained, to effect the Split prior to the Closing (as such
term is defined in the Agreement). Accordingly, each of the parties
acknowledges and agrees that following the effective date of the Split, all
references in the Agreement to price per share of common stock and number of
shares of common stock shall be appropriately adjusted to reflect the effect of
the Split.
Please indicate your acceptance and agreement to the foregoing by
signing in the space provided below.
Sincerely,
Kings Road Entertainment, Inc.
By: /s/ Kenneth I. Aguado
---------------------------------
Kenneth I. Aguado
Its: Chief Executive Officer
ACCEPTED AND AGREED TO:
Morgan Kent Group, Inc.
By: /s/ J. Gerald Combs
---------------------------
J. Gerald Combs
Its: President
--------------------------
Dated: 12/11/97
------------------------
<PAGE> 1
EXHIBIT 4
December 11, 1997
Morgan Kent Group, Inc.
545 Madison Avenue
14th Floor
New York, New York 10022
Re: Morgan Kent Group, Inc. Purchase of Shares of
Common Stock of Kings Road Entertainment, Inc.
----------------------------------------------
Dear Sirs:
The undersigned, the holder on the date hereof of a majority
of the outstanding shares of common stock, $.01 par value per share (the
"Common Stock"), of Kings Road Entertainment, Inc. (the "Company"),
acknowledges that the Company and Morgan Kent Group, Inc. ("Morgan Kent")
propose to enter into a Stock Purchase Agreement (the "Stock Purchase
Agreement") whereby Morgan Kent will purchase 6,374,007 newly-issued shares of
Common Stock, providing Morgan Kent with 53% of the shares of Common Stock
outstanding after such issuance by the Company and purchase by Morgan Kent. In
recognition of the benefit that such a purchase will confer upon the
undersigned as a stockholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees that, except to the extent permitted in accordance with
the volume limitations of Rule 144 of the Securities Act of 1933, as amended
(the "1933 Act"), for a period of one year from the date of the Stock Purchase
Agreement, the undersigned will not, directly or indirectly, sell, grant any
option for the sale of, assign, transfer, pledge, hypothecate, or otherwise
encumber or dispose of any legal or beneficial interest in any shares of Common
Stock, any securities convertible into or exchangeable or exercisable for
shares of Common Stock, or any warrants, options, or other rights to purchase,
subscribe for, or otherwise acquire any shares of Common Stock (including,
without limitation, any such shares, securities or rights that may be deemed to
be beneficially owned by the undersigned in accordance with the Rules and
Regulations of the Securities and Exchange Commission promulgated under the
1933 Act); provided, however, that the undersigned may dispose of any and all
shares of Common
