<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)
Kings Road Entertainment, Inc.
(Name of Issuer)
Common Stock, Par Value, $0.01 Per Share
(Title of Class of Securities)
0004961621
(CUSIP Number)
J. Gerald Combs
Morgan Kent Group, Inc.
711 Fifth Avenue, 5th Floor
New York, New York 10022
(212) 486-4800
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
April 16, 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 13-d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ].
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purposes 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.
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SCHEDULE 13D
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CUSIP No. 0004961621
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1 NAME OF REPORTING PERSON - S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Morgan Kent Group, Inc.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
OO
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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
Delaware
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NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
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7 SOLE VOTING POWER
2,124,669
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8 SHARED VOTING POWER
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9 SOLE DISPOSITIVE POWER
2,124,669
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10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BELOW BEFORE FILLING OUT!
SEC 1746 (9-88)
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Item 1. Security and Issuer
This statement on Schedule 13D is filed by Morgan Kent Group, Inc.
("Morgan Kent" or the "Reporting Person") relating to its beneficial ownership
of the common stock, $.01 par value ("Common Stock"), of Kings Road
Entertainment, Inc. (the "Issuer" or "Kings Road").
Item 2. Identity and Background
(a-c), (f). The person (the "Reporting Person") filing this
statement is Morgan Kent, a Delaware corporation. The principal business
address of the Reporting Person is 711 Fifth Avenue, New York, New York 10022.
Morgan Kent is primarily engaged in the business of acquiring assets
of or majority or controlling interests in the equity of existing businesses.
The name, business address, present principal occupation or employment and
citizenship of each executive officer and director of, and each person
controlling, Morgan Kent is set forth on Schedule A hereto which is
incorporated herein by reference.
J. Gerald Combs ("Combs") is the President, Chief Executive Officer
and Chairman of the Board of Directors of Morgan Kent.
Mr. Maysonave, as voting trustee pursuant to a voting trust expiring
in March, 1999 (the "Voting Trust"), beneficially owns 3,300,000 shares of
Series B Preferred Stock of Morgan Kent (the "Series B Preferred"). Under a
stockholders agreement, the Series B Preferred has the power to elect three of
the five directors constituting Morgan Kent's entire board of directors. The
3,300,000 shares constitute 51.2% of the 6,500,000 outstanding shares of the
Series B Preferred. Messrs. Jeffrey K. Moore and Matthew R. Moore (the "Moore
Brothers") together own a majority of the outstanding shares of the Series B
Preferred and a majority of the shares in the voting trust, and, voting
together, have the power under the voting trust agreement to replace Stephen
Maysonave as voting trustee at any time for any reason. Each of the Moore
Brothers disclaims beneficial ownership of the other's shares of Morgan Kent's
Series B Preferred.
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(d,e). Except as disclosed in the following paragraph, during the
last five years, neither the Reporting Person nor any of its executive
officers, directors or controlling persons has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction resulting in its or his being subject to a judgment, decree or
final order enjoining future violation of, or prohibiting or mandating
activities subject to, federal or state securities laws or a finding of any
violation with respect to such laws.
During 1994 and 1995, William Moore, the father of the Moore
Brothers, was a key consultant to Morgan Kent. In April 1996, William Moore
was convicted of felonies in federal district court for the Western District of
Texas related to the acquisition and operation of a Texas savings and loan from
1982 to 1984 and was ordered to pay approximately $12 million in restitution to
several federal agencies. Although William Moore disclaims beneficial
ownership of, or an economic interest in, the controlling shares of Morgan Kent
owned by his sons, there can be no assurance that the federal government will
not attempt to attribute an economic interest in such shares to William Moore,
or that his sons will not sell such shares, in order to satisfy this
restitution order. Either of these outcomes could result in a change in
control of Morgan Kent and, therefore, the Issuer. Mr. Moore is appealing
these convictions and restitution order.
Item 3. Source and Amount of Funds of Other Consideration
The aggregate purchase price of the shares of the Issuer's Common
Stock (the "Shares") to be purchased by the Reporting Person in the event that
the Purchase (as defined in Item 4 of this Schedule 13D) is consummated as
reported in Item 2 of this Schedule 13D will be $2,967,738.
The Shares which the Reporting Person is reporting herein will be
beneficially owned by it after consummation of the Stock Purchase is expected
to be purchased with funds raised through the sale of certain of its assets.
<PAGE>
<PAGE>
Item 4. Purpose of Transaction
On December 24, 1997, Morgan Kent and Kings Road entered into a Stock
Purchase Agreement, dated as of December 11, 1997 (the "Purchase Agreement"),
and a side letter (the "Side Letter") relating thereto, dated as of December
11, 1997 providing for the purchase (the "Purchase") by Morgan Kent of newly-
issued shares of Kings Road common stock, par value $.01 per share ("Common
Stock"), which would provide Morgan Kent with approximately 53% of the
outstanding Common Stock on the date of such stock issuance. The closing of
the Purchase is subject to the satisfaction of certain conditions, including
the approval of the stockholders of Kings Road, which approval was obtained at
an annual meeting of stockholders (the "Annual Meeting") of Kings Road held on
April 16, 1998.
The Side Letter contemplates a reverse stock split (the "Reverse
Stock Split") of the Common Stock on the basis of one share of Common Stock for
each three shares of presently issued and outstanding shares of Common Stock,
without altering the number of authorized shares of capital stock. The Stock
Split was proposed to provide the Issuer with sufficient authorized shares of
Common Stock to consummate the Purchase. The stockholders of the Issuer
approved the Stock Split at the Annual Meeting.
In connection with the execution of the Purchase Agreement, the
Estate of Stephen J. Friedman (the "Friedman Estate"), beneficial owner as of
January 21, 1998, of approximately 1,060,957 shares of Common Stock (taking
into account the Reverse Stock Split), executed a letter agreement with Morgan
Kent, dated as of the date of the Purchase Agreement, pursuant to which the
Friedman Estate, among other things, irrevocably appointed Morgan Kent as the
Friedman Estate's proxy (the "Proxy") with full power of substitution to vote
and represent all shares of Common Stock registered in its name in favor of the
execution of the Purchase Agreement and the performance by the Company of the
transactions contemplated thereby, in favor of the Reverse Stock Split and in
favor of the election of Mr. Combs, the Chairman of Morgan Kent, and a nominee
of Mr. Combs to fill the two director positions which would be left vacant by
the anticipated resignations of Mr. Davidson and Ms. Aguado, currently two of
the three directors of the Issuer, upon the approval of the Purchase and as
contemplated by the Purchase Agreement. This irrevocable proxy represented the
power to vote in such limited manner of the total voting power of the Common
Stock prior to the Purchase.
After the Purchase Morgan Kent will own 2,124,669 shares, or
approximately 53% of the total voting power of the Common Stock, calculated
after taking into account the Reverse Stock Split.
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<PAGE>
Item 5. Interest in Securities of the Issuer
(a) As of the close of business on April 23, 1998 the Reporting
Persons named in Item 2 of this Schedule may be deemed to beneficially own the
following aggregate numbers and percentages of the Issuer's Common Stock (based
upon the number of shares reported to be outstanding in the Issuer's Proxy
Statement for Annual Meeting of Stockholders held on April 16, 1998 and after
taking into account the Reverse Stock Split).
<TABLE>
<CAPTION>
==============================================================================
Name Shares of Common Stock Percentage
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<S> <C> <C>
Morgan Kent 2,124,669 53%
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Stephen G. Maysonave 2,124,669 53%
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Jeffrey K. Moore 2,124,669 53%
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Matthew R. Moore 2,124,669 53%
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</TABLE>
(b) Upon the Purchase, Morgan Kent will hold sole voting power with
respect to the Common Stock owned by it; Mr. Maysonave, as voting trustee under
the Voting Trust, may be deemed to indirectly hold sole voting power with
respect to the Common Stock owned by Morgan Kent; and the Moore Brothers, as
owners collectively of the majority of shares of Morgan Kent common stock held
in the Voting Trust, may be deemed to indirectly hold shared voting power with
respect to such Common Stock.
(c) No trades in the Issuer's Securities have been effected during the
past sixty (60) days by any of the Reporting Persons listed on Item 5(a) above.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer
Please refer to the discussion, contained in Item 2 of this Schedule
13D, of the Friedman Estate's appointment of Morgan Kent as its proxy with
respect to certain matters.
Item 7. Material to be Filed as Exhibits (to be filed by amendment to this
Schedule 13D).
Exhibit A - Securities Purchase Agreement dated as of December 11, 1997 by
and between the Company and Morgan Kent.
Exhibit B - Side letter dated as of December 11, 1997 from the Company to
Morgan Kent.
Exhibit C - Estate letter dated as of December 11, 1997 regarding lock-up
and appointing Morgan Kent proxy.<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
A Securities Purchase Agreement
dated as of December 11, 1997
by and between the Company and
Morgan Kent
B Side letter dated as of December
11, 1997 from the Company to
Morgan Kent
C Estate letter dated as of December
11, 1997 regarding lock-up and
appointing Morgan Kent proxy
After reasonable inquiry and to the best of our knowledge and belief,
we certify that the information set forth in this statement is true, complete
and correct.
Dated: April 27, 1998
MORGAN KENT GROUP, INC.
By: /s/ J. Gerald Combs
---------------------------------
J. Gerald Combs, President
<PAGE>
<PAGE>
Position Other
Name and Address with Morgan Kent Occupation
J. Gerald Combs President, Chief Chairman of the
711 Fifth Avenue Executive Officer and Board and Chief
New York, New York 10022 Chairman of the Board Executive Officer
of Directors of Boundless
Corporation
E. Robert Shepard, Jr. Vice-President, Secretary Principal, Executive
SynerMark and Director Vice-President and
6850 Austin Center Blvd. Director of
Suite 220 SynerMark
Austin, TX 78759-6543
H. John Trube Director President, Maverick
Maverick Marketing Marketing
1101 Reinli
Austin, TX 78723
James W. Hood Director Private Investor
P.O. Box 4931
Jackson, MS 39296-4931
Stephen G. Maysonave Stockholder General Manager of
Informix Software, Inc. Informix Software,
1111 Broadway, Ste. 2000 Inc.
Oakland, CA 94607
Jeffrey K. Moore Stockholder Financial Analyst of
Boundless Technologies Boundless
Echelon IV, Ste. 200 Technologies, Inc.
Austin, TX 78759-6543
Matthew R. Moore Stockholder College Student
603 W. 13th St.
Suite 340
Austin, TX
All of the above-listed individuals are citizens of the United States
of America.
117878
<PAGE>
<PAGE>
EXHIBIT A
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.
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.<PAGE>
<PAGE>
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 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.<PAGE>
<PAGE>
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 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,
<PAGE>
<PAGE>
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 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 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
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<PAGE>
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 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.
<PAGE>
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 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
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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, 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.
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SECTION 3.2 Information. Buyer and its advisors, if any, have
been furnished with all materials relating to the 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 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.<PAGE>
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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 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:
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(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 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
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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.
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 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.
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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 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<PAGE>
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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 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.
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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").
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:
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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 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.
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.
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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.
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
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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 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
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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.
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 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.
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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 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
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<PAGE>
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
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
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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 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>
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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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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SCHEDULE 2.3
Outstanding options to purchase shares of Common Stock: 83,125 (held by Kenneth
Aguado).
<PAGE>
<PAGE>
SCHEDULE 2.5
The attached correspondence between NASDAQ and the Company is hereby
incorporated into this Schedule 2.5.
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<PAGE>
SCHEDULE 2.7
None.
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<PAGE>
SCHEDULE 2.11
The Company must pay residuals to the Screen Actors Guild, Directors Guild
America, Writers Guild America (Western), America Federation of Musicians and
Motion Picture Industry Pension and Health Plan. As of February 28, 1997, such
residuals amounted to approximately $242,000 (and, as of the date hereof, such
residuals amount to a lesser amount than as of February 28, 1997). Film Storage
Costs (no written agreements) -- at Pacific Title Archives and Technicolor
Systems, Ltd. (London) (as of date hereof, approximately $25,000 per year).
Option Purchase Agreement by and between the Company and Spelling Films, Inc.,
dated September 12, 1997 (re: "Rogues").
Option/Assignment Agreement by and between the Company and Fox 2000 Pictures,
dated August 8, 1997 (re: "Vulgarians").
Producer Borrowing Agreement by and between the Company and Fox 2000 Pictures,
dated September 22, 1997 (re: "Vulgarians").
Agreement by and between the Company and the William Morris Agency regarding
the financing, sale and distribution of "The Magic Mountain". See letter from
Roger Armstrong to Gary Barkin, dated October 28, 1997, and letter from the
Company to the William Morris Agency, dated April 28, 1997.
Pending Producers' Agreement--Loanout (Development and Producing Services) by
and between the Company, Spelling Films, Inc., Fair Dinkum (d/b/a Yard Sale
Productions f/s/o Henry Winkler) and Fair Dinkum, Inc. (d/b/a Monument Pictures
f/s/o Roger Birnbaum and Steven Bloom) (dated May 14, 1997 but not executed).
Negotiations ongoing between the Company and Filmwerks regarding "Ticker". The
Company would transfer to Filmwerks certain rights to the "Ticker" screenplay
in return for approximately $125,000 payable to the Company from revenues from
"Ticker" following all necessary payments to lending institution and
distributor involved in the project. In addition, the Company would share with
Filmwerks in further revenues from "Ticker".
Motion Picture Licensing Agreement by and between Moonstone Entertainment, Inc.
and Estoaat B.V. dated as of August 13, 1996 (re: "Redemption", "Kickboxer 5"
and "The Stranger").
Negotiations ongoing between the Company and MGM/UA for Kenneth Aguado's non-
exclusive producing services on "Sexual Life".
Negotiations ongoing between the Company and 20th Century Fox TV for Kenneth
Aguado's non-exclusive producing services on "Psychward".
Agreement by and between the Company and SK Films, Inc., dated (as per
subsequent letter) as of November 30, 1993.
Joint Venture Agreement by and among the Company, Strother Film Partners II
("STROTHER II") and Strother Investment Co., Inc. ("STROTHER INVESTMENT"),
dated December 31, 1986, as amended by Amendment No. 1, dated February 27,
1987.
Settlement Agreement by and among the Company, Strother II, Strother
Investment, Stephen Friedman and Wetherly, Inc., dated March 23, 1990.
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<PAGE>
Purchase and Sale Agreement by and between the Company and World Icon
Distribution Enterprises C.V. ("ICON"), dated October 3, 1995, as amended
November 13, 1995 and further amendment pending.
Copyright Assignment by and between the Company and ICON, dated October 3,
1995.
Motion Picture Licensing Agreements by and between the Company and ICON, dated
February 5, 1996.
Settlement Agreement and Mutual Release by and between the Company and ICON,
dated February 25, 1997.
Agreement by and between the Company and Rigel Independent Distribution and
Entertainment, Ltd., dated June 6, 1997 (re: "Kickboxer").
Asset Purchase Agreement by and between the Company and Kinnevik Media
Properties, Ltd., dated June 25, 1996.
Lease Agreement by and between the Company and Shuwa Investments Corporation,
dated April 1, 1988, as amended September 17, 1991, as further amended June 19,
1992 and as further amended May 1, 1996.
Escrow Agreement by and between Chase Trust Company of California and the
Company, the liquidating trustee of Kings Road Productions, formerly a New York
limited partnership ("KRP"), dated May 1, 1997.
Dissolution Agreement, dated April 8, 1981 (regarding KRP limited partnership
agreement, dated April 30, 1975).
Liquidating Trustee's Notice to KRP limited partners, dated March 20, 1997 (and
other dates as noted):
Irving Fogel
Gerald Frankel
Albert Fried
Dorothy Friedman
Estate of Roslyn Handwerker
Harold Kuhne
Estate of Alfred Rabiner
Muriel Rabiner
Ione Ralphs Trust
Regal Capital Co. (September 19, 1996)
Judy Tycher (August 14, 1996)
S.R. Thum
Agreement by and between KRP and Time Life Films, Inc., dated February 17,
1978, as amended December 28, 1978 and as further amended November 15, 1979
(re: "The President's Mistress").
Related letter of instruction, dated May 15, 1997 (re: "The President's
Mistress").
Letter of Instruction from the Company to Paramount Entertainment, dated May
15, 1997 (re: "Little Darlings"). Little Darlings was produced pursuant to a
production agreement entered into by and between KRP and Paramount
Entertainment in 1989.
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Agreement by and among KRP, Universal Studios, Inc. and Robert Wunsch, dated
November 17, 1975 (re: "Slapshot").
Letter Agreement by and among KRP, Universal Pictures, Stephen J. Friedman
Films, Inc. and Robert Wunsch, dated May 26, 1976 (re: "Slapshot").
Letter of Instruction from KRP to Universal Pictures, dated May 11, 1981 (re:
"Slapshot").
Letter of Instruction from the Company to Universal Pictures, dated May 15,
1997 (re: "Slapshot").
Letter of Instruction from the Company to Regal Productions, Inc. ("REGAL"),
dated May 14, 1997 (re: "Fastbreak").
Letter Agreement by and between KRP and Regal, dated April 10, 1978 (re:
"Fastbreak").
Settlement and Release Agreement by and between the Company and Regal, dated
October 15, 1991 ("Fastbreak").
Notice of Irrevocable Authority from Stephen Friedman to Regal, dated November
18, 1982 ("Fastbreak").
Agreement by and between the Company and ITC Entertainment, Inc., dated
November 12, 1987 (re: "All of Me").
Agreement by and between the Company and Universal Pictures, dated May 21,
1985.
Letter Agreement regarding Memo of Agreement for Distribution by and between
the Company and Universal Pictures, dated April 14, 1981, as amended April 14,
1981, as further amended April 20, 1981, as further amended July 8, 1983, as
further amended October 25, 1984, as further amended December 10, 1984, as
further amended December 14, 1984 and as further amended January 3, 1985.
Pickup Distribution Agreement by and between the Company and Universal
Pictures, dated May 21, 1985.
License Agreement by and between Tigertail Video, Inc. and Home Box Office,
Inc., dated April 18, 1990 (re: "Kickboxer II").
Agreement by and between the Company and ITC Entertainment, Inc., dated
November 10, 1986, amended December 5, 1986 and as further amended April 5,
1996.
Agreement by and between the Company and Island Records, Inc., dated April
1987.
Agreement by and among Moonstone Entertainment (as agent for the Company)
("Moonstone"), Tigertail Video, Inc. and CFP Distribution, Inc., dated July 1,
1995.
Agreement by and among Moonstone and Atrium Productions KFT, dated June 18,
1996.
Agreement by and between Worldvision Enterprises, Inc. ("Worldvision") and the
Company, dated December 28, 1989.
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Agreement by and between Worldvision and the Company, dated May 13, 1991, as
amended September 27, 1991.
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SCHEDULE 2.12
On March 3, 1997, Jasmine Films, Inc. ("JASMINE") initiated arbitration with
the American Arbitration Association of its claim that the Company breached the
terms of a limited partnership agreement between the Company, as general
partner, and SK Films, Inc. for the purpose of producing and distributing one
motion picture. See Agreement by and between the Company and SK Films, Inc.,
dated (as per subsequent letter) as of November 30, 1993. Jasmine also claims,
among other things, that the Company is liable for breach of fiduciary duty,
negligence and negligent misrepresentation. Jasmine seeks unspecified damages
in excess of $1.5 million. Arbitration of this dispute is scheduled to begin
November 3, 1997.
On March 19, 1997, Strother II and Strother Investment (collectively,
"STROTHER") filed lawsuits against the Company and the Estate of Stephen
Friedman ("FRIEDMAN ESTATE") in United States Bankruptcy Court for the District
of New Jersey and in Los Angeles Superior Court. Strother alleges that the
Company breached the terms of a settlement agreement entered into between
Strother and the Company in March 1990 concerning a prior lawsuit. Strother
also alleges that the Company breached a December 31, 1986 joint venture
agreement between the Company and Strother pursuant to which a joint venture
between the Company and Strother (which terminated March 20, 1993) financed the
domestic theatrical distribution expenses of two Company-produced motion
pictures in return for a percentage of certain revenues generated by the two
motion pictures. In addition, Strother also alleges, among other things, that
the Company breached its fiduciary duty and committed fraud. Strother seeks
unspecified damages in excess of $1 million. The Company, as of the date of
this Agreement, awaits written confirmation that the lawsuit in United States
Bankruptcy Court for the District of New Jersey has been dismissed without
prejudice.
Letter from Jennifer Rocco to Christopher Trunkey, dated March 12, 1997,
alleging that the Company owes Frank Loggia a bonus equal to $30,000. Mr.
Loggia's allegation is based upon a contract by and between him and Osmosis
Productions, Inc.
Letter from Sven-Erik Hammarstolpe to William Immerman, dated March 12, 1997,
regarding alleged rights of Kopmanneni Venedig KB to "The Night Before" and
"Salute of the Jugger" and of HB Nybroviken Invest 20 to "Kickboxer". See,
among other documents, Letter from William Immerman to Sven-Erik Hammarstolpe,
dated June 2, 1997; Assignment by Wetherly, Inc. to the Company, dated April
14, 1989; License granted by Kopmannen i Venedig to Wetherly, Inc., dated
December 16, 1988; and Options to Acquire Rights granted by Kopmannen i Venedig
to Wetherly, Inc., dated December 16, 1988.
Letter from the Theatrical and Television Motion Picture Special Payments Fund
to the Company, dated September 24, 1997, alleging the Company's obligation to
pay $104,599 to such fund.
Letter from Peter Dickinson on behalf of the Motion Picture Industry Pension
and Health Plans to the Company, dated July 28, 1997, alleging certain
obligations of the Company pay into such pension and welfare plans.
Letter from Catherine Scott on behalf of Warner Chappell to the Company, dated
October 9, 1997, alleging that the Company is obligated to pay $30,000 to
compensate the owners' of certain synchronization rights to music used in
"Kickboxer 3". The Company had entered into an agreement with Delta Music, Inc.
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pursuant to which, among other things, Delta Music, Inc. purported to provide
the Company with a license to such synchronization rights, and the Company has
referred the Warner Chappell matter to Delta. (See also Agreement by and among
the Company, Delta Music, Inc. and Commercial Fonographica RGE LTDA, dated
December 13, 1994, regarding master use license to such music.)
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SCHEDULE 2.14
Pending Producers' Agreement--Loanout (Development and Producing Services) by
and between the Company, Spelling Films, Inc., Fair Dinkum, Inc. (d/b/a Yard
Sale Productions f/s/o Henry Winkler) and Fair Dinkum, Inc. (d/b/a Monument
Pictures f/s/o Roger Birnbaum and Steven Bloom) (dated May 14, 1997 but not
executed) (re: "Rogues").
Pending Producer Borrowing Agreement by and between the Company and Fox 2000
Pictures (dated September 22, 1997 but not executed) (re: "Vulgarians").
<PAGE>
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SCHEDULE 3.5
Subsidiaries of Buyer
Boundless Technologies, Inc.
<PAGE>
<PAGE>
SCHEDULE 3.7
Conflicts
None
<PAGE>
<PAGE>
EXHIBIT 5.4
TO THE STOCK PURCHASE AGREEMENT
[Werbel & Carnelutti letterhead]
, 1998
Kings Road Entertainment, Inc.
1901 Avenue of the Stars
Los Angeles, California 90067
Gentlemen:
We have acted as counsel to Morgan Kent Group, Inc., a Delaware
corporation ("Morgan Kent"), in connection with (i) the purchase by Morgan Kent
of shares of common stock, $.01 par value per share (the "Common Stock"), of
Kings Road Entertainment, Inc. (the "Company"), which shares constitute a
majority of the outstanding shares of capital stock of Kings Road, pursuant to
a Stock Purchase Agreement (the "Agreement"), dated , 1997,
between Morgan Kent and the Company and (ii) the other agreements, instruments
and documents executed and delivered to the Company by Morgan Kent pursuant to
or in connection with the Agreement (the "Additional Documents"). This opinion
is being delivered to you pursuant to Section 5.4 of the Agreement. Capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
ascribed to them in the Agreement.
In connection herewith, we have examined the Agreement and the
Additional Documents and have examined and relied upon the originals or copies,
certified or otherwise identified to our satisfaction, of such records,
agreements, documents and other instruments, and certificates of public
officials and of officers and representatives of Morgan Kent and have made such
inquiries of such officers and representatives as we have deemed relevant and
necessary as the basis for the opinion hereinafter set forth. In such
examination, we have assumed, without independent verification, the genuineness
of all signatures (whether original or photostatic) and the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified or photostatic copies.
We have also assumed that any certificate, telegram, or other document relating
to corporate existence or good standing on which we have relied, which was
given or dated earlier than the date of this opinion letter, has remained
accurate, as far as relevant to the opinions contained herein, from such
earlier date through and including the date of this opinion letter. As to
certain questions of fact, we have relied upon the certificates of Morgan Kent
and the representations of Morgan Kent contained in the Agreement.
Whenever our opinion with respect to the existence or absence of
facts or other matters is indicated to be "to our knowledge" or otherwise based
on our knowledge or awareness, such indication is intended to refer only to the
actual knowledge concerning the existence or nonexistence of the facts and
matters involved of the attorneys presently with our firm who have provided
substantial services in connection with our representation of Morgan Kent, and
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other than as described herein, we have not undertaken any independent
investigation or verification to determine the existence or absence of such
facts or matters, and no inference as to our knowledge of the existence or
absence of such facts shall be drawn from our representation of Morgan Kent.
We call your attention to the fact that we are qualified to practice
law in the State of New York and we express no opinion herein other than in
respect of the laws of the State of New York, the General Corporation Law of
the State of Delaware and the federal laws of the United States of America.
Based on the foregoing, and subject to the qualifications set forth
herein, we are of the opinion that:
1. Morgan Kent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Morgan Kent has
all requisite corporate power and corporate authority to own or lease its
properties and assets and to conduct its business as presently conducted.
Morgan Kent 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.
2. Morgan Kent has all requisite corporate power and corporate
authority to execute, deliver and perform the Agreement and the Additional
Documents. All necessary corporate action on the part of Morgan Kent has been
duly taken to authorize the execution, delivery and performance by Morgan Kent
of the Agreement and the Additional Documents to which it is a party and no
further consent or authorization by the Company, its Board of Directors or its
shareholders is required. Each of the Agreement and the Additional Documents
(i) has been duly authorized, executed and delivered by Morgan Kent to the
extent it is a party thereto and (ii) is the legal, valid and binding
obligation of Morgan Kent, enforceable against Morgan Kent in accordance with
its terms, except (x) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally, and (y) to the extent that such
enforceability is subject to general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
3. The execution, delivery and performance of the Agreement by
Morgan Kent and the consummation by Morgan Kent of the transactions
contemplated thereby will not conflict with or result in a violation of any
provision of Morgan Kent's Certificate of Incorporation or by-laws.
Except as disclosed in the Agreement, and assuming the truth of the
representations made by the Company in the Agreement, Morgan Kent has obtained
all consents an authorizations from and made any filings and registrations with
any governmental agency or any regulatory agency which it is required to obtain
in order for it to execute, deliver or perform any of its obligations under the
Agreement in accordance with the terms thereof.
Our opinion herein is limited to the matters stated herein, and no
opinion is implied or may be inferred beyond the matters expressly stated
herein. The opinion expressed herein is as of the date hereof, and we assume no
obligation to update or supplement such opinion to reflect any facts or
circumstances which may hereafter come to our attention or any change in law
which may hereafter occur. We bring to your attention the fact that the
opinions set forth in this letter are expressions of professional judgment and
not a guaranty of a result.
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This opinion is solely for the information of the addressee hereof,
and is not to be quoted in whole or in part or otherwise referred to (except in
a list of closing documents). Other than the addressee hereof, no one is
entitled to rely on this opinion.
Very truly yours,
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EXHIBIT 6.2
EMPLOYMENT AGREEMENT
The following will confirm the basic terms and conditions of the employment of
Kenneth Aguado ("AGUADO") by Kings Road Entertainment, Inc. ("KINGS ROAD").
This Employment Agreement shall be deemed entered into as of December __, 1997.
1. "Kings Road" hereby employs Aguado on a guaranteed basis during the period
commencing on the date of the closing of Morgan Kent Group, Inc.'s pending
acquisition of Kings Road stock and ending two (2) years thereafter (the
"TERM"). "Kings Road Entity" shall refer to Kings Road, or a company owning or
controlled by King Road or under common ownership or control with Kings Road,
or a company acquiring all or substantially all of the assets of King Road.
2. During the Term, Aguado shall perform the duties of President of Kings
Road and shall at all times report directly to the Chief Executive Officer of
Kings Road (anticipated to be Gerald Combs). Aguado's title will be
"President". Aguado's base of employment will be the metropolitan area of Los
Angeles for the duration of the Term. Notwithstanding the foregoing or
anything else contained herein to the contrary, Kings Road acknowledges that
the following two (2) projects shall be excluded from this Employment
Agreement, and Aguado shall be allowed to render non-interfering, non-full-
time, second position services for third parties and/or for his own account in
connection with each of these excluded projects during the Term: "Vanished" and
"The Revenge of the Creatures".
3. Aguado's base salary during the Term shall be at the rate of $125,000.00
per annum. The base salary shall be payable in equal biweekly installments.
4. During the Term, Aguado, shall continue to participate in compensation
programs and other employee benefit plans as Aguado has participated in to date
pursuant to his most current employment agreement with Kings Road. Such
programs include, but are not limited to, the existing Kings Road IRA plan and
the health insurance plan. Nothing contained herein shall prevent Aguado's
participation in any present or future incentive or other plans which Kings
Road may provide to its employees for which Aguado may qualify.
5. As an employee of Kings Road, Aguado will be entitled to the following:
(i) A private office (consistent with that of Aguado's position
as President) and an exclusive assistant at the Kings Road
Los Angeles based offices;
(ii) Reimbursement for all reasonable business related expenses,
subject to IRS - compliant documentation; and
(iii) First class travel and first class accommodations when
required to travel on business related matters.
6. Aguado shall receive 200,000 stock options at current market price under
the current Kings Road Stock Option Plan, such options to vest as follows: 50%
at the end of the first year of the Term and 50% at the end of the second year
of the Term. Such options shall have a five (5) year term.
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7. The following shall apply with respect to each "Project" (defined below)
for which a Kings Road Entity is neither the sole copyright holder nor co-
holder of 50% or more of the copyright. "Project" shall refer to (X) each
existing Kings Road project in development as of the date hereof, (Y) each
project in which Kings Road owns or controls any rights as of the date hereof
(for example and without limitation, a Kings Road property not currently in
active development but later initiated or revived such as a sequel to the "Big
Easy" or an inactive screenplay later revived for development), and (Z)
provided Aguado originates and/or substantially supervises the development of
the applicable new Kings Road project, each new Kings Road project commencing
development at any time from the date hereof through the duration of the Term.
For purposes of clarification, a project covered in Subsection (Y) above and
commencing (or recommencing) development following the commencement of the Term
shall not also be a new Kings Road project covered by Subsection (Z). The
parties agree that the Kings Road Board of Directors shall approve each new
Kings Road project before Aguado shall make a financial commitment to develop
the same. Aguado shall be deemed to have originated and/or substantially
supervised each new Kings Road project commencing development during the Term
unless Kings Road notifies Aguado in writing to the contrary concurrent with
the Kings Road Board of Directors written acceptance of a project for
development, which notification from the Kings Road Board of Directors shall
occur not later than ten (10) business days following Aguado's written notice
to the Board of his desire to commence development of a project.
(i) If principal photography of the respective Project commences at
any time during the Term, Aguado shall be entitled to 25% of all consideration
paid or credited to all Kings Road Entities worldwide in perpetuity from (A)
all sources in any and all media whether now known or hereafter devised with
respect to the Project, (B) any ancillary and underlying rights thereto (e.g.,
merchandising, literary publishing, music publishing, etc.), and (C) any and
all sequels, remakes and television series based thereon (such consideration
shall include without limitation all rights payments, royalties, license fees,
fees for services, bonuses, deferments and profits however defined); or
(ii) If principal photography of the Project commences at any time
following the Term, Aguado shall at his election either (A) be entitled to the
full participation described in subsection 7.(i) above if Aguado is willing and
available to provide full time executive producer services on the Project and
either (X) does provide such services or (Y) does not provide such services
because Kings Road or the other applicable third party elects not to actually
utilize Aguado in such capacity or (B) one-half of such participation (i.e., 12
1/2%) should Aguado desire to render non-exclusive, non-in-person executive
producer services on the Project (such election shall be made by Aguado at any
time up to eight (8) weeks prior to the scheduled start date of principal
photography; provided, however, that if Kings Road has the authority and has
set a start date earlier than eight (8) weeks prior to the scheduled start date
of principal photography, then Aguado shall make such election within five (5)
business days following such scheduled start date but in no event shall Aguado
be required to make such election more than twelve (12) weeks prior to the
scheduled start date; provided, further, if a start date is set less than eight
(8) weeks ahead of time, then Aguado shall make such election within three (3)
business days of written notice to Aguado of the same.
(iii) Notwithstanding anything contained in subsections 7(i) and
(ii) above, with respect to projects covered in subsection 7(i)(C), if Aguado
does not originate and/or substantially supervise the development of the <PAGE>
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applicable sequel, remake and/or television series (the "Condition"), then the
otherwise applicable percentage participation shall be reduced by one-half
(e.g., if Aguado does not satisfy the foregoing Condition with respect to a
sequel covered by Subsection 7(i)(C), then Aguado's participation shall be 12
1/2% instead of 25% with respect to such sequel; similarly, with respect to a
project for which Aguado receives a participation of 12 1/2% pursuant to
subsection 7(ii), with respect to such project's sequel which Aguado does not
originate or substantially supervise, Aguado's participation shall be 6 1/4%
instead of 12 1/2%).
8. The following shall apply with respect to each Project for which a Kings
Road entity is either the sole copyright holder or co-holder of 50% or more of
the copyright:
(i) If principal photography commences at any time during the Term,
Aguado shall be entitled to 10% of all consideration paid or credited to all
Kings Road Entities from all sources worldwide in perpetuity from (A) the
exploitation of the Project in any and all media whether now known or hereafter
devised, (B) any and all ancillary and underlying rights thereto, and (C) any
and all sequels, remakes, and television series based thereon (collectively
"Project Rights") after "Cash Break". "Cash Break" shall be defined as the
point in time at which 100% of all consideration received and/or credited to
all Kings Road Entities from exploitation of the Project Rights exceeds a sum
equal to Kings Road's verifiable out-of-pocket production costs (with there
being no Kings Road Entity production and/or overhead fees) and Kings Road
Entities' verifiable out-of-pocket distribution expenses (with there being no
distribution and/or sales fees chargeable by any Kings Road Entity). For
purposes of the foregoing, there shall be no cross-collateralization either (A)
between any of the various Projects or (B) between any particular Project and
any sequel or remake or any television series Project based on such particular
Project. Further, with respect to the foregoing, Aguado shall be entitled to
accountings on no less than a semi-annual basis, and shall have customary audit
rights; and
(ii) If principal photography of the Project commences at any time
following the Term, Aguado shall at his election either (A) be entitled to the
full participation described in subsection 8.(i) above if Aguado is willing and
available to provide full time executive producer services and either (X) does
provide such services or (Y) does not provide such services because Kings Road
or the other applicable third party elects not to actually utilize Aguado in
such capacity or (B) one-half of such participation (i.e., 5%) should Aguado
desire to render non-exclusive, non-in-person executive producer services (such
election shall be made by Aguado at any time up to eight (8) weeks prior to the
scheduled start date of principal photography; provided, however, that if Kings
Road has the authority and has set a start date earlier than eight (8) weeks
prior to the scheduled start date of principal photography, then Aguado shall
make such election within five (5) business days following such scheduled start
date but in no event shall Aguado be required to make such election more than
twelve (12) weeks prior to the scheduled start date; provided, further, if a
start date is set less than eight (8) weeks ahead of time, then Aguado shall
make such election within three (3) business days of written notice to Aguado
of the same.
(iii) Notwithstanding anything contained in subsections 8(i) and (ii)
above, with respect to projects covered in subsection 8(i)(C), if Aguado, does
not originate and/or substantially supervise the development of the applicable
sequel, remake and/or television series (the "Condition"), then the otherwise
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applicable percentage participation shall be reduced by one-half (e.g., if
Aguado does not satisfy the foregoing Condition with respect to a sequel
covered by Subsection 8(i)(C), then Aguado's participation shall be 5% instead
of 10% with respect to such sequel; similarly, with respect to a project for
which Aguado receives a participation of 5% pursuant to subsection 8(ii), with
respect to such project's sequel which Aguado does not originate or
substantially supervise, Aguado's participation shall be 2 1/2% instead of 5%).
9. With respect to all Projects (regardless of whether produced during or
after the Term), Aguado shall be entitled either to individual producer or
executive producer credit (either of which credit may be shared with others) as
follows: (i) on screen in the main titles, (ii) in all paid ads, and (iii) in
all excluded ads wherever the respective Project's director and/or any other
produce is accorded credit (with the exception of congratulatory ads).
Notwithstanding the foregoing, should foreign financing government requirements
(e.g., Cavco) prohibit Aguado from receiving the foregoing credit, then Aguado
agrees to accept a lesser credit (e.g., consultant), or no credit if such
restrictions similarly prohibit Aguado's receipt of a lesser credit. Prior to
reducing or eliminating Aguado's credit as aforesaid, Kings Road shall
meaningfully consult with Aguado concerning the credit situation and shall
exercise reasonable good faith efforts to ensure that Aguado receives the best
credit reasonably practicable under the circumstances.
10. During the three (3) months following the expiration of the Term or
termination of Aguado's employment agreement pursuant to Section 12.1.(i) or
(iv) hereof, Aguado shall be provided with an office, which may be located off-
site of the Kings Road offices, and an exclusive assistant. The provisions of
this Section 10. shall terminate upon Aguado's commencement of alternative
full-time employment.
11.1 If at any time prior to the expiration of the Term, Kings Road shall
"cease to maintain an ongoing motion picture business" (defined below), Aguado
shall immediately become entitled to the following:
(i) A lump sum payment equal to 100% of the full balance then
remaining of the salary for the duration of the Term (e.g., if Kings Road
"ceases to maintain an ongoing motion picture business" on the last day of the
first year of the Term, in addition to all then accrued compensation and
benefits hereunder, Aguado shall also be entitled to a lump sum payment of the
$125,000.00 which would have been paid over the second year of the Term, which
sum shall be immediately payable);
(ii) Immediate vesting of all outstanding stock options pursuant
to Section 6 above;
(iii) Assignment to Aguado of all rights in each then
existing Project in development (Aguado may elect to be assigned all or any
number of the then applicable Projects) without any further obligation by
Aguado to Kings Road other than (A) Aguado assuming all Kings Road executory
obligations attaching to such Projects, (B) Kings Road being entitled to
reimbursement of all direct and verifiable out-of-pocket expenses incurred with
respect to a Project upon the commencement of principal photography (if ever)
of the respective Project, and (C) Kings Road being entitled to 25% of all
producing fees and profit participations received by Aguado from exploitation
of the respective Project. Kings Road's obligation to assign such Projects to
Aguado shall be subject to (Y) Kings Road's receipt of evidence reasonably
satisfactory to it that Aguado or the applicable business entity organized or
engaged to proceed with the development of the Project agrees to make the<PAGE>
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payments to Kings Road set forth in clauses (B) and (C) of this Section
11.1(iii) and (Z) the rights of any third party to whom Kings Road granted a
production, assignment or similar right prior to the commencement of the
Project's development.
(iv) Termination of this Employment Agreement without any further
obligation by either party except as set forth in this Section 11.1 and Section
12.2 below, and except as may be reasonably required by Kings Road in
connection with the winding up of its motion picture business.
11.2 Kings Road shall be deemed to "cease to maintain an ongoing motion picture
business" upon the occurrence of any one of the following:
(i) The shutting down of the Los Angeles area operations; and/or
(ii) The reduction below an annual operating budget of $550,000.00
for general overhead in connection with the Los Angeles Kings Road motion
picture operations.
In no event shall Kings Road be deemed to "cease to maintain an ongoing
motion picture business" solely on the basis of there being a "Change of
Control" of Kings Road. "Change of Control" shall be deemed to have occurred if
Kings Road sells all or substantially all of its assets to another person or
entity, or sells, whether by sale, merger, consolidation or otherwise, in one
transaction or a series of transactions, a majority of the shares of its
capital stock outstanding after the consummation of such transaction or series
of transactions (the "Transaction Date") to an entity that is not an affiliate
(as that term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended) of Kings Road or Morgan Kent on the Transaction Date.
Notwithstanding anything contained in this Employment Agreement to
the contrary, in the event of a "Change of Control" of Kings Road, all, rights
and benefits of Aguado hereunder shall continue, and the resulting third party
successor in interest to Kings Road shall be bound by all terms and conditions
hereof, including without limitation the provisions of Sections 11.1 - 11.3
hereof concerning what constitutes Kings Road (or the applicable successor
entity) being deemed to "cease to maintain an ongoing motion picture business",
and what happens in such event.
11.3 Subsection 11.1(iii) above shall also apply should Kings Road at any time
cease to maintain an ongoing motion picture business within one (1) year
following the expiration of the Term.
12.1 Each of the following shall be a basis for termination of this Agreement:
(i) Aguado's employment hereunder may be terminated at any time by
mutual written agreement of the parties;
(ii) This Agreement shall automatically terminate upon Aguado's death or,
on written notice, upon "Term Incapacity". "Term Incapacity" as used herein
shall mean mental or physical incapacity ("Incapacity"), or both, rendering
Aguado unable to perform substantially all of his duties hereunder for a period
of 60 consecutive days or 120 days in the aggregate during the Term. The
existence of Incapacity shall be determined by the Board of Directors of Kings
Road (which for purposes of this Section 12 shall not include Aguado) based
solely upon certification of such Incapacity by, in the discretion of such
Board of Directors, either Aguado's regularly attending physician or duly
licensed physician selected by the Kings Road Board of Directors (in which
latter case Aguado may have present his regularly attending physician). Aguado
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shall be deemed to have first become "Incapacitated" on a date the Kings Road
Board of Directors has determined that Aguado is Incapacitated as aforesaid and
so notifies Aguado in writing. Notwithstanding anything contained herein to the
contrary, Kings Road shall have the right to suspend its payments to Aguado
hereunder at such time as such Incapacity exceeds fifteen (15) business days in
the aggregate during either the first twelve (12) months or second twelve (12)
months of the Term and such right shall continue until the earlier of (A)
Aguado's Term Incapacity and the termination of this Agreement, or (B) the
approval of the Kings Road Board of Directors to Aguado's resumption of his
duties under this Agreement, which approval shall be given no later than
promptly following a certification of the absence of Aguado's Incapacity, which
certification shall be made in the manner set forth above with respect to the
certification of his Incapacity, provided that upon Aguado's request the
certification process shall proceed as quickly as reasonably practicable.
(iii) Aguado's employment may be terminated by Kings Road "with
cause", effective upon delivery of written notice to Aguado given at any time
(without any necessity for prior notice except as otherwise indicated below) if
any of the following shall occur:
(a) A felony criminal conviction;
(b) Any other criminal conviction involving Aguado's lack of honesty or
Aguado's moral turpitude;
(c) Drug or alcohol abuse. The determination of drug or alcohol abuse
shall be determined in the same manner as "Incapacity" shall be
determined in Section 12.1(ii) above;
(d) Acts of dishonesty, gross carelessness; or gross misconduct which
have in the reasonable judgment of the Kings Road Board of Directors
an adverse effect on Kings Road; or
(e) The material breach of any provision of this Agreement, which
material breach is not cured within ten (10) business days of written
notice thereof, provided that, absent cure, such termination shall be
effective the date of delivery of such notice.
(iv) This Agreement may be terminated by Aguado "with cause"
effective upon delivery of written notice to Kings Road given at
any time (without any necessity for prior notice except as
otherwise indicated below) if any one of the following shall
occur:
(a) The material breach of any provision of the Agreement by Kings Road
which material breach is not cured within ten (10) business days of
written notice thereof, provided that, absent cure, such termination
shall be effective the date of delivery of such notice; or
(b) If any proceeding is filed by or against Kings Road for bankruptcy,
dissolution, or liquidation.
(v) This Agreement may be terminated in accordance with the
provisions of Sections 11.1 - 11.2 above.
12.2 The following shall apply with respect to termination:
(i) If Aguado's employment is terminated pursuant to Section 12.1(ii)
hereof, Aguado shall be entitled to the rights set forth in Section 11.1(i)
hereof and any other accrued rights hereunder, and otherwise all of Kings
Road's then unaccrued obligations to Aguado shall cease (including all post-
term obligations under Sections 7, 8 and 10 hereof), effective the date of such
termination;<PAGE>
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(ii) If Aguado's employment is terminated pursuant to Section 12.1(iii)
hereof, all of Kings Road's obligations to him (other than accrued unpaid
compensation) shall cease (including all post-term obligations under Sections
7, 8 and 10 hereof), effective the date of such termination;
(iii) If Aguado's employment is terminated pursuant to Section
12.1(iv) hereof, Aguado, shall be entitled to all then accrued rights
hereunder, as well as all of his other rights and remedies with respect to this
Agreement at law, in equity and otherwise; and
(iv) If Aguado's employment is terminated pursuant to Section 11.1 hereof,
the provisions of Section 11 shall apply, except such provisions shall not
apply to, and shall in no way limit or diminish Aguado's rights and benefits
pursuant to, Sections 7, 8, and 9 above with respect to Projects that are
already produced or in production at the time of the Section 11 termination,
which rights and benefits shall survive any termination or expiration of the
Employment Agreement.
(v) Nothing contained in this Section 12.2 shall be construed as limiting
and/or eliminating any of the parties' respective other rights and remedies at
law, in equity and otherwise in the event of a termination for "cause"
hereunder.
13.1 Notwithstanding anything contained herein to the contrary, should any
Project be abandoned (i.e., no active development for a period of six (6) or
more consecutive months, after which time the Board of Directors of Kings Road
shall confirm to Aguado in writing such abandonment upon Aguado's request) and
subject to the provisions of Sections 11.1 - 11.3 (which shall take precedence
over this Section 13.1 at Aguado's election), Aguado shall be entitled to the
exclusive turnaround right with respect to each such abandoned Project as
follows:
(i) Aguado shall have the exclusive right to set up the Project elsewhere
for a period of twelve (12) months from written notification to him of
abandonment, but in no event for a period ending sooner than twelve (12) months
following the expiration or termination of the Term of this Employment
Agreement;
(ii) Upon set up (if ever) with a third party, Kings Road shall assign the
applicable third party all of its rights with respect to the abandoned Project;
(iii) Kings Road shall be entitled to reimbursement of all direct and
verifiable out-of-pocket expenses incurred with respect to the abandoned
Project upon the commencement of principal photography (if ever) of the
abandoned Project;
(iv) The applicable third party's acquisition of Kings Road's rights in
the abandoned Project shall be subject to such third party agreeing to assume
in writing all of Kings Road's executory obligations with respect to the
abandoned Project; and
(v) Kings Road will be entitled to 5% of such third party's net profits
(which shall be defined pursuant to such third party's standard net profit
definition) from the exploitation of the Project.
13.2 Notwithstanding Section 13.1 above, Aguado's foregoing turnaround rights
with respect to each abandoned Project shall be subject to and in second
position to any third party to whom Kings Road granted a turnaround right upon
the commencement of the Project's development.<PAGE>
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13.3 Kings Road's obligations under Section 13.1 shall be subject to Kings
Road's receipt of evidence reasonably satisfactory to it that Aguado or the
applicable business entity organized or engaged to proceed with the development
of such abandoned Project agrees to make the payments to Kings Road set forth
in subsections (iii) and (v) of Section 13.1.
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14. With respect to each Project which is produced at any time, Aguado shall
have a right of first negotiation (to be conducted in good faith) to render
Executive Producer services on each sequel, remake, and television
pilot/seriesbased thereon provided Aguado rendered (to the extent required if
at all) producer services on the Project. Aguado's receipt of lesser credit
than as individual producer or executive producer, or Aguado's receipt of no
credit, because of foreign government financing restrictions (e.g., Cavco)
shall not diminish or limit in any manner the foregoing right of first
negotiation.
15. This Agreement shall be binding upon and inure to the benefit of the
successors, assigns, licensees and all other persons, firms, or corporations
claiming under or through each of the parties hereto. Notwithstanding the
foregoing, Aguado acknowledges that this Agreement is personal to him, and he
shall not be entitled to assign his obligations hereunder without prior written
consent of the Board of Directors of Kings Road (excluding Aguado).
16. This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements and understandings, written or oral relating to
the terms of Aguado's employment and may not orally be changed, modified,
renewed or extended.
17. This Agreement shall be governed by and construed in accordance with the
laws of the State of California, applicable to contracts made and to be wholly
performed within the State.
Your signature herein will constitute your full acceptance of the terms and
conditions set forth.
Very truly yours,
Kings Road Entertainment, Inc. AGREED AND ACCEPTED:
By:
- -------------------------------- -----------------------------
Kenneth Aguado
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EXHIBIT 6.6
[Letterhead of Guth Rothman & Christopher]
, 199
Morgan Kent Group, Inc.
545 Madison Avenue, 14th Floor
New York, New York 10022
Re: Kings Road Entertainment Inc.
Ladies and Gentlemen:
We have acted as counsel to Kings Road Entertainment, Inc., a
Delaware corporation (the "COMPANY"), in connection with the preparation,
execution and delivery of that certain Stock Purchase Agreement, dated as of
, 1997, by and between the Company and Morgan Kent Group, Inc., a
Delaware corporation ("MORGAN KENT"), as amended by that Letter Agreement,
dated as of , 1997 (together, the "AGREEMENT"). This opinion
letter is provided to you at the request of the Company pursuant to Section 6.6
of the Agreement. Except as otherwise indicated herein, capitalized terms used
in this opinion letter are defined as set forth in the Agreement.
We have examined certain corporate records, certificates and
documents in rendering this opinion. In making such examinations, we have made
certain customary assumptions, such as the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the lack of any
undisclosed modifications, waivers or amendments to any agreements reviewed by
us, the conformity to authentic originals of all documents submitted to us as
certified or photostatic copies and the truth and accuracy of factual
statements contained in such documents and certificates. Except as expressly
set forth herein, we have also assumed that the execution, delivery and
performance of any agreements or consents are within the powers of each
signatory and have been duly authorized and validly carried out. Additionally,
we have relied, without independent verification as to certain factual matters
upon officers' certificates of the Company, dated the date hereof and attached
hereto as EXHIBIT A.
Our opinions expressed herein are limited to the laws of the State of
California, the corporate laws of the State of Delaware and the federal
securities laws of the United States and do not address the laws of any other
jurisdiction.
Based upon and subject to the foregoing and the additional
qualifications set forth below, we are of the opinion that:
1. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware. The Company is duly qualified
as a foreign corporation and is in good standing in the jurisdictions listed in
the Officer's Certificate attached as Exhibit A. The Company has all requisite
corporate power and authority to own, lease, use and operate its properties,
and to carry on its business as now conducted.
<PAGE>
<PAGE>
2. (i) the Company has all requisite corporate power and authority
to enter into and perform the Agreement and to consummate the transactions
contemplated thereby and to issue the Common Stock in accordance with the terms
thereof;
(ii) the execution and delivery of the Agreement by the Company
and the consummation by it of the transactions contemplated thereby (including
without limitation the issuance of Common Stock contemplated thereby) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization by the Company, its Board of Directors or its shareholders is
required;
(iii) the Agreement has been duly executed and delivered by the
Company, and
(iv) the Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms.
3. The Stock is duly authorized and, upon issuance in accordance with the
terms of the 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 statutory preemptive rights.
4. The execution, delivery and performance of the Agreement by the Company
and the consummation by the Company of the transactions contemplated thereby
will not conflict with or result in a violation of any provision of the
Company's Certificate of Incorporation or by-laws. Except as disclosed in the
Agreement, and assuming the truth of the representations made by Buyer in the
Agreement, the Company has obtained all consents and authorizations from and
made any filings and registrations with any governmental agency or any
regulatory agency which it is required to obtain in order for it to execute,
deliver or perform any of its obligations under the Agreement in accordance
with the terms thereof.
For purposes of the opinions set forth above in paragraph 1, with respect
to the good standing and qualification of the Company, we are relying solely
upon certificates of good standing from the states of Delaware and California
(copies of which are attached hereto as EXHIBIT B), and we express no opinion
with respect to such matters beyond the date of such certificates.
The opinions set forth above in paragraph 2(iv) are subject to and limited
by the following:
(a) the effect of bankruptcy, insolvency, reorganization,
moratorium and other similar laws and legal and equitable principles relating
to, limiting or affecting the enforcement of creditors' rights generally
including, without limitation, preferences and fraudulent conveyances and
concepts of materiality, reasonableness, good faith, fair dealing and
unconscionability;
(b) the discretion of any court of competent jurisdiction in
awarding equitable remedies (regardless of whether considered in a proceeding
in equity or at law), including, but not limited to, specific performance or
injunctive relief; and
(c) the unenforceability under certain circumstances of
provisions imposing penalties, forfeitures upon delinquency in payment or the
occurrence of a default.<PAGE>
<PAGE>
Whenever our opinion herein with respect to the existence or
nonexistence of facts is qualified by the phrase "to our knowledge", or any
similar phrase implying a limitation on the basis of knowledge, such phrase
means only that the individual attorneys in this firm who devoted substantive
attention to the transactions contemplated by the Agreement do not have actual
knowledge that the facts as stated herein are untrue. Such persons have not
undertaken any investigation to determine the existence or nonexistence of such
facts in connection with the preparation of this opinion, and no inference as
to the extent of their investigation should be drawn from the fact of their
representation of the Company in this or any other instance.
This opinion letter is rendered solely for your benefit in connection with
the Agreement, and may not be relied upon for any other purpose, or furnished
to, used, circulated, quoted or referred to by any other person without our
prior written consent.
Sincerely,
Guth Rothman & Christopher LLP
<PAGE>
<PAGE>
EXHIBIT A
Officer's Certificate
(see attached document)
<PAGE>
<PAGE>
EXHIBIT B
Good Standing Certificates
(see attached documents)
<PAGE>
<PAGE>
KINGS ROAD ENTERTAINMENT, INC.
1901 Avenue of the Stars, Suite 1545
Los Angeles, California 90067
March 12, 1998
To the Shareholders of Kings Road Entertainment, Inc.:
For the fiscal year ended April 30, 1997, the Company reported net
income of approximately $589,000 on feature film revenues of approximately
$2,357,000 as compared to net income of approximately $1,972,000 on feature
film revenues of approximately $8,345,000 for the prior fiscal year. The
substantial decrease in revenues of approximately 72% resulted primarily from
the lack of new films produced by the Company during the fiscal year and the
sale of certain rights of the Company in various pictures owned or distributed
by the Company that accounted for approximately $5,255,000 of the Company's
revenues during the fiscal year ended April 30, 1996. Net income decreased by
approximately 70% reflecting the aforementioned decrease in revenues.
Most importantly, however, on December 24, 1997, the Company and Morgan
Kent Group, Inc. ("Morgan Kent") entered into a Stock Purchase Agreement, dated
as of December 11, 1997. Pursuant to such agreement, the Company agreed to
issue to Morgan Kent a number of shares of Common Stock whereby Morgan Kent
would hold approximately 53% of outstanding shares of Common Stock at the date
of such stock issuance in return for a purchase price of $2,967,738, or $.4656
per share of Common Stock. Prior to the closing of the contemplated
transaction, the Company would make a cash distribution to shareholders of
approximately $2,500,000 in the aggregate. If the contemplated transaction with
Morgan Kent is approved by the stockholders, the Company will be able to make a
significant cash distribution to its shareholders without decreasing the
capital of the Company.
Thank you for your continued support.
Sincerely yours,
By: /s/ Kenneth I. Aguado
------------------------------------
Kenneth I. Aguado
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
<PAGE>
Exhibit B
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:
------------------------------
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: December 11, 1997
- ---------------------------<PAGE>
<PAGE>
Exhibit C
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 Stock
held by it to Susan F. Aguado, Kenneth I. Aguado and Joan A Shapiro, the
beneficiaries of the Estate of Stephen Friedman (the "Estate").
In addition, the undersigned hereby appoints Morgan Kent as the proxy
of the undersigned with full power of substitution (the "Proxy Power") to vote
and represent all shares of Common Stock registered in the name of the
undersigned in favor of the execution of the Stock Purchase Agreement and the
performance by the Company of the transactions contemplated thereby, including
the election of Mr. J. Gerald Combs and Mr. Combs' nominee to the Board of
Directors of the Company and the effectuation of a reverse stock split as
contemplated in that certain side letter, dated the date hereof, from the
Company to Morgan Kent. The Proxy Power shall be irrevocable; provided,
however, that the Proxy Power shall terminate as of the termination of the
Stock Purchase Agreement.
ESTATE OF STEPHEN FRIEDMAN
By: /s/ William Immerman
---------------------------
Name: William Immerman
Title: Executor<PAGE>
<PAGE>
In recognition of the benefit that the purchase of shares of Common
Stock by Morgan Kent will confer upon the undersigned and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, upon the disposition by the Estate to the undersigned of any and
all shares of Common Stock held by the Estate, the undersigned agree, with
respect to such disposed shares, to abide by the agreements made by the Estate
in the foregoing letter from the Company to Morgan Kent.
/s/ Susan F. Aguado
------------------------
Susan F. Aguado
/s/ Kenneth I. Aguado
----------------------
Kenneth I. Aguado
/s/ Joan A. Shapiro
-------------------------
Joan A. Shapiro
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