<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
KINGS ROAD ENTERTAINMENT, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
KINGS ROAD ENTERTAINMENT, INC.
1901 Avenue of the Stars, Suite 605
Los Angeles, California 90067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held April 16, 1998
To the Stockholders of KINGS ROAD ENTERTAINMENT, INC.:
The Annual Meeting of Stockholders of KINGS ROAD ENTERTAINMENT, INC.
(the "COMPANY") will be held Monday, April 16, 1998, at the principal office of
the Company at 1901 Avenue of the Stars, Suite 1545, Los Angeles, California at
12:00 noon, local time, for the following purposes:
1. The approval of the issuance of shares of Common Stock to the Morgan
Kent Group, Inc., which would provide such entity with approximately 53% of the
outstanding shares of Common Stock immediately upon such stock issuance,
2. The approval of the amendment of the Company's Restated Certificate
of Incorporation to effect a reverse stock split of the Common Stock on the
basis of one share of Common Stock for each three shares of Common Stock
presently issued and outstanding;
3. The election of two directors;
4. The ratification of the appointment of Stonefield Josephson
Accountancy Corporation as independent auditors of the Company for the fiscal
year ending April 30, 1998; and
5. Such other business as may properly come before the meeting or any
adjournments or postponements thereof.
Shares represented by properly executed proxies hereby solicited by the
Board of Directors of the Company will be voted in accordance with the
instructions specified therein. It is the intention of the Board of Directors of
the Company that shares represented by proxies which are not voted to the
contrary will be voted in favor of the election as directors of the persons
named in the accompanying proxy statement and for Proposals No. 1, 2 and 4.
The Board of Directors has fixed March 12, 1998 as the record date for
the determination of the stockholders entitled to notice of, and to vote at, the
Annual Meeting and any adjournments or postponements thereof. Whether or not you
expect to attend the Annual Meeting in person, please complete, date and sign
the enclosed Proxy and return it without delay in the enclosed envelope which
requires no additional postage if mailed in the United States. Prior to the
actual voting thereof, the Proxy may be revoked by the person executing the
Proxy by delivering a duly executed proxy bearing a later date, by filing a
written revocation thereof with the Secretary of the Company at its executive
offices or by voting in person at the Annual Meeting.
By Order of the Board of Directors
By: /s/ Kenneth I. Aguado
-----------------------------------------------------
Kenneth I. Aguado
Chief Executive Officer and Chairman of the Board
March 12, 1998
Los Angeles, California
<PAGE> 3
KINGS ROAD ENTERTAINMENT, INC.
1901 Avenue of the Stars, Suite 605
Los Angeles, California 90067
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To be held April 16, 1998
INTRODUCTION
This proxy statement (the "PROXY STATEMENT") and the enclosed proxy are
furnished to the holders of common stock, $.01 par value ("COMMON STOCK") of
Kings Road Entertainment, Inc. (the "COMPANY") in connection with the
solicitation of proxies for use at the annual meeting of the Company's
stockholders to be held at the principal office of the Company at 1901 Avenue of
the Stars, Suite 1545, Los Angeles, California at 12:00 noon, local time, on
April 16, 1998 and any adjournments or postponements thereof (the "ANNUAL
MEETING"). The Company anticipates mailing or otherwise delivering this Proxy
Statement and enclosed proxy to its stockholders on or about March 16, 1998.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, stockholders of the Company are being asked to
consider and vote upon a proposal ("Proposal No. 1") to approve the issuance
(the "Stock Issuance") of that number of shares of Common Stock by the Company
to the Morgan Kent Group, Inc. ("Morgan Kent"), which would provide Morgan Kent
with approximately 53% of the voting power of the Common Stock on the date of
the Stock Issuance pursuant to the terms of the Stock Purchase Agreement entered
into by and between the Company and Morgan Kent as of December 11, 1997, and a
side letter thereto dated as of December 11, 1997 (together, the "Purchase
Agreement"). The Purchase Agreement contemplates that, prior to the consummation
of the Stock Issuance, the Company will make a significant cash distribution to
stockholders. The Stock Issuance is being proposed as a means for the Company to
secure the financial investment of a larger corporate entity and providing
stockholders with a significant cash distribution without decreasing the capital
of the Company.
At the Annual Meeting, stockholders of the Company are also being asked
to consider and vote upon a proposal ("Proposal No. 2") to amend the first
paragraph of the Fourth Article of the Company's Restated Certificate of
Incorporation to effect a 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 but not to alter the number of authorized
shares of capital stock (the "Reverse Stock Split"). The Reverse Stock Split is
being proposed because the low market price of the Common Stock impairs its
continued listing as a NASDAQ SmallCap Market issuer, as well as its acceptance
by important segments of the financial community and the investing public, and
to provide the Company with sufficient authorized shares of Common Stock to
consummate the Stock Issuance.
The Annual Meeting has, in addition, the following purposes: to elect
two persons to the Company's Board of Directors for the ensuing year (of whom
one person has indicated that, if the Stock Purchase is approved and
consummated, he will resign in favor of Morgan Kent's nominee) ("Proposal No.
3"), and to ratify the appointment of Stonefield Josephson Accountancy
Corporation as independent auditors of the Company for the fiscal year ending
April 30, 1998 ("Proposal No. 4").
VOTING AT THE ANNUAL MEETING
The Board of Directors has fixed the close of business on March 12, 1998
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
the number of outstanding shares of Common Stock was 5,735,547.
<PAGE> 4
The Company has no other voting securities outstanding. Each stockholder of
record on that date is entitled to one vote per share of Common Stock held on
all matters submitted to a vote of stockholders.
As of March 10, 1998, directors and officers of the Company beneficially
owned of record a total of approximately 2,517,152 shares of Common Stock
(including the interest of certain directors as beneficiaries of the Friedman
Estate, as defined below), constituting approximately 43.9% of all such shares
outstanding on such date. All such directors and officers have informed the
Company that they intend to vote all shares for approval of Proposals No. 1, 2
and 4 and in favor of the nominees listed in Proposal No. 3.
As of March 10, 1998, the Estate of Stephen J. Friedman (the "Friedman
Estate") beneficially owned of record a total of approximately 3,182,871 shares
of Common Stock, constituting approximately 55.5% of all such shares outstanding
on such date. The Executor of the Friedman Estate has executed an irrevocable
proxy in favor of Morgan Kent to vote all shares for approval of Proposals No. 1
and 2.
The presence, in person or by properly executed proxy, of the holders of
Common Stock entitled to cast a majority of the votes is necessary to constitute
a quorum at the Annual Meeting. The Company could legally proceed with the Stock
Issuance without stockholder approval (provided that the Company obtained
stockholder approval of either the authorization of an additional 109,554 shares
of Common Stock or the Reverse Stock Split). Nonetheless, the Company has agreed
that, in order to proceed with the Stock Issuance, the Company will require the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. In order to approve Proposal No. 2, the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock is required.
Directors are to be elected by a plurality of the votes of the shares of Common
Stock, and the nominee (each of whom is currently running unopposed) who
receives the most votes will be elected director of the Company (Proposal No. 3)
provided that a quorum is present at the Annual Meeting. In order to ratify the
appointment of Stonefield Josephson Accountancy Corporation (Proposal No. 4),
the affirmative vote of a majority of the votes cast on that item is required,
provided that a quorum is present at the Annual Meeting.
PROXIES
All shares of Common Stock represented at the Annual Meeting by properly
executed proxies received prior to or at the Annual Meeting, unless such proxies
have been revoked, will be voted at the Annual Meeting in accordance with the
instructions on such proxies. If no instructions are indicated, such proxies
will be voted FOR the election of the two nominees as Directors and FOR
Proposals No. 1, 2 and 4. The Company does not know of any other matters other
than those described in the Notice of Annual Meeting which are to come before
the Annual Meeting. If any other matters are properly presented to the Annual
Meeting for action, the persons named in the enclosed form of Proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
filing with the Secretary of the Company written notice of revocation bearing a
later date than the proxy, by duly executing a subsequent proxy relating to the
same shares of Common Stock and delivering it to the Secretary of the Company at
its executive offices (located at 1901 Avenue of the Stars, Suite 1545, Los
Angeles, California 90067) or by voting in person at the Annual Meeting.
Attendance at the Annual Meeting will not in and of itself constitute revocation
of a proxy.
Proxies for use at the Annual Meeting are being solicited by the Board
of Directors of the Company. The Company will bear the cost of preparing and
mailing the proxy material furnished to stockholders of the Company in
connection with the Annual Meeting. Proxies will be solicited directly by the
Company principally through the use of the mails, but directors, officers and
regular employees of the Company may solicit proxies personally or by telephone
or special letter. Such persons will receive no additional compensation for such
services. The Company will furnish copies of solicitation material to
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fiduciaries, custodians and brokerage houses for forwarding to the beneficial
owners of shares of Common Stock held in their names, and the Company will
reimburse such parties for their reasonable expenses in such forwarding of proxy
materials.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company for inclusion in its
proxy statement and form of proxy relating to that meeting no later than July
30, 1998.
OTHER INFORMATION
All information contained herein concerning Morgan Kent, including
without limitation its business plan, has been supplied by Morgan Kent. With the
exception of that information, all information contained in the Proxy Statement
has been supplied by the Company.
The Company's executive offices are located at 1901 Avenue of the Stars,
Suite 1545, Los Angeles, California 90067. The Company's telephone number is
(310) 552-0057.
THE MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY. IF THE STOCK ISSUANCE IS APPROVED
AND CONSUMMATED, STOCKHOLDERS WILL RECEIVE A SIGNIFICANT CASH DISTRIBUTION
WITHOUT DECREASING THE CAPITAL OF THE COMPANY, AND, ON THE DATE OF THE STOCK
ISSUANCE, MORGAN KENT WILL HOLD APPROXIMATELY 53% OF THE VOTING POWER OF THE
COMMON STOCK. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER
THE INFORMATION PRESENTED IN THIS PROXY STATEMENT.
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PROPOSAL NO. 1 --
THE STOCK ISSUANCE
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE
STOCK ISSUANCE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PURCHASE
AGREEMENT, INCLUDING ALL EXHIBITS AND SCHEDULES THERETO (EXCEPT AS NOTED BELOW),
A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT A. BECAUSE OF ITS
LENGTH, SCHEDULE 2.5 IS NOT ATTACHED TO THIS PROXY STATEMENT, BUT THE COMPANY
WILL FURNISH IT TO ANY STOCKHOLDER UPON ITS REQUEST. ALL REFERENCES TO NUMBER OF
SHARES OF COMMON STOCK AND PRICE PER SHARE OF COMMON STOCK REFER TO THE COMMON
STOCK PRIOR TO THE REVERSE STOCK SPLIT, UNLESS OTHERWISE EXPRESSLY PROVIDED.
BACKGROUND
During the fiscal year ended April 30, 1997, the Company did not produce
any new films and derived revenues almost exclusively from the exploitation of
films produced in prior fiscal years. Following the death on October 4, 1996 of
Mr. Stephen J. Friedman, then Chairman of the Board of Directors and Chief
Executive Officer of the Company, the Company has explored various business
options, including, among other things, the liquidation of the Company, the sale
of the Company as a going concern to an outside party, the sale of substantially
all of the assets of the Company to an outside party and the issuance of shares
of Common Stock to an outside party which would provide a new source of
financing for the Company.
On June 9, 1997, based upon the Company's recognition that its business
plan at such date did not require the then existing level of cash on hand and
that a distribution of such funds to the Company's shareholders would better
serve the shareholders' interests, the Company declared a cash distribution of
$3,956,695, or $.70 per share of Common Stock, to shareholders of record on June
20, 1997 that was paid on June 27, 1997.
On June 23, 1997, the Company signed a non-binding letter of intent with
Morgan Kent pursuant to which, subject to certain conditions, Morgan Kent would
acquire control of the Company. Presently, Morgan Kent holds a controlling
interest in a publicly-held information technology company. The Company agreed
that until August 20, 1997, the Company would not directly or indirectly solicit
or discuss the sale of all or part of the Company with any party other than
Morgan Kent. The non-binding letter of intent provided that a transaction by and
between the Company and Morgan Kent would be conditioned upon, among other
things, the completion of due diligence to the satisfaction of both parties, the
completion of a definitive agreement that is satisfactory to both parties, the
receipt of all necessary consents and approvals and the absence of any material
adverse change in the business or prospects of the Company.
By mid-July 1997, Morgan Kent and the Company contemplated entering into
a transaction involving the cash distribution to the Company's shareholders
equal to the Company's cash and marketable securities and the subsequent
acquisition of control of the Company by Morgan Kent through the purchase of
newly-issued shares of Common Stock. For the purposes of such stock purchase,
the non-distributed assets of the Company, subject to completion of financial
and other due diligence, were tentatively valued by the parties, as of July 22,
1997, at an amount between $2.5 million and $3.2 million.
Since that time, negotiations continued regarding, among other things, a
determination of the valuation of the Company for the purpose of the
aforementioned cash distribution equal to the Company's cash and marketable
securities; the terms of an indemnification agreement between the Company and
Morgan Kent; the terms of an employment contract between the Company and Kenneth
I. Aguado, the Company's Chief Executive Officer, following the contemplated
transaction (negotiated by Mr. Aguado's personal counsel and Morgan Kent's
counsel); the terms of the related standstill agreement to be entered into by
the Friedman Estate; and the "breakup fee" payable, under certain circumstances,
in the event of the termination of the agreement governing the contemplated
transaction.
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On December 24, 1997, the Company and Morgan Kent agreed upon the final
terms governing the Stock Issuance and entered into the Purchase Agreement (and
side letter relating thereto), dated as of December 11, 1997, which is now being
presented to the stockholders.
THE STOCK ISSUANCE
Pursuant to the Purchase Agreement, the Company will issue a number of
shares of Common Stock to Morgan Kent, which will provide Morgan Kent with
approximately 53% of the outstanding Common Stock on the date of the Stock
Issuance, in return for a purchase price of $2,967,738. This purchase price
reflects a pre-Reverse Stock Split price of $.4656 per share of Common Stock (or
a post-Reverse Stock Split price of $1.164 per share). In accordance with the
Purchase Agreement, the Company will use its best efforts to obtain the consent
of holders of a majority of the outstanding shares of Common Stock to effect the
Reverse Stock Split prior to the consummation of the Purchase Agreement, and
assuming the effectiveness of the Reverse Stock Split, the Company will issue to
Morgan Kent 2,124,669 Post-Split Shares (as defined below).
Prior to the Stock Issuance, the Company will make a cash distribution
(the "Cash Distribution") to stockholders of record as of April 17, 1998 equal
in the aggregate to $2,492,922 (the amount of cash and marketable securities of
the Company as of August 31, 1997) plus the value of receivables estimated to be
approximately $231,000 minus the aggregate amount of the Company's costs
incurred in the preparation of this proxy statement and solicitation and the
Company's legal fees and other expenses incurred in connection with the
negotiation and consummation of the Purchase Agreement (estimated to be
approximately $100,000).
Until the one year anniversary of the Purchase Agreement, the Company
will indemnify Morgan Kent and its affiliates for losses exceeding $75,000,
which result from an uncured breach by the Company of any Company
representation, warranty, covenant or agreement set forth in the Purchase
Agreement or from any Company stockholder action relating to the Stock Issuance,
by issuing Morgan Kent a number of additional Post-Split Shares equal to the
amount of losses in excess of $75,000 divided by $1.164.
In the event that the Purchase Agreement is terminated by Morgan Kent
based upon the Company's uncured breach of representations, warranties,
covenants or agreements set forth in the Purchase Agreement resulting in losses
to Morgan Kent in excess of $75,000, the Company will pay Morgan Kent $75,000
plus fees and expenses incurred in collecting such money (the "Breakup Fee"). In
the event that the Purchase Agreement is terminated by the Company based upon
Morgan Kent's uncured breach of representations, warranties, covenants or
agreements set forth in the Purchase Agreement, Morgan Kent will pay the Company
the Breakup Fee.
REASONS FOR APPROVAL AND RECOMMENDATION BY THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the Stock
Issuance and has directed that it be submitted to a vote of stockholders at the
Annual Meeting. THE BOARD OF DIRECTORS BELIEVES THAT THE STOCK ISSUANCE IS IN
THE BEST INTERESTS OF, AND FAIR TO, THE COMPANY AND ALL OF ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE STOCK ISSUANCE. Each
member of the Board of Directors of the Company has informed the Company that
he/she intends to vote all of his/her shares of Common Stock for approval of the
Stock Issuance.
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In deciding to approve the Stock Issuance, the Board of Directors of the
Company considered a variety of factors, including:
o MORGAN KENT'S BUSINESS PLAN.
According to information provided by Morgan Kent to the Company,
Morgan Kent's investment in the Company represents Morgan Kent's
interest in targeting certain segments of the media industry which,
Morgan Kent believes, show potential for growth. Following the
consummation of the Purchase Agreement, Morgan Kent intends to exploit
the "Kings Road" name and to enhance the Company's position as a niche
producer of low-cost films.
The first element of the strategy involves continuing the
Company's current course of business: developing and producing projects
with third-party financing. This strategy is expected to allow the
Company to collect producer fees without requiring the Company to
provide production financing for the projects, thereby minimizing the
financial risks to the Company. This strategy is dependent upon the
ability of the Company to obtain third-party financing on favorable
terms for certain of the Company's projects already in development and
projects to be subsequently acquired or controlled by the Company. No
assurance can be given that the Company will be able to secure such
third-party financing or, to the extent that such third-party financing
is available, that it will be on terms that are favorable to the
Company.
The second element of this strategy is for the Company to
develop and finance low-budget projects "in-house" in order to build its
library of titles. Morgan Kent intends that the Company focus primarily
on low-budget "art films" which target an upscale audience, have the
potential to receive a limited theatrical release and are likely
candidates, in the Company's opinion, for the presale of ancillary
rights. No assurance can be given, however, that the Company will be
able to pre-sell the ancillary rights or, if pre-sold, that such presale
will be on terms that are favorable to the Company.
The third element of the business strategy is for the Company to
acquire related media properties, such as production companies, film
libraries and music libraries. In many cases the Company may need to
raise additional financing to complete any future acquisition, and no
assurance can be given that the Company will be able to raise such
financing, or, to the extent that such financing is available, that the
financing will be on terms that are favorable to the Company.
Based on available information, the Company and Morgan Kent
estimate annual overhead (excluding the cost of producing the films, but
including some funds for the acquisition of film rights and screen play
development costs) to be approximately $700,000, and estimate the total
annual cash costs of operating the business to be approximately $1.2
million. Through its investment in the Company, Morgan Kent plans to
infuse funds which it believes will assist the Company in pursuing such
business plan. Nonetheless, the Company may require significant
additional financing to meet overhead and operations costs, and no
assurance can be given that the Company will be able to raise such
financing, or, to the extent that such financing is available, that the
financing will be on terms that are favorable to the Company.
o COMPARATIVE BENEFITS OF OTHER STRATEGIC ALTERNATIVES.
The Company explored various alternatives to the Stock Issuance,
none of which seemed likely to yield a better valuation of the Company
than the Stock Issuance. In particular, the Company explored the
possibility of dissolution of the Company with a cash distribution to
shareholders of the net proceeds of such dissolution. The Company's
dissolution analysis, conducted as of December 31, 1997, indicates
estimated dissolution proceeds of approximately $3.6 million, or $.63
per share. The Board of Directors believes that the Stock Issuance is a
more attractive option for shareholders on the basis that such
transaction values the Company at a
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price of $.4656 per share of Common Stock, and, prior to the closing of
the Stock Issuance, shareholders will receive the Cash Distribution,
estimated to be approximately $2,500,000 in the aggregate, or $.44 per
share. No assurance can be given, however, that the Common Stock will
trade at a price equal to or greater than $.4656 per share.
o CONTINUING ROLE OF PRESENT MANAGEMENT.
According to information provided by Morgan Kent to the Company,
Morgan Kent intends, as is its practice with its other businesses, to
rely upon the Company's current management, which in this case is
Kenneth I. Aguado, the current President of the Company, to implement
the Company's business plan. The continuing role of Mr. Aguado as
President is expected to provide stability following the Stock Issuance.
See "Interests of Certain Persons in the Stock Issuance."
VOTING AND OTHER ARRANGEMENTS BY THE MAJORITY STOCKHOLDER
The Friedman Estate, the majority stockholder of the Company, has
executed a letter agreement with Morgan Kent, dated as of the date of the
Purchase Agreement, pursuant to which the Friedman Estate (i) agreed that, for
the one-year period following the execution of the Purchase Agreement, the
Friedman Estate would not encumber or dispose of its legal or beneficial
interest in any shares of Common Stock except in accordance with the volume
limitations of Rule 144 of the Securities Act of 1933, and (ii) irrevocably
appointed Morgan Kent as the Friedman Estate's 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, including the effectuation
of the Reverse Stock Split, and in favor of the election of Mr. J. Gerald 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 (both of whom have indicated that, if the Stock Purchase
is approved and consummated, they will resign in favor of Morgan Kent's
nominees). This irrevocable proxy represents the power to vote approximately
55.5% of the total voting power of the Common Stock prior to the Stock Issuance.
Prior to the date of the Annual Meeting, the executor of the Friedman
Estate may distribute the Friedman Estate's property to its beneficiaries in
accordance with the terms of the will of Stephen J. Friedman. The Friedman
Estate's three beneficiaries, Susan F. Aguado, Kenneth I. Aguado and Joan A.
Shapiro, have agreed, with respect to shares of Common Stock distributed to them
by the executor of the Friedman Estate, to abide by the terms of the Friedman
Estate's letter agreement with Morgan Kent. See "Principal Stockholders" and
"Proposal No. 3 -- Election of Directors."
CONDITIONS TO CLOSING; ANTICIPATED CLOSING DATE
The obligation of Morgan Kent to consummate the Stock Issuance, as
contemplated by the Purchase Agreement, is subject to the following conditions,
among others, each of which may be waived by Morgan Kent: (i) the delivery to
shareholders of this Proxy Statement, (ii) the execution of an employment
contract by and between the Company and Kenneth I. Aguado, (iii) the truth and
correctness in all material respects of the representations and warranties made
by the Company in the Purchase Agreement; (iv) the performance or compliance in
all material respects with all agreements and covenants required by the Purchase
Agreement; (v) the receipt of all consents, approvals and authorizations from
third parties and governmental or regulatory authorities required to consummate
the Purchase Agreement; (vi) Morgan Kent's receipt of a reasonably satisfactory
legal opinion from counsel to the Company and such certificates from the Company
as Morgan Kent shall have reasonably requested; (vii) the absence since April
30, 1997 of any event, change or effect, which individually or in the aggregate
would have a material adverse effect on the Company; (iv) the absence of any
order or injunction prohibiting the transaction.
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The Company anticipates that the consummation of the Purchase Agreement
will occur as soon as practicable following the Annual Meeting if Proposals No.
1 and 2 are approved.
INTERESTS OF CERTAIN PERSONS IN THE STOCK ISSUANCE
The obligation of Morgan Kent to consummate the Purchase Agreement is
conditioned upon, among other things, the execution of an employment agreement
in substantially the form of Exhibit 6.2 to the Purchase Agreement (the
"Employment Agreement") by and between the Company and Kenneth I. Aguado, the
Company's current Chief Executive Officer. The information contained in this
Proxy Statement with respect to the Employment Agreement is qualified in its
entirety by reference to Exhibit 6.2 of the Purchase Agreement, a copy of which
is attached to this Proxy Statement as Exhibit A.
Pursuant to the Employment Agreement, Mr. Aguado will be employed by the
Company as its President for a two-year term (the "Term") with an annual base
salary of $125,000. Mr. Aguado will be granted options to purchase 200,000
shares of Common Stock, of which 50% shall vest at the end of the first year of
the Term and 50% will vest at the end of the second year of the Term and which
shall be exercisable for five years. In addition, Mr. Aguado will be entitled to
participate in revenues derived by Kings Road from film projects, with the
percentage of such participation varying based upon various factors, such as
Kings Road's percentage ownership of the copyright relating to such projects and
whether Mr. Aguado provides executive producer services for such projects.
VOTE REQUIRED
The Company could legally proceed with the Stock Issuance without
stockholder approval (provided that the Company obtained stockholder approval of
either the authorization of an additional 109,554 shares of Common Stock or the
Reverse Stock Split). Nonetheless, the Company has agreed that, in order to
proceed with the Stock Issuance, the Company will require the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock. As a
result, abstentions and broker non-votes are effectively equivalent to votes
against the Stock Issuance.
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PROPOSAL NO. 2 --
APPROVAL OF REVERSE STOCK SPLIT AND AMENDMENT OF THE
RESTATED CERTIFICATE OF INCORPORATION
REVERSE STOCK SPLIT
The Board of Directors of the Company has unanimously approved and
recommended to the stockholders an amendment to the first paragraph of the
Fourth Article of the Company's Restated Certificate of Incorporation to provide
for the following (the "REVERSE STOCK SPLIT"): a reverse split of the
outstanding Common Stock, $.01 par value, on the basis of one (1) new share of
Common Stock for each three (3) shares of presently outstanding Common Stock
with no reduction of the authorized number of shares of Common Stock (12,000,000
shares), Series A Convertible Preferred Stock, $1.00 par value (1,755,000
shares), and Series B Convertible Preferred Stock, $1.00 par value (233,618
shares). Under Delaware law, the Reverse Stock Split would become effective upon
the filing of a Certificate of Amendment with the Delaware Secretary of State
(the "EFFECTIVE DATE").
If the Reverse Stock Split is approved, the first paragraph of the
Fourth Article of the Company's Restated Certificate of Incorporation will be
amended to read as follows:
"The total number of shares of all classes of stock which the
corporation shall have authority to issue is 13,988,618 shares,
consisting of 12,000,000 shares of Common Stock, $.01 par value ('Common
Stock'), and 1,988,618 shares of Convertible Preferred Stock, $1.00 par
value and such shares shall be divided into 1,755,000 shares of Series A
Convertible Preferred Stock and 233,618 shares of Series B Convertible
Preferred Stock. The Series A Convertible Preferred Stock and the Series
B Convertible Preferred Stock are referred to hereafter as the
'Convertible Preferred Stock.' Upon effectiveness of this amendment to
the Restated Certificate of Incorporation, each three (3) shares of
Common Stock issued and outstanding immediately prior thereto, shall be
automatically combined into one (1) share of Common Stock. No fractional
shares shall be issued to stockholders in connection with such reverse
stock split, but in lieu thereof the corporation shall pay in cash the
fair value of fractions of a share, if any, as of the effective date of
this amendment to the Restated Certificate of Incorporation."
GENERAL DESCRIPTION
The Company is presently authorized to issue 12,000,000 shares of Common
Stock, $.01 par value, and 1,988,618 shares of preferred stock comprised of
1,755,000 shares of Series A Convertible Preferred Stock and 233,618 shares of
Series B Convertible Preferred Stock. The Reverse Stock Split would not change
the number of authorized shares, or par value, of the Common Stock and preferred
stock.
At the close of business on March 10, 1998, there were 5,735,547 shares
of Common Stock outstanding and no shares of preferred stock outstanding.
Subject to stockholder approval of the Reverse Stock Split, the Board of
Directors has authorized the transfer from the Capital account to the Additional
Paid-in Capital account of the excess funds which will be created by the Reverse
Stock Split without a proportionate increase in par value.
PRINCIPAL EFFECTS
The principal effects of the Reverse Stock Split will be as follows:
1. Based upon the 5,735,547 shares of Common Stock outstanding on March
10, 1998, the proposed one-for-three reverse stock split would decrease the
number of outstanding shares of Common Stock by sixty-six and two-thirds percent
(66-2/3%), and thereafter approximately 1,911,849 shares of Common Stock would
be outstanding. The Reverse Stock Split will not affect any stockholder's
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<PAGE> 12
proportionate equity interest in the Company, subject to the provisions for the
elimination of fractional shares as described below.
2. As of March 10, 1998, there were no outstanding options to purchase
shares of Common Stock pursuant to the Company's 1987 Non-Qualified Stock Option
Plan (the "Plan") and options to purchase 194,500 shares of Common Stock
remained available for grant pursuant to the Plan. If the Reverse Stock Split is
approved and effected, the number of remaining shares of Common Stock available
for grant under the Plan would be decreased to approximately 64,833 shares of
Common Stock.
The following table illustrates the principal effects of the Reverse
Stock Split (referred to in Paragraphs 1 and 2 above) without taking into effect
the Stock Issuance:
<TABLE>
<CAPTION>
After
Before Reverse Split
Number of Shares of Common Stock Reverse Split ("Post-Split Shares")
- ----------------------------------------------- -------------------- ------------------------
<S> <C> <C>
Authorized 12,000,000 12,000,000
Outstanding 5,735,547 1,911,849
Reserved for future issuance upon exercise of 194,500 64,833
options to be granted pursuant to the Plan
Available for future issuance by action of Board 6,069,953 10,023,318
of Directors (after giving effect to above
reservation)
</TABLE>
In addition, as discussed above, in the event of shareholder approval of
the Stock Issuance (Proposal No. 1) and the closing of the Purchase Agreement,
the Company will issue 2,124,669 Post-Split Shares to Morgan Kent.
REASONS FOR APPROVAL AND RECOMMENDATION BY THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the
Reverse Stock Split and has directed that it be submitted to a vote of
stockholders at the Annual Meeting. THE BOARD OF DIRECTORS BELIEVES THAT THE
REVERSE STOCK SPLIT IS IN THE BEST INTERESTS OF, AND FAIR TO, THE COMPANY AND
ALL OF ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE REVERSE STOCK
SPLIT. Each member of the Board of Directors of the Company has informed the
Company that he/she intends to vote all of his/her shares of Common Stock for
approval of the Reverse Stock Split.
In deciding to approve the Reverse Stock Split, the Board of Directors
of the Company considered a variety of factors, including:
o COMPLIANCE WITH FUTURE NASDAQ REQUIREMENTS.
In light of recently announced changes to the NASDAQ SmallCap
Market Continued Listing Requirements (the "Requirements"), which shall
become effective as of February 23, 1998, the low market price of the
Common Stock impairs its continued NASDAQ listing. The Requirements
include, among other things, a minimum bid price of one dollar ($1), and
the closing bid price for the Company's Common Stock as of January 16,
1998 was $.5625, well below the future minimum bid price. Although there
can be no assurance that the price of the Common Stock after the Reverse
Stock Split will actually increase in an amount proportionate to the
decrease in the number of outstanding shares, the Board of Directors
anticipates that the Reverse Stock Split would enable the Company to
satisfy the minimum bid price requirement.
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<PAGE> 13
o ACCEPTANCE BY FINANCIAL COMMUNITY AND INVESTING PUBLIC.
The Company believes that the low market price of the Common
Stock impairs its acceptance by important segments of the financial
community and the investing public. Theoretically, the number of shares
outstanding should not, by itself, affect the marketability of the
stock, the type of investor who acquires it, or the reputation of the
Company in the financial community, but in practice this is not
necessarily the case, as many investors look upon low-priced stocks as
unduly speculative in nature and, as a matter of policy, avoid
investment in such stocks.
The Company believes that the current low market price of the
Common Stock has reduced the effective marketability of the shares
because of the reluctance of many leading brokerage firms to recommend
low-priced stocks to their clients. Further, a variety of brokerage
house policies and practices tend to discourage individual brokers
within those firms from dealing in low-priced stocks. Some of those
policies and practices pertain to the payment of brokers' commissions
and to time-consuming procedures that function to make the handling of
low-priced stocks unattractive to brokers from an economic standpoint.
In addition, the structure of trading commissions also tends to have an
adverse impact upon holders of low-priced stocks because the brokerage
commission on a sale of low-priced stocks generally represents a higher
percentage of the sales price than the commission on a relatively
higher-priced issue. Finally, the internal guidelines of many
institutional investors prohibit the purchase of stock trading below
certain minimum prices.
Although there can be no assurance that the price of the
Company's Common Stock after the Reverse Stock Split will actually
increase in an amount proportionate to the decrease in the number of
outstanding shares, the Reverse Stock Split is intended to result in a
price level that will increase investor interest and eliminate the
resistance of certain brokerage firms and institutional investors to
investment, or recommending investment, in the Common Stock.
o SUFFICIENT AUTHORIZED SHARES OF COMMON STOCK TO CONSUMMATE THE
STOCK ISSUANCE.
If the Stock Issuance is approved by the stockholders and all
conditions to the closing of the Purchase Agreement are met or waived,
the Company would be obligated to issue a number of shares of Common
Stock to Morgan Kent, which would provide Morgan Kent with approximately
53% of the outstanding Common Stock on the date of the Stock Issuance.
Based upon the number of shares of Common Stock outstanding as of March
10, 1998 (5,735,547 shares) and the Company's authorized number of
shares of Common Stock (12,000,000 shares), the Company would fall
109,554 shares short of the number of authorized shares of Common Stock
necessary to consummate the Stock Issuance. The Company could seek
shareholder approval authorizing additional shares of Common Stock, but,
because the Company has independent reasons to seek the Reverse Stock
Split, such action is unnecessary. Following the Reverse Stock Split,
which would not affect the total number of authorized shares, the
Company would have a sufficient number of authorized shares of Common
Stock to consummate the Stock Issuance.
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
As soon as practicable after the Effective Date, the Company will
provide stockholders with any required instructions for the exchange of their
present Common Stock certificates for new certificates representing the
appropriate number of shares of Common Stock after the Reverse Stock Split.
However, if permitted, the Company may elect to effect such exchange in the
ordinary course of trading as certificates are returned for transfer. In either
event, each current certificate representing shares of Common Stock until so
exchanged will be deemed for all corporate purposes after the Effective Date to
evidence ownership of Common Stock in the proportionately reduced number. The
Company may appoint
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<PAGE> 14
an exchange agent (the "Exchange Agent") to act for stockholders in effecting
the exchange of their certificates.
Stockholders will not be entitled to receive fractional shares in
connection with the Reverse Stock Split. In lieu thereof, the Company or the
Exchange Agent will pay to each stockholder who is otherwise entitled to a
fractional share upon surrender of the relevant stock certificate(s) the value
of the fractional interest to which such stockholder is entitled, based upon the
fair market value of the Common Stock on the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES
1. Except with respect to any cash received for fractional shares, the
Reverse Stock Split will be a tax-free recapitalization for the Company and its
stockholders.
2. The new shares of Common Stock in the hands of a stockholder will
have an aggregate basis for computing gain or loss equal to the aggregate basis
of shares of Common Stock held by that stockholder immediately prior to the
Reverse Stock Split, reduced by the basis allocable to any fractional shares
which such stockholder is treated as having sold for cash (see paragraph #4
below).
3. A stockholder's holding period for the new shares of Common Stock
will be the same as the holding period of the shares of Common Stock exchanged
therefor.
4. Stockholders who receive cash for all of their holdings (as a result
of owning fewer than three (3) shares) will recognize a gain or loss for federal
income tax purposes as a result of the disposition of their shares of Common
Stock. Although the tax consequences to other stockholders who receive cash for
fractional shares are not entirely certain, such stockholders will probably be
treated for federal income tax purposes as having sold their fractional shares
and will recognize gain or loss in an amount equal to the difference between the
cash received and the portion of their basis for the Common Stock allocated to
the fractional shares. Stockholders who do not receive any cash for their
holdings will not recognize any gain or loss for federal income tax purposes as
a result of the Reverse Stock Split.
VOTE REQUIRED
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of the Common Stock is required to approve the Reverse
Stock Split and amendment of the Company's Restated Certificate of
Incorporation. As a result, abstentions and broker non-votes are effectively
equivalent to votes against the Reverse Stock Split.
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<PAGE> 15
PROPOSAL NO. 3 --
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation currently provides
for the Board of Directors to be divided into three classes for terms of three
years each. In accordance with the Company's bylaws, the exact number of
directors has been set at three (3), with each class consisting of one member.
At the Annual Meeting, a director will be elected for a term expiring in 2000 to
fill the directorship currently held by Martin Davidson, whose term expires upon
the election of his successor (or his re-election). Mr. Davidson has been
nominated for re-election. In addition, a director will be elected for a term
expiring in 2001 to fill the directorship currently held by Kenneth Aguado,
whose term expires upon the election of his successor (or his re-election). Mr.
Aguado has been nominated for re-election. Susan F.
Aguado's term expires in 1999.
At the Annual Meeting, the individual receiving the highest number of
votes will be elected as director. Unless otherwise directed, all proxies
(unless revoked or suspended) will be voted for the nominee named above. If any
of the nominees shall be unavailable for election or upon election should be
unable to serve, the proxies will be voted for the election of such other person
as shall be determined by the persons named in the proxy in accordance with
their judgment. Except as disclosed herein, the Company is not aware of any
reason why any of the nominees should become unavailable for election, or if
elected, should be unable to serve as a director.
Each of the nominees named herein has consented to be named in this
Proxy Statement and has consented to serve as a director if elected; however,
should any nominee named herein be unable or unwilling to accept nomination or
election, the proxies will be voted for such other person as the Board of
Directors may recommend. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF
THE NOMINEES FOR DIRECTOR.
IN THE EVENT OF THE APPROVAL OF PROPOSAL NO. 1 BY THE STOCKHOLDERS OF
THE COMPANY AND THE CONSUMMATION OF THE STOCK ISSUANCE, MR. DAVIDSON AND MS.
AGUADO HAVE AGREED, AS SOON AS PRACTICABLE FOLLOWING THE CLOSING DATE OF THE
STOCK ISSUANCE, TO RESIGN THEIR POSITIONS AS DIRECTORS OF THE COMPANY. FOLLOWING
SUCH RESIGNATIONS, THE BOARD OF DIRECTORS, AS PERMITTED UNDER THE COMPANY'S
BYLAWS, WILL ELECT MR. J. GERALD COMBS, THE CHAIRMAN OF MORGAN KENT, AND A
NOMINEE OF MR. COMBS TO FILL SUCH DIRECTOR POSITIONS.
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<PAGE> 16
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 10, 1998, certain
information concerning ownership of shares of Common Stock by each director of
the Company and by all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
Percent of
Name, Address Director Number of Shares Outstanding
and Principal Occupation Age Since Owned Beneficially Common Stock(1)
- -------------------------------------- --- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Susan F. Aguado 64 1996 1,641,435(2) 28.6%
235 Cleveland Drive
Croton, NY 10520
Retired
Kenneth I. Aguado 39 1989 875,717(3) 15.3%
1901 Avenue of the Stars
Suite 605
Los Angeles, California 90067
Chief Executive Officer of the Company
Martin Davidson 56 1989 0 0.0%
1505 Viewsite Terrace
Los Angeles, CA 90069
Producer, director and writer
All Executive Officers and 2,517,152 43.9%
Directors as a Group (3 persons)
</TABLE>
- -------------------
(1) Based upon 5,735,547 shares of Common Stock outstanding at March 10,
1998.
(2) Includes 1,641,435 shares beneficially owned by the Friedman Estate as
to which Ms. Aguado is the named beneficiary. See "Principal
Stockholders."
(3) Includes 770,717 shares beneficially owned by the Friedman Estate as to
which Mr. Aguado is the named beneficiary. See "Principal Stockholders."
Except as otherwise disclosed herein, the Company does not know of any
arrangements, including any pledge of the Company's securities, the operation of
which at a subsequent date may result in a change of control of the Company. See
"Proposal No. 1 -- The Stock Issuance."
KENNETH I. AGUADO has been a director of the Company since February
1989. Mr. Aguado became the Company's Chief Executive Officer in October 1996
following the death of Stephen Friedman. In July 1994, Mr. Aguado rejoined the
Company as Vice-President of Creative Affairs, a position he held from 1981
until 1990. Between 1990 and 1994, Mr. Aguado headed production for
Miller-Boyett Motion Pictures at Warner Brothers and was Vice-President of
Production for Badham/Cohen Group at Universal Pictures. Mr. Aguado attended
Tulane University, where he graduated with a degree in Psychology.
Mr. Aguado is the son of Susan F. Aguado.
SUSAN F. AGUADO has been a director of the Company since October 1996.
Since March 1992, Ms. Aguado has been retired. Between March 1989 and March
1992, Ms. Aguado was Creative Director for Hometown Films and from January 1983
to March 1989, Ms. Aguado was Vice President of East Coast Development for the
Company. Ms. Aguado is graduate of New York University.
Ms. Aguado is the mother of Kenneth I. Aguado.
MARTIN DAVIDSON has been a director of the Company since February 1989.
He has been a producer, writer, and director of feature films since 1972. He
produced the film "A Fan's Notes," wrote,
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<PAGE> 17
produced and directed "The Lords of Flatbush," wrote and directed "Almost
Summer' and "Eddie and the Cruisers," and directed "Hero at Large," "Long Gone,"
"Heart of Dixie," and "Hard Promises". Mr. Davidson was the head of the motion
picture division of Ashley Famous Agency from 1960 to 1964. He attended Syracuse
University from 1957 to 1958 and the American Academy of Dramatic Arts from 1959
to 1961.
MEETINGS OF THE BOARD OF DIRECTORS; COMMITTEES
During the fiscal year ended April 30, 1997, the Board of Directors held
no formal meetings, but took action by unanimous written consent six times. The
Board currently does not have any standing committees.
SECTION 16 COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, the officers
and directors of the Company and any shareholders beneficially owning more than
10% of the Common Stock ("Ten Percent Shareholders") are required to file with
the Securities and Exchange Commission (the "Commission") and the Company
reports of ownership and changes in ownership of Common Stock. Based solely on a
review of the reports received by it, the Company believes that, during the year
ended April 30, 1997, all of its officers, directors and Ten Percent
Shareholders complied with all applicable filing requirements under Section
16(a) with the following exception: On July 10, 1997, the Friedman Estate filed
a Report on Form 4 indicating that, on August 10, 1995, the Company extended the
expiration date to August 10, 1997 of an option granted to Mr. Friedman to
purchase 250,000 shares of Common Stock. The option had originally been a
five-year option granted to Mr. Friedman on August 10, 1990.
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<PAGE> 18
EXECUTIVE COMPENSATION
The following table sets forth the compensation for each of the last
three fiscal years of the Company's Chief Executive Officers and up to four of
the other most highly compensated individuals serving as executive officers at
April 30, 1997 whose total salary and bonus exceeded $100,000 for the fiscal
year ("Named Officers"). No other Named Officer of the Company received salary
and bonus in excess of $100,000 in any of the last three fiscal years.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Fiscal Year ------------------- -------------
Ending Stock Options All Other
Name and Position April 30 Salary Bonus (Shares) Compensation
- ----------------- ----------- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen Friedman 1997 $115,385 0 0 0
Chairman of the Board and 1996 $237,500(2) 0 0 0
Chief Executive Officer 1995 $60,000(2) 0 0 0
Kenneth I. Aguado (1) 1997 $89,577 $3,596 83,125 $619(3)
Chairman of the Board
and Chief Executive Officer
</TABLE>
- ----------------
(1) Kenneth I. Aguado became the Company's Chief Executive Officer on
October 7, 1996 following the death of Stephen Friedman on October 4,
1996.
(2) Mr. Friedman voluntarily reduced his annual salary from $250,000 to
$25,000 for a period during 1995-1996 to provide the Company with the
resources necessary to repay various loans Mr. Friedman made to the
Company.
(3) Represents contributions made by the Company on behalf of Mr. Aguado
pursuant to the Company's SIMPLE IRA plan.
STOCK OPTIONS
Shown below is information with respect to options granted to the Named
Officers during the fiscal year ended April 30, 1997.
<TABLE>
<CAPTION>
% of Total Options
Number of Granted to Employees Exercise Expiration
Name Options Granted During Fiscal Year Price Date
- ------------------ --------------- -------------------- -------- ----------
<S> <C> <C> <C> <C>
Kenneth I. Aguado (1) 83,125 100% $.56 10/14/2001
</TABLE>
- ----------------------
(1) Options were granted on October 14, 1996 and vested one year from such
date. Based upon the impact of the Company's extraordinary cash
distribution in June 1997 of $.70 per share, the exercise price of these
options was reduced to $.00 per share. On February 2, 1998, Mr. Aguado
exercised such options to purchase 83,125 shares of Common Stock.
OPTION EXERCISES AND YEAR-END VALUES
Shown below is information with respect to ownership by the Named
Officers of options and option values as of April 30, 1997. No options were
exercised by Mr. Friedman, the Friedman Estate or Mr. Aguado during the fiscal
year ended April 30, 1997.
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<PAGE> 19
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at April 30, 1997 at April 30, 1997 (1)
------------------------------ -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen Friedman(2) 485,500 0 $334,995 NA
Kenneth I. Aguado(3) 16,875 83,125 $8,944 $31,588
</TABLE>
- ------------------
(1) Based upon the difference between the closing stock price on April 30,
1997 ($.94) and the option exercise price.
(2) On June 9, 1997, the executor of the Friedman Estate exercised such
options to purchase 485,500 shares of Common Stock.
(3) On June 6, 1997, Mr. Aguado exercised options to purchase 16,875 shares
of Common Stock, and on February 2, 1998, Mr. Aguado exercised options
to purchase 83,125 shares of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In May 1997, the Company entered into an Assignment and Mutual Release
Agreement with S.J.F. Productions Ltd. ("SJF LTD.") and Stephen J. Friedman
Films, Inc. ("SJF INC.") (SJF Ltd. and SJF Inc. collectively, "SJF") with
respect to SJF's rights to a motion picture entitled "Lovin' Molly" (the
"FILM"). SJF Inc. is the general partner of SJF Ltd. The Friedman Estate is the
sole shareholder of SJF Inc. and is a limited partner of SJF Ltd. The Film was
encumbered by the claim of Leucadia National Corp. ("LNC") to be paid $600,000
by SJF from the Film's revenues pursuant to a loan agreement between SJF and
LNC's predecessor-in-interest (the "AGREEMENT"), and by SJF's claim of copyright
ownership in the Film. The Company acquired LNC's rights to the Film, including
LNC's rights under the Agreement, in exchange for $75,000 and subsequently
acquired SJF's rights to the Film in exchange for releasing SJF of its
obligations under the Agreement.
VOTE REQUIRED
Under Delaware law, directors are to be elected by a plurality of the
votes of the shares of Common Stock present in person or represented by proxy at
the Annual Meeting and entitled to vote on the election of directors. Therefore,
unless additional persons are nominated, abstentions and broker non-votes will
not have an adverse effect on the election of Mr. Davidson and Mr. Aguado as
directors.
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<PAGE> 20
PROPOSAL NO. 4 --
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Stonefield Josephson Accountancy Corporation has served as the Company's
independent accountants since their appointment for fiscal year 1996. The Board
of Directors has appointed Stonefield Josephson Accountancy Corporation as the
Company's independent accountants for the fiscal year ending April 30, 1998.
Representatives of Stonefield Josephson Accountancy Corporation are expected to
be present at the meeting to respond to appropriate questions and will have an
opportunity to make a statement if they desire to do so.
All services provided to the Company by Stonefield Josephson Accountancy
Corporation were approved by the Board of Directors which also considered the
possible effect on the independence of Stonefield Josephson Accountancy
Corporation by rendering such services.
Audit services of Stonefield Josephson Accountancy Corporation for the
Company's last fiscal year included the examination of the consolidated
financial statements, services related to filings with the Securities and
Exchange Commission, and the performance of limited reviews of the Company's
quarterly unaudited financial information.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF STONEFIELD JOSEPHSON ACCOUNTANCY CORPORATION AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR ITS CURRENT FISCAL YEAR.
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<PAGE> 21
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 10, 1998, certain
information with respect to all stockholders known by the Company to be the
beneficial owners of more than 5% of its outstanding Common Stock:
<TABLE>
<CAPTION>
Number of Shares Percent of
of Common Stock Outstanding
Name and Address of Beneficial Owner Beneficially Owned Common Stock (1)
- ------------------------------------ ------------------ ----------------
<S> <C> <C>
Estate of Stephen Friedman 3,182,871(2) 55.5%
c/o William Immerman, Executor
1999 Avenue of the Stars
Suite 1250
Los Angeles, CA 90067
Susan F. Aguado 1,641,435(3) 28.6%
235 Cleveland Drive
Croton, NY 10520
Kenneth I. Aguado 875,717(4) 15.3%
1901 Avenue of the Stars
Suite 605
Los Angeles, CA 90067
Joan A. Shapiro 770,717(5) 13.4%
1550 N. Beverly Drive
Beverly Hills, CA 90210
</TABLE>
- -------------------
(1) Based upon 5,735,547 shares of Common Stock outstanding at March 10,
1998.
(2) Includes 100,000 shares owned by the Stephen J. Friedman Films, Inc.
Employee Pension Plan of which Mr. Immerman is the trustee. Prior to the
date of the Annual Meeting, the executor of the Friedman Estate may
distribute the Friedman Estate's property to its beneficiaries in
accordance with the terms of the will of Stephen J. Friedman. See
footnotes 3, 4 and 5.
(3) Includes 1,641,435 shares beneficially owned by the Friedman Estate as
to which Ms. Aguado is the named beneficiary.
(4) Includes 770,717 shares beneficially owned by the Friedman Estate as to
which Mr. Aguado is the named beneficiary.
(5) Includes 770,717 shares beneficially owned by the Friedman Estate as to
which Ms. Shapiro is the named beneficiary.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company has selected Stonefield Josephson Accountancy Corporation as
its independent public accountants for fiscal year 1998. Stonefield Josephson
Accountancy Corporation which has acted as the Company's independent accountants
since 1996, is not expected to have a representative present at the Annual
Meeting.
ANNUAL REPORT
The Company will promptly furnish a copy of the Company's Annual Report
on Form 10-KSB for the fiscal year ended April 30, 1997 (without exhibits)
without charge to any beneficial owner of securities entitled to vote at the
Annual Meeting who provides a written request to Kenneth I. Aguado, Chief
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<PAGE> 22
Executive Officer, Kings Road Entertainment, Inc., 1901 Avenue of the Stars,
Suite 1545, Los Angeles, California 90067.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. Such reports, proxy statements and other
information concerning the Company may be inspected, and copies of such
materials may be obtained at prescribed rates at the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and the Commission's Regional Office in Los Angeles located at 5757
Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036. Certain
reports, proxy material and other information concerning the Company may also be
obtained at the Commission's web site located at http://www.sec.gov.
OTHER MATTERS
It is not expected that any other matters will be brought before the
Annual Meeting. However, if any other matters are presented, it is the intention
of the persons named in the proxy to vote the proxy in accordance with their
best judgment
By Order of the Board of Directors
By: /s/ Kenneth I. Aguado
-----------------------------------------------------
Kenneth I. Aguado
Chief Executive Officer and Chairman of the Board
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN AND SEND IN THEIR PROXIES WITHOUT DELAY
TO THE COMPANY'S TRANSFER AGENT, U.S. STOCK TRANSFER COMPANY. PROMPT RESPONSE IS
HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
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<PAGE> 23
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.
<PAGE> 24
SECTION 1.2 Form of Payment. On the Closing Date (as
defined below), (i) Buyer shall pay the Purchase Price for the Stock to be
issued and sold to it at the Closing by wire transfer of immediately available
funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
the number of shares of Stock which Buyer is purchasing, and (ii) the Company
shall deliver such certificate(s) against delivery of payment of such Purchase
Price.
SECTION 1.3 Closing. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Sections 5 and 6 below, the date
and time of the issuance and sale of the Stock pursuant to this Agreement (the
"Closing Date") shall be 10:00 a.m. Eastern Standard Time on December 31, 1997
or such other mutually agreed upon time. The Closing shall occur on the
Closing Date at the offices of Werbel & Carnelutti, 711 Fifth Avenue, New York,
New York 10022.
SECTION 1.4 Legends. The Stock shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Stock):
"The Stock represented by this certificate has not been
registered under the Securities Act of 1933, as amended. The
Stock has been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective
registration statement for the Stock under said Act, or an
opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any shares of
Stock upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) such Stock is registered for sale under an effective
registration statement filed under the 1933 Act or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Stock may be made without registration under the 1933 Act and such Stock is so
sold or transferred or (c) such holder provides the Company with reasonable
assurances that such Stock can be sold pursuant to Rule 144 under the 1933 Act
(or a successor rule thereto) without any restriction as to the number of
shares of Stock acquired as of a particular date that can then be immediately
sold. Buyer agrees to sell all shares of Stock, including those represented by
a certificate(s) from which the
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legend has been removed, in compliance with applicable prospectus delivery
requirements, if any.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
SECTION 2.1 Organization and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, with the power and
authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, used, operated and
conducted. The Company has no Subsidiaries. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary. "Subsidiaries" means any corporation or other
business entity, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
SECTION 2.2 Authorization; Enforcement. (i) The Company
has all requisite corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby and to issue
the Stock in accordance with the terms hereof, (ii) the execution and delivery
of the Agreement by the Company and the consummation by it of the transactions
contemplated hereby (including without limitation the issuance of the Stock)
have been duly authorized by the Company's Board of Directors and the Majority
Stockholder and no further consent or authorization by the Company, its Board
of Directors or its shareholders is required, (iii) this Agreement has been
duly executed and delivered by the Company, and (iv) this Agreement constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
SECTION 2.3 Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 12 million shares of
Common Stock of which 5,652,422 are issued and outstanding and 83,125 shares
are reserved for issuance pursuant to the Company's stock option plans and (ii)
1,988,618 shares of Convertible Preferred Stock, par value $1.00 per share,
consisting of 1,755,000 shares of Series A Convertible Preferred Stock and
233,618 shares of Series B Convertible Preferred Stock, of which no shares are
issued and outstanding. Other than options to purchase 83,125 shares of Common
Stock, there are no securities exercisable for, or convertible into or
exchangeable for, shares of Common Stock. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid
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and nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed on Schedule 2.3, as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, rights,
scrip rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company, or arrangements by
which the Company is or may become bound to issue additional shares of capital
stock of the Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the 1933 Act, and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Stock. The Company has furnished to Buyer true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof (the
"Certificate of Incorporation"), the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into
or exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
SECTION 2.4 Issuance of Shares. The Stock is duly
authorized and, upon issuance in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens and charges with respect to the issue thereof and shall not be subject to
preemptive rights, or other similar rights of stockholders of the Company.
SECTION 2.5 No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By-laws or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company is a party, or result
in a violation of any material law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected. The Company is not in violation of its Certificate of Incorporation,
By-laws or other organizational documents and is not in default (and no event
has occurred which with notice or lapse of time or both could put the Company
in default) under, nor has the Company taken any action or failed to take any
action that would
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<PAGE> 27
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company is a party or by which any material property or assets of the Company
is bound or affected. The business of the Company is not being conducted in
violation of any material law, ordinance or regulation of any governmental
entity. Except as disclosed on Schedule 2.5 hereto, the Company is not
required to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under this Agreement in accordance with the terms hereof.
Except as disclosed on Schedule 2.5, all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is unaware of any facts or circumstances which might give
rise to any of the foregoing. The Company is not in violation of the listing
requirements of the Nasdaq SmallCap Market ("Nasdaq") and, except as set forth
in Schedule 2.5, has received no notice regarding the delisting or potential
delisting of the Common Stock by Nasdaq.
SECTION 2.6 Reports; Financial Statements. Since May 1,
1995, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with (i) the Securities and
Exchange Commission ("SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents") and (ii) any other applicable state securities authorities. The
Company has delivered to Buyer true and complete copies of the SEC Documents.
As of their respective dates, the SEC Documents, including all SEC Documents
filed after the date of this Agreement and prior to the Closing Date, were or
will be prepared in all material respects in accordance with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were or will be filed with the SEC, contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied or will comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial
statements have been or will be prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be
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<PAGE> 28
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present or will
present in all material respects the financial position of the Company as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the financial statements
of the Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to April 30, 1997, and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
SECTION 2.7 Taxes. Except for such matters as are
disclosed on Schedule 2.7, the Company has timely filed or will timely file all
returns and reports required to be filed by it with any taxing authority with
respect to Taxes for any period ending on or before the Closing Date, taking
into account any extension of time to file granted to or obtained on behalf of
the Company, (a) all Taxes shown to be payable on such returns or reports that
are due prior to the Closing Date have been paid or will be paid when due, (b)
as of the date hereof and as of the Closing Date, no deficiency for any
material amount of Tax has been asserted in an oral or written notice to the
Company or assessed by a taxing authority against the Company, (c) all
liability for Taxes of the Company that are or will become due or payable with
respect to periods covered by the financial statements referred to in Section
2.6 hereof have been paid or adequately reserved for on such financial
statements, and (d) to the Company's knowledge, no Tax return or reports of the
Company are under examination. "Tax" or "Taxes" means any and all taxes,
charges, fees and levies, payable to any federal, state, local or foreign
taxing authority or agency, including, without limitation, i) income,
franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, ii) customs duties, imposts,
charges, levies or other similar assessments of any kind, and iii) interest,
penalties and additions to tax imposed with respect thereto.
SECTION 2.8 Board Recommendation and Consent of Majority
Stockholder. The Board of Directors of the Company, at a meeting duly called
and held, has by requisite vote under applicable laws (i) determined that this
Agreement and the
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transactions contemplated hereby, including the Stock Purchase, and the
transactions contemplated thereby, taken together, are fair to and in the best
interests of the stockholders of the Company and (ii) resolved to recommend
that the holders of the shares of Common Stock approve this Agreement and the
transactions contemplated herein, including the Stock Purchase. The Company
has received the irrevocable consent of the Majority Stockholder to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 2.9 Books and Records. The books of account and
other financial records of the Company are in all material respect complete and
correct, are maintained in accordance with good business practices and all Laws
applicable to the Company, and are accurately reflected in the consolidated
financial statements of the Company contained in the SEC Reports. The minute
books of the Company contain accurate records of all meetings, and accurately
reflect all other corporate action of the shareholders and directors of the
Company. "Laws" shall mean all applicable federal, state, local or foreign
laws, regulations or orders or any other requirements of any governmental,
regulatory or administrative agency or authority or court or other tribunal.
SECTION 2.10 Absence of Certain Changes. Since April 30,
1997, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or
change by the Company in its accounting methods, principles or practices.
SECTION 2.11 Contracts. Listed on Schedule 2.11 hereto
are all contracts and agreements of the Company which require or could result
in the payment by or to the Company of more than $25,000 annually (the
"Contracts"), whether oral (in which case a summary thereof should be provided)
or written, in either case including, but not limited to, employment contracts,
leases and management agreements. The Company has provided Buyer with a true
and complete copy of each Contract. Each of the Contracts constitutes the
valid and binding obligation of the Company and, to the Company's knowledge,
the other party thereto, and is in full force and effect. The Company has
performed and fulfilled all of its obligations under each of such Contracts
required to be performed as of the date hereof, is not in default or material
breach thereunder, and, to the knowledge of the Company, no other party is in
default or material breach thereunder.
SECTION 2.12 Absence of Litigation. Except as disclosed
in Schedule 2.12, there is no action, suit, claim, proceeding, inquiry or
investigation at law or in equity (including actions or proceeding seeking
injunctive relief) pending before or by any court, public board, government
agency, self-regulatory
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<PAGE> 30
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company.
SECTION 2.13 No Materially Adverse Contracts. The Company
is not subject to any charter, corporate or other legal restriction, or any
judgment, decree, order, rule or regulation which in the judgment of the
Company's officers has or can reasonably be expected in the future to have a
material adverse effect on the operations, assets, financial condition or
prospects of the Company. The Company is not a party to any contract or
agreement which in the judgment of the Company's officers has or can reasonably
be expected to have a material adverse effect on the operations, assets,
financial condition or prospects of the Company.
SECTION 2.14 Certain Transactions. Except as set forth on
Schedule 2.14 and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 2.3, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors)
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
SECTION 2.15 No Integrated Offering. Neither the Company,
nor any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Stock to Buyer. The
issuance of the Stock to Buyer will not be integrated with any other issuance
of the Company's securities (past, current or, to the extent under the control
of the Company's stockholders and directors as of the date hereof, future)
which requires stockholder approval under the rules of The Nasdaq Stock Market,
Inc.
SECTION 2.16 No Brokers. The Company has taken no action
which would give rise to any reasonable claim by any person for brokerage
commissions, finder's fees or similar payments relating to this Agreement or
the transactions contemplated hereby whose commissions and fees will be paid
for by the Company.
SECTION 2.17 Permits, Compliance. The Company is in
possession of all material franchises, grants, authorizations,
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<PAGE> 31
licenses, permits, casements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
The Company is not in conflict with, or in default or violation of, any of the
Company Permits. During the period commencing on April 30, 1997 and ending on
the date hereof, the Company has received no notification with respect to
possible conflicts, defaults or violations of applicable laws.
SECTION 2.18 Disclosure. To the Company's knowledge, all
information relating to or concerning the Company set forth in this Agreement
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein,
in light of the circumstances under which they were made, not misleading. To
the Company's knowledge, no event or circumstance has occurred or exists with
respect to the Company or its business, properties, prospects, operations or
financial conditions, which under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
SECTION 2.19 Intellectual Property. To the Company's
knowledge, the Company possesses all intellectual property rights necessary to
conduct the business of the Company as it is being conducted on the date
hereof, except to the extent that the failure to possess such intellectual
property rights would not have a material adverse effect on the operations,
assets, financial condition or prospects of the Company. To the Company's
knowledge, the Company is not infringing upon, and has not been charged with
the infringement or violation of, the intellectual property rights of any other
party, except as disclosed on Schedule 2.12 and for matters not material to the
Company.
ARTICLE 3
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to the Company that:
SECTION 3.1 Investment Purpose. As of the date hereof,
Buyer is purchasing the Stock for its own account for investment only and not
with a present view toward the public sale or distribution thereof, except
pursuant to sales registered under the 1933 Act or exempt from the registration
requirements thereof.
SECTION 3.2 Information. Buyer and its advisors, if any,
have been furnished with all materials relating to the
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<PAGE> 32
business, finances and operations of the Company and materials relating to the
offer and sale of the Stock which have been requested by Buyer or its advisors.
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received what Buyer believes to be
satisfactory answers to any such inquiries. Neither such inquiries nor any
other due diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 2 above. Buyer
understands that its investment in the Stock involves a significant degree of
risk.
SECTION 3.3 Governmental Review. Buyer understands that
no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement
of the Stock.
SECTION 3.4 Transfer or Resale. Buyer understands that
(i) the Stock has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and may not be transferred unless (a)
subsequently included in an effective registration statement thereunder or (b)
Buyer shall have delivered to the Company an opinion of counsel (which opinion
shall be reasonably acceptable to the Company) to the effect that the Stock to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (c) sold pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule), (ii) any sale of such Stock made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Stock under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Stock under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder. Notwithstanding the foregoing or anything else contained
herein to the contrary, and in conformity with all Laws, the Stock may be
pledged as collateral in connection with a bona fide margin account or any
other lending arrangement.
SECTION 3.5 Organization and Qualification. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, with the power and
authority (corporate and other) to own, lease, use and operate its properties
and to carry on its business as and where now owned, used, operated and
conducted. Schedule 3.5 sets forth a list of all of the Subsidiaries of Buyer
and the jurisdiction in which each is incorporated. Buyer and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the
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<PAGE> 33
nature of the business conducted by it makes such qualification necessary.
SECTION 3.6 Authorization; Enforcement. (i) Buyer has
all requisite corporate power and authority to enter into and perform this
Agreement and to consummate the transactions contemplated hereby, (ii) the
execution and delivery of the Agreement by Buyer and the consummation by it of
the transactions contemplated hereby have been duly authorized by Buyer's Board
of Directors and no further consent or authorization by Buyer, its Board of
Directors or its shareholders is required, (iii) this Agreement has been duly
executed and delivered by Buyer, and (iv) this Agreement constitutes a legal,
valid and binding obligation of Buyer enforceable against Buyer in accordance
with its terms.
SECTION 3.7 No Conflicts. The execution, delivery and
performance of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby will not (i) conflict with or result in a
violation of any provision of the Buyer's Certificate of Incorporation or
By-laws in each case as in effect on the date hereof or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which Buyer is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to Buyer or by which any property or asset of Buyer is
bound or affected, where such conflict, violation, breach or default would have
a material adverse effect on the operations, assets, financial condition or
prospects of Buyer. Buyer is not in violation of its Certificate of
Incorporation, By-laws or other organizational documents and is not in default
(and no event has occurred which with notice or lapse of time or both could put
Buyer in default) under, nor has Buyer taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which Buyer is a party or by which any material property or assets of Buyer is
bound or affected where such violation, default, action or failure to take
action would have a material adverse effect on the operations, assets,
financial condition or prospects of Buyer. The business of Buyer is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity where such violation would have a material adverse effect on the
operations, assets, financial condition or prospects of Buyer. Except as
specifically contemplated by this Agreement and not required under the 1933 Act
and any applicable state securities laws, Buyer is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform
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<PAGE> 34
any of its obligations under this Agreement in accordance with the terms
hereof. Except as disclosed on Schedule 3.7, all consents, authorizations,
orders, filings and registrations which Buyer is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. Buyer is unaware of any facts or circumstances which might give rise
to any of the foregoing.
SECTION 3.8 Disclosure. To Buyer's knowledge, all
information relating to or concerning Buyer set forth in this Agreement is true
and correct in all material respects and Buyer has not omitted to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading. To
Buyer's knowledge, no event or circumstance has occurred or exists with respect
to Buyer or its business, properties, prospects, operations or financial
conditions, which under applicable law, rule or regulation, requires public
disclosure or announcement by Buyer but which has not been so publicly
announced or disclosed.
ARTICLE 4
COVENANTS
SECTION 4.1 Affirmative Covenants of the Company. (a)
The Company hereby covenants and agrees that, during the period commencing on
the date hereof and continuing until the Closing Date unless otherwise
expressly contemplated by this Agreement or consented to in writing by the
other party, it will:
(i) operate its business only in the
usual and ordinary course consistent with past practices (except that the
Company may make the Pre-Closing Distribution (as defined in Section 4.6 below)
and may take any reasonable and lawful action outside the usual and ordinary
course in connection with making the collections contemplated in clauses (B)(i)
and (B)(ii) of such definition of Pre- Closing Distribution);
(ii) preserve substantially intact its
business organizations, maintain its rights and franchises, and otherwise
operate its business in a manner that materially breaches no Contract;
(iii) maintain and keep its business
relationships intact and unimpaired, and its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
(iv) promptly advise the other party of
the commencement of, or threat of (to the extent that such threat comes to its
knowledge), any claim, action, suit, proceeding or investigation against,
relating to or involving it or any of its
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<PAGE> 35
directors, officers, employees, agents or consultants in connection with its
business or the transactions contemplated hereby;
(v) provide Buyer with unaudited
quarterly consolidated balance sheets and income statements and unaudited
quarterly statements of cash position for each fiscal quarter following the
date of this Agreement as soon as practicable following the end of each such
fiscal quarter; and
(vi) promptly provide the other party
with copies of any and all reports or documents filed with the SEC.
(b) The Company will cause its transfer agent to
make stock transfer records relating to, and stockholder lists of, the Company
available to the extent reasonably necessary to effectuate the intent of this
Agreement.
SECTION 4.2 Information Statement. (a) The Company
shall use its best efforts to file with the SEC, within ten business days after
the date of this Agreement, an Information Statement (together with any
amendment thereof or supplement thereto, the "Information Statement") prepared
and filed with the SEC in accordance with the requirements of the 1934 Act and
promptly take all action required by Delaware Law, the Nasdaq Stock Market,
Inc. and its Certificate of Incorporation and By-Laws to consummate this
Agreement and the transactions contemplated hereby. The Company shall give
Buyer the opportunity to comment on the Information Statement prior to its
filing with the SEC and delivery to the Company's stockholders, as applicable.
As soon as practicable following clearance with the SEC, the Company shall mail
the Information Statement to its stockholders.
(b) The information supplied by the Company for
inclusion in the Information Statement (except to the extent such information
was provided to the Company by Buyer) shall not, at the time the Information
Statement is delivered to the Company's stockholders, or at the Closing Date,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The information supplied by Buyer for inclusion in the
Information Statement (as defined below) (except to the extent such information
was provided to Buyer by the Company) shall not, at the time the Information
Statement is delivered to the Company's stockholders, or at the Closing Date,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. All documents that the Company is responsible for
filing with the SEC in connection with the transactions contemplated herein
will comply as to form and substance in all material respects with the
applicable requirements of the 1933 Act and the rules and regulations
thereunder and the 1934 Act and the rules and regulations thereunder.
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<PAGE> 36
SECTION 4.3 Appropriate Action; Consents; Filings. (a)
Each of the Company and Buyer shall use its best efforts to (i) take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate,
satisfy the conditions to, and make effective the transactions contemplated by
this Agreement, (ii) obtain from any governmental or regulatory authorities or
other persons any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by the Company and
Buyer, as applicable, in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the Stock Purchase (iii)
make all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Stock Purchase required under (A) the
1933 Act and the 1934 Act and the rules and regulations thereunder, and any
other applicable federal or state securities laws, and (B) any other applicable
Law. The Company and Buyer, as applicable, shall furnish all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable Law (including all information required to be
included in the Information Statement) in connection with the transactions
contemplated by this Agreement.
(b) Each of the Company and Buyer, as applicable,
agrees to contest and resist any action, including administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that is in effect and that restricts, prevents or
prohibits the consummation of the Stock Purchase or any other transactions
contemplated by this Agreement, including, without limitation, by pursuing all
available avenues of administrative and judicial appeal; provided, however,
that in no event shall the Company or Buyer take, or be required to take, any
action that would have a material adverse effect on the operations, assets,
financial condition or prospects of the Company or Buyer, as the case may be.
(c) Each of the Company and Buyer, as applicable,
shall give any notices to third parties, and use its best efforts to obtain any
third party consents (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement, (ii) disclosed or required to be
disclosed on the Schedules hereto, (iii) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated herein or (iv) required to
prevent a material adverse effect on the operations, assets, financial
condition or prospects of the Company or Buyer, as the case may be, from
occurring prior to or after the Closing Date.
(d) In the event that either the Company or
Buyer, as applicable, shall fail to obtain any third party consent
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described in subsection (c) above, such party shall use its best efforts, and
shall take any such actions reasonably requested by the other party hereto, to
minimize any adverse effect upon the parties hereto, their respective
Subsidiaries, and their respective businesses resulting, or which could
reasonably be expected to result, after the Closing Date, from the failure to
obtain such consent.
SECTION 4.4 Public Announcements. The Company and Buyer
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Stock Purchase and the
transactions contemplated thereby and shall not issue any such press release or
make any such public statement prior to such consultation; provided, however,
that no such disclosure shall be required if applicable Law, stock exchange
requirements or the requirements of the NASD do not permit such prior
consultation or impose timing obligations that would render such consultation
impracticable.
SECTION 4.5 Nasdaq Listing. The Company shall use its
best efforts to cause the shares of Common Stock to be issued in connection
with the Stock Purchase to be approved for quotation on the Nasdaq SmallCap
Market prior to the Closing Date or as soon as practicable thereafter.
SECTION 4.6 Negative Covenants of the Company. Except as
expressly contemplated by this Agreement or otherwise consented to in writing
by Buyer (which consent shall not be unreasonably withheld), from the date of
this Agreement until the Closing Date, the Company will not do any of the
following:
(a) (i) increase the compensation payable to
or to become payable to any director, officer or employee; (ii) grant any
severance or termination pay (other than pursuant to its normal severance
policy as in effect on the date of this Agreement) to, or enter into any
employment or severance agreement with, any director, officer or employee other
than employment agreements entered into with the consent of Buyer, which
consent shall not be unreasonably withheld; or (iii) establish, adopt, enter
into or amend any employee benefit plan or arrangement except as may be
required by applicable Law;
(b) declare or pay any dividend on, or make any
other distribution (however characterized) in respect of, outstanding shares of
its capital stock, except for the Pre-Closing Distribution (as defined below)
to be paid on a pro-rata basis to shareholders of the Company (other than
Buyer) subsequent to the date of this Agreement but prior to the Closing Date;
(c) (i) redeem, purchase or otherwise
acquire any shares of its capital stock or equity interest or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock or equity interest or any options, warrants or
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conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations (except in connection with the exercise of
outstanding stock options or stock purchase warrants referred to herein, in
accordance with their terms or, in connection with the conversion of
convertible debentures, in accordance with their terms); (ii) effect any
reorganization or recapitalization; or (iii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares of
its capital stock;
(d) (i) issue, deliver, award, grant or
sell, or authorize or propose the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims, pledges,
limitations in voting rights, charges or other encumbrances) of, any shares of
any class of its capital stock or other securities (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire, any such shares
(except for the issuance of shares upon the exercise of outstanding stock
options, stock purchase warrants or the conversion of outstanding convertible
debentures, in accordance with their terms); (ii) amend or otherwise modify the
terms of any such rights, warrants or options the effect of which shall be to
make such terms more favorable to the holders thereof; or (iii) take any action
to accelerate the vesting of any of the stock options;
(e) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division (other than
a wholly-owned subsidiary) thereof, or otherwise acquire or agree to acquire
any assets of any other person;
(f) sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its assets outside of the
ordinary course of business;
(g) propose or adopt any amendments to its
Certificate of Incorporation or By-Laws;
(h) (i) change any of its methods of
accounting in effect, or (ii) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to taxes
(except where the amount of such settlements or controversies, individually or
in the aggregate, does not exceed $10,000), or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for
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<PAGE> 39
the taxable year ended April 30, 1997, except as may be required by Law or
generally accepted accounting principles;
(i) incur any obligation for borrowed money or
purchase money indebtedness, whether or not evidenced by a note, bond,
debenture or similar instrument, of $25,000 or more;
(j) enter into any material arrangement,
agreement or contract with any third party which requires the payment of the
Company of in excess of $25,000;
(k) amend any of the material terms or provisions
of its capital stock; and
(l) discuss or enter into negotiations with any
entity (other than Buyer), or agree in writing or otherwise, to do any of the
foregoing.
The "Pre-Closing Distribution" shall consist of (A) an
aggregate of $2,492,922, the value of the Company's cash and marketable
securities as of August 31, 1997, (B) plus, to the extent collected prior to
the Closing, (i) an amount estimated to be approximately $187,000 owed to the
Company by World Icon Distribution Enterprises C.V. and (ii) an amount
estimated to be approximately $44,000 owed to the Company in connection with
the sale of certain foreign licenses by Moonstone Entertainment, Inc., an agent
of the Company, (C) less the aggregate amount of the costs associated with the
preparation of the proxy statement and solicitation of stockholders to be
effected in connection with the transactions contemplated hereby and the
Company's legal fees and other expenses incurred in connection with the
negotiation and consummation of the Stock Purchase.
SECTION 4.7 Access and Information. Between the date of
this Agreement and the Closing Date or earlier termination of this Agreement,
the Company shall (i) afford Buyer and its officers, directors, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "Representatives") reasonable access upon reasonable prior
notice to its officers, employees, agents, properties, offices and other
facilities and to the books and records thereof and (ii) furnish promptly to
Buyer and its Representatives such information in its possession or control
concerning its business, properties, contracts, records and personnel
(including, without limitation, financial, operating and other data and
information) as may reasonably be requested, from time to time, by Buyer. All
of such data and information shall be subject to the terms and conditions of
the confidentiality agreement each party signed for the benefit of the other
party dated March 18, 1997 (the "Confidentiality Agreement").
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<PAGE> 40
SECTION 4.8 Confidentiality. The parties will comply
with all of their respective obligations under the Confidentiality Agreement.
SECTION 4.9 Restrictions on Transfers by the Majority
Stockholder. The Company shall obtain from the Majority Stockholder an
executed agreement in form and substance satisfactory to Buyer that, except to
the extent permitted in accordance with the volume limitations of Rule 144 of
the 1933 Act, for a period of one year from the date hereof, the Majority
Stockholder shall not directly or indirectly offer to sell, grant any option
for the sale of, assign, transfer, pledge, hypothecate, or otherwise encumber
or dispose of any legal or beneficial interest in any shares of Common Stock,
any securities convertible into or exercisable or exchangeable for shares of
Common Stock, or any warrants, options or other rights to purchase, subscribe
for, or otherwise acquire any shares of Common Stock (including, without
limitation, any such shares, securities or rights that may be deemed to be
beneficially owned by the Majority Stockholder in accordance with the Rules and
Regulations of the SEC promulgated under the 1933 Act).
SECTION 4.10 Irrevocable Proxy of the Majority
Stockholder. The Company shall obtain the irrevocable proxy of the Majority
Stockholder appointing Buyer its attorney-in-fact with power and authority to
vote the shares of Common Stock owned by it in favor of execution of this
Agreement and the performance by the Company of the transactions contemplated
hereby.
SECTION 4.11 Board of Directors. As soon as practicable
following the Closing Date, the members of the Company's Board of Directors on
the date hereof, other than Mr. Kenneth I. Aguado, shall resign, and Buyer (on
its own behalf and as attorney-in-fact of the Majority Stockholder) shall elect
Mr. Gerald Combs and a nominee of Mr. Gerald Combs, and shall re-elect Mr.
Aguado, to serve on the Company's Board of Directors.
ARTICLE 5
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the
Stock to Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
SECTION 5.1 Representations and Warranties. The
representations and warranties of the Buyer contained in this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date and
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the Buyer shall have delivered to Company a certificate to that effect.
SECTION 5.2 Agreements and Covenants. The Buyer shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it in all material respects prior
to the Closing Date and the Buyer shall have delivered to the Company a
certificate to that effect.
SECTION 5.3 Consents and Approvals. All material
consents, approvals and authorizations legally required to be obtained to
consummate the Stock Purchase shall have been obtained from all required
governmental or regulatory authorities and any other third party.
SECTION 5.4 Opinion of the Buyer's Counsel. The Company
shall have received an opinion, dated the Closing Date, of Werbel and
Carnelutti, counsel to the Buyer, in form and substance reasonably satisfactory
to the Company substantially in the form set forth as Exhibit 5.4.
SECTION 5.5 No Order. No governmental entity or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Stock
Purchase illegal or otherwise prohibiting consummation of the Stock Purchase.
SECTION 5.6 Information Statement. Buyer shall have
furnished to the Company all information relating to it required by law to be
included in the Information Statement.
ARTICLE 6
CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE
The obligation of Buyer hereunder to purchase the Stock at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for Buyer's
sole benefit and may be waived by Buyer at any time in its sole discretion:
SECTION 6.1 Delivery of the Information Statement. The
definitive Information Statement shall have been prepared and filed with the
SEC and mailed to the Company's stockholders in accordance with the applicable
rules and regulations of the SEC. All necessary state securities and blue sky
permits, approvals and exemption orders required in connection with the
transactions contemplated by this Agreement, if any, shall have been obtained.
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<PAGE> 42
SECTION 6.2 Employment Agreement. The Company shall have
entered into an employment agreement with Kenneth I. Aguado, substantially in
the form of Exhibit 6.2 hereto.
SECTION 6.3 Representations and Warranties. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made on and as of the Closing Date and the Company shall have delivered to
Buyer a certificate to that effect.
SECTION 6.4 Agreements and Covenants. The Company shall
have performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it in all material respects prior
to the Closing Date and the Company shall have delivered to Buyer a certificate
to that effect.
SECTION 6.5 Consents and Approvals. All material
consents, approvals and authorizations legally required to be obtained to
consummate the Stock Purchase shall have been obtained from all required
governmental or regulatory authorities and any other third party.
SECTION 6.6 Opinion of the Company's Counsel. Buyer
shall have received an opinion, dated the Closing Date, of Guth Rothman &
Christopher LLP, counsel to the Company, in form and substance reasonably
satisfactory to Buyer substantially in the form set forth as Exhibit 6.6.
SECTION 6.7 No Material Adverse Effect. Since April 30,
1997, there shall have been no event, change or effect that, individually or
when taken together with all other such events, changes or effects, would be
materially adverse to the condition (financial or otherwise), prospects,
properties, assets, business or operations of the Company, taken as a whole, at
the time of such event, change or effect; provided, however, that for purposes
of this Agreement, any change occurring between the date of this Agreement and
the Closing Date in the amount of cash held by the Company as a direct result
of payment of expenses relating to the Stock Purchase (including the
Pre-Closing Distribution) shall not be deemed a material adverse effect, nor
shall there have occurred prior to the Closing Date any change, occurrence or
circumstance in the business, results of operations or financial condition of
the Company likely to have, individually or in the aggregate, a material
adverse effect.
SECTION 6.8 Certificates. In addition to the
certificates referred to in Sections 6.3 and 6.4 hereof, Buyer shall have
received such certificates from officers and representatives of the Company as
it shall have reasonably requested.
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<PAGE> 43
SECTION 6.9 No Order. No governmental entity or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Stock Purchase
illegal or otherwise prohibiting consummation of the Stock Purchase.
ARTICLE 7
INDEMNIFICATION
SECTION 7.1 Indemnity by the Company. Until one year
from the date hereof and to the extent set forth in Section 7.3 hereof, the
Company agrees to indemnify and hold harmless Buyer and its successors and
assigns and its and their respective officers, directors, controlling persons
(if any), employees, attorneys, agents, affiliates, partners and stockholders,
in each case past, present, or as they may exist at any time after the date of
this Agreement (including Buyer, the "Buyer Indemnitees") against and in
respect of any and all claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, losses, costs and legal and other expenses (collectively,
"Losses") arising out of or based upon (i) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement or
in any other agreement executed and delivered by the Company hereunder or in
connection herewith that remains uncured for a period of ten days following the
delivery by a Buyer Indemnitee of written notice thereof to the Company and
(ii) any action by any stockholder of the Company relating to the Stock
Purchase and the transactions contemplated hereby and thereby which, in either
case, results in Losses to Buyer in excess of $75,000.
SECTION 7.2 Defense of Claims. Any Buyer Indemnitee (the
"Indemnified Party") seeking indemnification under this Agreement shall give to
the party obligated to provide indemnification to such Indemnified Party (the
"Indemnitor") a notice (a "Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder promptly upon
learning of the existence of such claim and in no event later than one year
from the date of this Agreement. Upon receipt by the Indemnitor of a Claim
Notice from an Indemnified Party with respect to any claim of a third party,
such Indemnitor may assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party and, in such event, shall agree to pay
and otherwise discharge with the Indemnitor's own assets all judgments,
deficiencies, damages, settlements, liabilities, losses, costs and legal and
other expenses related thereto; and the Indemnified Party shall cooperate in
the defense or prosecution thereof and shall furnish such records, information
and testimony and attend all such conferences, discovery proceedings, hearings,
trials and appeals as
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may be reasonably requested in connection therewith. If the Indemnitor does
not assume the defense thereof, the Indemnitor shall similarly cooperate with
the Indemnified Party in such defense or prosecution. The Indemnified Party
shall have the right to participate in the defense or prosecution of any
lawsuit with respect to which the Indemnitor has assumed the defense and to
employ its own counsel therein, but the fees and expenses of such counsel shall
be at the expense of the Indemnified Party unless (i) the Indemnitor shall not
have promptly employed counsel reasonably satisfactory to such Indemnified
Party to take charge of the defense of such action or (ii) such Indemnified
Party shall have reasonably concluded that there exists a significant conflict
of interest with respect to the conduct of such Indemnified Party's defense by
the Indemnitor, in either of which events such fees and expenses shall be borne
by the Indemnitor and the Indemnitor shall not have the right to direct the
defense of any such action on behalf of the Indemnified Party. The Indemnitor
shall not have the right to settle any claim solely for monetary damages for
which indemnification has been sought and is available hereunder without the
prior written consent of the Indemnified Party. The Indemnified Party shall
give written notice to the Indemnitor of any proposed settlement of any suit,
which settlement the Indemnitor may, if it shall have assumed the defense of
the suit, reject in its reasonable judgment within 10 days of receipt of such
notice. Notwithstanding the foregoing, the Indemnified Party shall have the
right to pay or settle any suit for which indemnification has been sought and
is available hereunder; provided, that, if the defense of such claim shall have
been assumed by the Indemnitor, the Indemnified Party shall automatically be
deemed to have waived any right to indemnification hereunder.
SECTION 7.3 Indemnification Amount. In the event that
Buyer has suffered Losses under Section 7.1, the Company shall issue to Buyer a
number of additional shares of Common Stock equal to (A) the amount of Losses
suffered by Buyer in excess of $75,000, (B) divided by $.4656.
SECTION 7.4 Composition of Board of Directors in
Connection with Indemnification. In connection with any matter for which
indemnification is sought or any proceeding for indemnification brought by a
Buyer Indemnitee, the actions of the Company shall be controlled by those
members of the Company's Board of Directors who were members of the Company's
Board of Directors on the date of this Agreement and not by the entire Board of
Directors on such date.
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<PAGE> 45
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date:
(a) by mutual written consent of the Company and
Buyer;
(b) by Buyer, if any representation or warranty
made by the Company in this Agreement shall not have been true when made or the
failure of the Company to satisfy its obligations under Articles 1 and 4
hereof, where such breach or failure results in Losses to Buyer in excess of
$75,000 and which breach or failure has not been cured within ten days from the
date written notice thereof is delivered to the breaching party by the other
party;
(c) by the Company, if any representation or
warranty made by Buyer in this Agreement shall not have been true when made and
or the failure of Buyer to satisfy its obligations under Articles 1 and 4
hereof, which breach or failure has not been cured within ten days from the
date written notice thereof is delivered to the breaching party by the other
party;
(d) by the Company or Buyer, if there shall be
any Order which is final and nonappealable preventing the consummation of the
Stock Purchase, except if the party relying on such Order has not complied with
its obligations under Article 4 hereof;
(e) by the Company or Buyer, if the Closing Date
shall not have occurred before December 31, 1997; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.1(e) shall not be
available to any party whose (or whose affiliates(s)) breach of any
representation or warranty or failure to perform or comply with any obligation
under this Agreement has been the proximate cause of, or proximately resulted
in, the failure of the Closing Date to occur on or before such date; or
(f) by the Company or Buyer at any time prior to
the Closing Date if (i) in the case of termination by Buyer, any of the
conditions specified in Article 6 shall not have been met or waived prior to
such time as such condition can no longer be satisfied or (ii) in the case of
termination by the Company, any of the conditions specified in Article 5 shall
not have been met or waived prior to such time as such condition can no longer
be satisfied.
The right of any party hereto to terminate this Agreement
pursuant to this Section 8.1 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any party
hereto, any person controlling any such party
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<PAGE> 46
or any of their respective officers or directors, whether prior to or after the
execution of this Agreement.
SECTION 8.2 Effect of Termination. Subject to the
provisions of Section 9.1, in the event of the termination of this Agreement
pursuant to Section 8.1, the parties to this Agreement shall have no rights and
obligations hereunder; provided, however, that all rights and obligations
pursuant to Sections 4.7, 4.8 and 8.5 hereof shall survive termination of this
Agreement.
SECTION 8.3 Amendment. To the extent permitted by
applicable law, this Agreement may be amended by the parties hereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Closing Date. This Agreement may not be amended except by an instrument
in writing signed by the parties hereto.
SECTION 8.4 Waiver. At any time prior to the Closing
Date, any party hereto may (a) extend the time for the performance of any of
the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance by
the other party with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby and no alteration,
modification or impairment will be implied by reason of any previous waiver,
extension of time, delay or omission on exercise or other indulgence.
SECTION 8.5 Fees, Expenses and Other Payments. (a)
Except as provided in Section 8.5(c), all Expenses (as defined in paragraph (b)
of this Section 8.5) incurred by the parties hereto shall be borne solely and
entirely by the party which has incurred such Expenses.
(b) "Expenses" as used in this Agreement shall
include all reasonable out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Information Statement, the communication
with stockholders and all other matters related to the closing of the
transactions contemplated herein.
(c) If this Agreement shall be terminated by
Buyer pursuant to Section 8.1(b) or by the Company pursuant to Section 8.1(c),
then the non-terminating party shall pay to the terminating party, in
consideration of the time, effort and resources expended in connection
herewith, an amount equal to the sum of $75,000, plus any fees or expenses
incurred by the non-terminating party in
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connection with the collection of such amount (the "Collection Expenses"). The
remedies set forth in this Section 8.5(c) shall be the sole and exclusive
remedy of a party in the event of termination of this Agreement as described
herein.
(d) Any payment required to be made pursuant to
Section 8.5(c) shall be made to Buyer not later than three business days after
delivery to the Company of notice of demand for payment and an itemization
setting forth in reasonable detail all Collection Expenses, if any, and shall
be made by wire transfer of immediately available funds to an account
designated by the Buyer in the notice of demand for payment delivered pursuant
to this Section 8.5(d).
ARTICLE 9
GENERAL PROVISIONS
SECTION 9.1 Effectiveness of Representations, Warranties
and Agreements. Except as may be limited as set forth in Article 7 and Section
8.2, the representations, warranties and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement, and shall survive until the first anniversary of
the date of this Agreement.
SECTION 9.2 Notices. Any notices required or permitted
to be given under the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile and
shall be effective five days after being placed in the mail, if mailed by
regular U.S. mail, or upon receipt, if delivered personally, by courier
(including a recognized overnight delivery service) or by facsimile, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
Kings Road Entertainment, Inc.
1901 Avenue of the Stars
Suite 1545
Los Angeles, California 90067
Attention: Kenneth I. Aguado
Fax: (310) 277-4468
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with a copy to:
Guth Rothman & Christopher LLP
10866 Wilshire Boulevard
Suite 1250
Los Angeles, California 90024
Attention: Theodore E. Guth, Esq.
Fax: (310) 470-8354
If to Buyer:
Morgan Kent Group, Inc.
545 Madison Avenue
14th Floor
New York, New York 10022
Attention: J. Gerald Combs
Fax: (212) 486-6972
with a copy to:
Werbel & Carnelutti
A Professional Corporation
711 Fifth Avenue
New York, New York 10022
Attention: Stephen M. Davis, Esq.
Fax: (212) 832-3353
Each party shall provide notice to the other party of any
change in address.
SECTION 9.3 Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties and their successors
and assigns. Neither the Company nor Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, Buyer may assign its rights hereunder to any of
its "affiliates" as that term is defined under the 1934 Act that it controls or
with respect to which it holds controlling voting or dispositive power, without
the consent of the Company. Notwithstanding the foregoing or anything else
contained herein to the contrary and in conformity with all applicable Laws,
the Stock may be pledged as collateral in connection with a bona fide margin
account or other lending arrangement.
SECTION 9.4 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.5 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless
- 26 -
<PAGE> 49
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.
- 27 -
<PAGE> 50
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]
- 28 -
<PAGE> 51
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
- 29 -
<PAGE> 52
SCHEDULE 2.3
Outstanding options to purchase shares of Common Stock: 83,125 (held by Kenneth
Aguado).
<PAGE> 53
SCHEDULE 2.5
The attached correspondence between NASDAQ and the Company is hereby
incorporated into this Schedule 2.5.
<PAGE> 54
SCHEDULE 2.7
None.
<PAGE> 55
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".
<PAGE> 56
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.
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).
-2-
<PAGE> 57
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.
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").
-3-
<PAGE> 58
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.
Agreement by and between Worldvision and the Company, dated May 13, 1991, as
amended September 27, 1991.
-4-
<PAGE> 59
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.
<PAGE> 60
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.
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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<PAGE> 61
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> 62
SCHEDULE 3.5
Subsidiaries of Buyer
Boundless Technologies, Inc.
<PAGE> 63
SCHEDULE 3.7
Conflicts
None
<PAGE> 64
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
<PAGE> 65
Kings Road Entertainment, Inc.
_________________, 1998
Page 2
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 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,
<PAGE> 66
Kings Road Entertainment, Inc.
_________________, 1998
Page 3
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.
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,
<PAGE> 67
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
<PAGE> 68
(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.
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
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<PAGE> 69
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 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
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<PAGE> 70
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 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
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<PAGE> 71
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 payments to Kings Road set
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<PAGE> 72
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;
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<PAGE> 73
(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 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
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<PAGE> 74
(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;
(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
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<PAGE> 75
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
to 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.
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<PAGE> 76
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.
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/series based 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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<PAGE> 77
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.
<PAGE> 78
Page 2 of 5
December 9, 1997
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.
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.
<PAGE> 79
Page 3 of 5
December 9, 1997
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.
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> 80
Page 4 of 5
December 9, 1997
EXHIBIT A
Officer's Certificate
(see attached document)
<PAGE> 81
Page 5 of 5
December 9, 1997
EXHIBIT B
Good Standing Certificates
(see attached documents)
<PAGE> 82
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> 83
PROXY KINGS ROAD ENTERTAINMENT, INC. PROXY
1901 Avenue of the Stars, Suite 1545
Los Angeles, California 90067
ANNUAL MEETING OF STOCKHOLDERS
April 16, 1998
The undersigned stockholder(s) of Kings Road Entertainment, Inc. (the
"COMPANY"), hereby appoints Kenneth I. Aguado with full power of substitution,
true and lawful attorney, agent and proxyholder of the undersigned, and hereby
authorizes him to represent and vote, as specified herein, all the shares of
Common Stock of the Company registered in the name of the undersigned at the
Annual Meeting of Stockholders, to be held at the principal office of the
Company at 1901 Avenue of the Stars, Suite 1545, Los Angeles, California, at
12:00 noon, local time, and at any and all adjournments or postponements
thereof.
1. APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK TO THE MORGAN KENT
GROUP, INC., WHICH WOULD PROVIDE SUCH ENTITY WITH APPROXIMATELY 53% OF THE
OUTSTANDING SHARES OF COMMON STOCK IMMEDIATELY UPON SUCH STOCK ISSUANCE. .
/ / FOR / / AGAINST / / ABSTAIN
2. APPROVAL OF THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
3. ELECTION OF TWO DIRECTORS: FOR all nominees WITHHOLD AUTHORITY to
listed below (ex- vote for any of the
cept as withheld nominees below / /
in the space pro-
vided below)/ /
NOMINEES: Martin Davidson and Kenneth Aguado
(INSTRUCTIONS: To withhold authority to vote for one or more nominees, write the
nominee's name on the following line. If the nominees for
Directors are elected and Proposal No. 3 is passed, the nominees
will fill the classes as described in the Proxy Statement, and a
vote for a nominee will constitute a vote to elect such nominee
to such class.)__________________________________________________
4. RATIFICATION OF APPOINTMENT OF THE ACCOUNTING FIRM OF STONEFIELD
JOSEPHSON ACCOUNTANCY CORPORATION AS INDEPENDENT AUDITORS OF THE COMPANY FOR
FISCAL YEAR 1998.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS NO. 1, 2, 3, AND 4.
5. IN THEIR DISCRETION, THE PROXYHOLDERS ARE AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
This proxy will be voted as specified herein. If no specification is
made, it will be voted FOR the election of the two nominees as Directors and FOR
Proposals No. 1, 2, 4 and 5.
----------------------------------------
Signature Date
----------------------------------------
Signature Date
NOTE: Please date and sign exactly as
your name appears to the left. If stock
is registered in the name of two or more
persons, each should sign. Executors,
administrators, trustees, guardians,
attorneys, and corporate officers should
show their full titles, if a
partnership, please sign in the
partnership name by an authorized
partner.
PLEASE COMPLETE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE IN TIME FOR THE
MEETING ON APRIL 16, 1998.
