UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 1, 2005
AGU Entertainment Corp.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
005-79752 84-1557072
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(Commission File Number) (IRS Employer Identification No.)
3200 West Oakland Park Blvd., Lauderdale Lakes, Florida 33311
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(Address of Principal Executive Offices) (Zip Code)
(954) 714-8100
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Forward-Looking Statements
This document may include a number of "forward-looking statements" as that
term is defined in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
reflect management's current views with respect to future events and financial
performance and include statements regarding management's intent, belief or
current expectations, which are based upon assumptions about future conditions
that may prove to be inaccurate. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance,
involve risk and uncertainties, and that as a result, actual results may differ
materially from those contemplated by such forward-looking statements. Such
risks include, among other things, the volatile and competitive markets in which
we operate, our limited operating history, our limited financial resources, our
ability to manage our growth and the lack of an established trading market for
our securities. When considering forward-looking statements, readers are urged
to carefully review and consider the various disclosures, including risk factors
and their cautionary statements, made by us in this document and in our reports
filed with the Securities and Exchange Commission.
Item 1.01 Entry into a Material Definitive Agreement.
Tarragon Agreement
On September 1, 2005, AGU Entertainment Corp. (the "Company") entered into
an agreement for purchase and sale, dated as of August 29, 2005 (the "Agreement
for Purchase and Sale"), with Tarragon South Development Corp. ("Tarragon")
pursuant to which the Company agreed to sell and Tarragon agreed to buy the
property located at 3200 West Oakland Park Boulevard in Lauderdale Lakes,
Florida (the "Lauderdale Property").Prior to this transaction, there were not
relationships between the Company and Tarragon.
Pursuant to the terms of the Agreement for Purchase and Sale, the purchase
price to be paid by Tarragon for the Lauderdale Property is $15 million with a
deposit of $1.5 million (the "Deposit") due to the escrow agent by September 7,
2005. In addition, Tarragon will have until November 1, 2005 to examine the
Lauderdale Property, and if for any reason Tarragon determines prior to that
date that it is not satisfied with its investigation, then prior to November 1,
2005, Tarragon must notify the Company and the escrow agent in writing. Upon
such notice from Tarragon, the Agreement for Purchase and Sale will
automatically terminate and the Deposit will be returned to Tarragon. After
November 1, 2005, the Deposit in non-refundable.
Pursuant to the terms of the Agreement for Purchase and Sale, the closing
date is scheduled to be December 31, 2005. If the transaction fails to close to
due to a default on the part of Tarragon, the Deposit will be delivered by the
escrow agent to the Company as liquidated damages, and if the transaction fails
to close due to a default on the part of the Company, at the option of Tarragon,
the Deposit will be returned to Tarragon. Any such return will not limit
Tarragon's right to maintain an action for specific performance by the Company.
In connection with the Agreement for Purchase and Sale, on September 1,
2005 the Company also entered into a side letter, dated August 29, 2005 (the
"Side Letter") with Tarragon pursuant to which Tarragon agreed to loan $2.5
million (the "Loan") to the Company to be advanced as follows: (i) one tranche
in the aggregate amount of $750,000 to be released from escrow upon satisfaction
of the conditions described below; (ii) a second tranche in the aggregate amount
of no more than $750,000 to be advanced, subject to the terms of the documents
evidencing the Loan, no later than October 1, 2005; and (iii) a third tranche in
the aggregate amount of no more than $1.0 million to be advanced, subject to the
terms of the documents evidencing the Loan, no later than November 1, 2005. The
conditions to advancing the Loan amounts are as follows: (i) payment by the
Company of all costs associated the Loan; (ii) absence of defaults under the
Loan; (iii) Tarragon's receipt of the title insurance insuring the lien of
Tarragon's mortgage on the Lauderdale Property; (iv) receipt of an ALTA survey
of the Lauderdale Property certified to Tarragon; (v) receipt of insurance for
the Lauderdale Property, naming Tarragon as an additional insured, in amounts
and from companies as are reasonably acceptable to Tarragon; (vi) receipt of
documentation evidencing the authority of the Company to execute the documents
evidencing the Loan, including an opinion of counsel as to the enforceability of
the documents evidencing the Loan; and (vii) any other conditions as may be
reasonable and customary, including approval from the first and second
mortgagees. The Company may also be required to obtain shareholder approval for
the sale of the Lauderdale Property.
Pursuant to the terms of the Side Letter, the Loan will accrue interest at
a rate per annum of 6.5% with interest due and payable monthly; provided
however, in the event that no event of default exists, the interest will be
deferred and paid upon the maturity of the Loan. The Loan will mature no later
than a date that is earlier to occur of (i) the date of closing of the purchase
and sale and (ii) December 23, 2005. In addition, the Loan will be secured by a
third mortgage on the Lauderdale Property.
Consulting Agreement
On September 1, 2005, the Company entered into a consulting agreement,
dated as of August 31, 2005 (the "Consulting Agreement"), with DKK-RK
Enterprises, Inc. ("DKK") pursuant to which the Company retained DKK as a
non-exclusive business consultant to provide financial advisory services.
Pursuant to the terms of the Consulting Agreement, the Company will pay DKK
approximately $97,000 on December 15, 2005 and grant DKK warrants to purchase up
to 550,000 shares of the Company's common stock upon the following terms: (i)
warrants to purchase 100,000 shares of common stock at an exercise price of
$2.00 per share for one year; (ii) warrants to purchase 200,000 shares of common
stock at an exercise price of $3.00 per share for one year; (iii) warrants to
purchase 100,000 shares of common stock at an exercise price of $4.00 per share
for two years; and (iv) warrants to purchase 150,000 shares of common stock at
an exercise price of $5.00 per share for two years. The term of the Consulting
Agreement expires on September 1, 2006 and either party has the right to
terminate the Consulting Agreement prior to such expiration date by furnishing
the other party with a 30-day written notice of termination. DKK-RK Enterprises,
Inc., is a company owned by Robert Kast, who is a shareholder and creditor of
the Company. The consulting agreement requires that the warrants be issued to
DKK but the warrants are issued to David Kast. The agreement should be amended
or there should be an acknowledgement by Kast that the warrants issued to him
are in satisfaction of this requirement. Please advise how this discrepancy will
be handled.
Robert Kast Letter Agreement
On September 2, 2005, the Company entered into a letter agreement (the
"Letter Agreement") with Robert Kast relating to a $150,000 promissory note
previously issued to Robert Kast with an initial maturity date of May 31, 2005.
Pursuant to the terms of the Letter Agreement, Robert Kast agreed to extend the
maturity of the note to December 15, 2005 from May 31, 2005.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
Robert Kast Note
On September 1, 2005, the Company issued a promissory note in the
aggregate principal amount of $500,000, dated August 31, 2005 (the "Robert Kast
Note"), to Robert Kast, a creditor and a shareholder of the Company. The Robert
Kast Note accrues interest at a fixed annual rate of 6.0% and matures on
December 15, 2005. Pursuant to the terms of the Robert Kast Note, the Company
must make the following payments of principal: (i) $200,000 on September 10,
2005; (ii) 200,000 on October 10, 2005; and (iii) $100,000 on November 10, 2005.
The interest on the outstanding principal balance of the Robert Kast Note
accrues interest monthly beginning on August 31, 2005 through December 15, 2005.
Pursuant to the terms of the Robert Kast Note, if any required payment,
including the final payment due on December 15, 2005, is not paid within 15 days
from its due date, all past due amounts will be subject to a late penalty of
$.05 on every dollar outstanding. In addition, if the Company fails to pay
principal and/or interest on the date on which it is due, Robert Kast may, at
his option, declare immediately due and payable the entire unpaid balance of
principal with interest from the date of default at the rate of 12% per year.
Daniel and Lenore Kast Note
On September 1, 2005, the Company issued a promissory note in the
aggregate principal amount of $200,000, dated August 31, 2005 (the "Kast Note")
to Daniel and Lenore Kast. Daniel and Lenore Kast are the parents of Robert Kast
who is a shareholder and creditor of the Company. The Kast Note accrues interest
at a fixed annual rate of 6.0% and matures on September 15, 2005. The interest
on the outstanding principal balance of the Robert Kast Note accrues interest
monthly beginning on August 31, 2005 through September 15, 2005. Pursuant to the
terms of the Kast Note, if any required payment, including the final payment due
on September 15, 2005, is not paid within 15 days from its due date, all past
due amounts will be subject to a late penalty of $.05 on every dollar
outstanding. In addition, if the Company fails to pay principal and/or interest
on the date on which it is due, Daniel and Lenore Kast may, at their option,
declare immediately due and payable the entire unpaid balance of principal with
interest from the date of default at the rate of 12% per year.
In connection with the issuance of the Kast Note, the Company also issued
warrants to purchase 200,000 restricted shares of the Company's common stock at
an exercise price of $2.00 per share (the "Kast Warrant") to Daniel and Lenore
Kast. The Kast Warrant is exercisable until August 31, 2007.
Use of Proceeds
The Company used a portion of the proceeds from the Robert Kast Note and
the Kast Note to make a payment of $564,000 on a $3.0 million note issued to
Mitchell Entertainment Company (the "Mitchell Note") in connection with the
Company's purchase of the Lauderdale Property. The Mitchell Note is secured by a
second mortgage on the Lauderdale Property and substantially all of the
Company's other assets. On August 11, 2005, the Company entered into two letter
agreements with the holder of the Mitchell Note pursuant to which the holder
agreed that the amount due on August 1, 2005 under the Mitchell Note would be
deferred until September 1, 2005. See the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 2005 filed with the Securities and
Exchange Commission on August 19, 2005 for additional information regarding the
Mitchell Note.
The terms of the Robert Kast Note and Kast Note require principal payments
on September 10th and September 15th, 2005 of $200,000 and $200,000,
respectively. There can be assurances that the Company will have the funds
ability to make these payments.
Side Letter
See the disclosure above in Item 1.01 under the heading "Tarragon
Agreement" regarding the Side Letter.
Item 2.05 Costs Associated with Exit or Disposal Activities.
See the disclosure above in Item 1.01 under the heading "Tarragon
Agreement" regarding the sale of the Lauderdale Property.
The Board of Directors and management determined that it was in the best
interest of the shareholders to abandon the AGU Studios concept and use the
proceeds from the sale of the property to alleviate the Company's liquidity
crisis, retire currently maturing debt, and provide additional funds for working
capital. The Board of Directors and management believe that selling the property
and focusing on the core businesses, the Tube Music Network Inc., and AGU Music,
Inc., will attract additional investors to the Company.
The Company is currently unable to accurately predict the costs necessary
to satisfy the conditions for obtaining the financing in connection with the
Side Letter, or the costs of relocating its continuing operations from the
Lauderdale Property into a replacement facility. However, the Company believes
that adequate proceeds will be available from the sale of the property to
satisfy all of the mortgage liens, provide for any taxes on the sale, and
provide working capital to continue the Company's strategic business plan.
The Company will amend its Current Report on Form 8-K promptly when it has
determined the reasonable cost estimates associated with the sale of the
Lauderdale Property.
Item 3.02 Unregistered Sales of Equity Securities.
The Company issued warrants to purchase 750,000 shares of restricted
common stock in connection with the matters described above. See the disclosure
in Items 1.01 and 2.03 above. The Company maintains that the issuance of the
securities is exempt under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon Regulation D promulgated thereunder as a
transaction by an issuer not involving a public offering.
No underwriters were employed in the transactions. The securities will be
deemed restricted securities for purposes of the Securities Act.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
10.1 Agreement for Purchase and Sale, dated as of August 29, 2005,
by and between AGU Entertainment Corp. and Tarragon South
Development Corp. (includes the Side Letter)
10.2 Consulting Agreement, dated as of August 31, 2005, by and
between AGU Entertainment Corp. and DKK-RK Enterprises, Inc.
10.3 Letter Agreement, dated September 2, 2005, by and between AGU
Entertainment Corp., The Tube Music Network, Inc. and AGU
Music Inc. and Robert Alan Kast.
10.4 $500,000 Promissory Note, dated August 31, 2005, issued to
Robert Alan Kast by AGU Entertainment Corp.
10.5 $200,000 Promissory Note, dated August 31, 2005, issued to
Daniel K. Kast and Lenore S. Kast by AGU Entertainment Corp.
10.6 Warrant to subscribe for 100,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.7 Warrant to subscribe for 200,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.8 Warrant to subscribe for 100,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.9 Warrant to subscribe for 150,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.10 Warrant to subscribe for 200,000 shares of common stock of AGU
Entertainment Corp. issued to Daniel K. Kast and Lenore S.
Kast.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 8, 2005 AGU ENTERTAINMENT CORP.
By: /s/ John W. Poling
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Name: John W. Poling
Title: Chief Financial Officer
EXHIBIT INDEX
10.1 Agreement for Purchase and Sale, dated as of August 29, 2005,
by and between AGU Entertainment Corp. and Tarragon South
Development Corp. (includes the Side Letter)
10.2 Consulting Agreement, dated as of August 31, 2005, by and
between AGU Entertainment Corp. and DKK-RK Enterprises, Inc.
10.3 Letter Agreement, dated September 2, 2005, by and between AGU
Entertainment Corp., The Tube Music Network, Inc. and AGU
Music Inc. and Robert Alan Kast.
10.4 $500,000 Promissory Note, dated August 31, 2005, issued to
Robert Alan Kast by AGU Entertainment Corp.
10.5 $200,000 Promissory Note, dated August 31, 2005, issued to
Daniel K. Kast and Lenore S. Kast by AGU Entertainment Corp.
10.6 Warrant to subscribe for 100,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.7 Warrant to subscribe for 200,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.8 Warrant to subscribe for 100,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.9 Warrant to subscribe for 150,000 shares of common stock of AGU
Entertainment Corp. issued to Robert Alan Kast.
10.10 Warrant to subscribe for 200,000 shares of common stock of AGU
Entertainment Corp. issued to Daniel K. Kast and Lenore S.
Kast.