EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
by and among
VIDEO CITY, INC.,
XXXXXX X. XXXXXXX,
THE XXXXXXX FAMILY TRUST
and
THE XXXXXXX FAMILY PARTNERSHIP
Dated as of July 3, 1998
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of July 3, 1998, is by and among
VIDEO CITY, INC., a Delaware corporation ("VCI"), XXXXXX X. XXXXXXX ("Xxxxxxx"),
THE XXXXXXX FAMILY TRUST, a Nevada trust (the "Xxxxxxx Trust"), and THE XXXXXXX
FAMILY PARTNERSHIP, a Nevada limited partnership (the "Xxxxxxx Partnership"),
with reference to the following facts:
A. The Xxxxxxx Trust and the Xxxxxxx Partnership (collectively, the
"Selling Shareholders") own all of the outstanding shares of capital stock of
Video Tyme, Inc., a Nevada corporation ("Video Tyme").
X. Xxxxxxx is the principal founder and President of Video Tyme, and is
a co-trustee of the Xxxxxxx Trust and a general partner of the Xxxxxxx
Partnership.
X. Xxxxxxx and the Selling Shareholders desire to sell to VCI, and VCI
desires to purchase from the Selling Shareholders, all of the outstanding shares
of capital stock of Video Tyme upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
I.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, and in the masculine or feminine gender,
depending upon the reference.
"Action" shall mean any action, order, writ, injunction, judgment or
------
decree outstanding or any claim, suit, litigation, proceeding, labor dispute,
arbitral action, governmental audit or investigation.
"Affiliate" shall mean, with respect to any Person, a Person that
---------
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreement" shall mean this Stock Purchase Agreement, together with
---------
all schedules (including the Disclosure Schedule) and exhibits referenced
herein.
1.
"Alternative Transaction" shall mean, with respect to any Person, any
-----------------------
merger, consolidation, sale of substantial assets, sale of shares of capital
stock or other equity securities, recapitalization, debt restructuring or
similar transaction involving such Person or any of its subsidiaries or any
divisions, other than as contemplated by this Agreement.
"Assets" shall mean those assets and properties owned by Video Tyme,
------
or in which Video Tyme has any right, title or interest of any kind and
description as of the Closing Date, except as set forth in the Disclosure
Schedule.
"Books and Records" shall mean all books and records, stock transfer
-----------------
books, minute books, copies of outstanding stock certificates, ledgers, employee
records, customer lists, files, correspondence, and other written records of
every kind.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
the rules and regulations thereunder.
"Contracts" shall mean all executory agreements, contracts, leases,
---------
commitments, evidences of indebtedness, letters of credit, franchise agreements,
purchase agreements and purchase orders, whether oral or written.
"Disclosure Schedule" shall mean, collectively, the schedules attached
-------------------
hereto and delivered by the parties as of the date hereof which set forth the
exceptions to the representations and warranties contained in Articles III and
IV hereof and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule. Any information disclosed on a particular schedule on the Disclosure
Schedule or subparts thereof shall be deemed disclosed on any and all schedules.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
-----------
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance, restriction or other right of third parties, whether voluntarily
incurred or arising by operation of law, and includes, without limitation, any
agreement to give any of the foregoing in the future, and any contingent sale or
other title retention agreement or lease in the nature thereof, except liens for
current taxes, assessments, governmental charges or levies on property not yet
due and payable.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
the same may be amended from time to time.
2.
"ERISA Affiliate" shall mean any entity that is a member of a group of
---------------
which Video Tyme is a member and which is under common control with Video Tyme,
within the meaning of the regulations promulgated under Section 414 of the Code.
"ERISA Plans" shall mean, collectively, all Pension Plans and all
-----------
Welfare Plans.
"Marks" means all registered and unregistered trademarks, service
-----
marks, trade names, and slogans, all applications therefor, and all goodwill
associated therewith.
"Material" shall mean, unless otherwise specifically defined herein,
--------
any amounts of $15,000 or more as to Video Tyme, and any amounts of $100,000 or
more as to VCI, except that where the context requires, "material" shall mean an
effect resulting in loss, liability, payment, damage or expense of $15,000 or
more in the case of Video Tyme, and $100,000 or more in the case of VCI.
"Material Adverse Change" means a material adverse change in the
-----------------------
business, assets, financial condition or results of operations of Video Tyme or
its business which involves a loss or exposure of more than $15,000, or of VCI
or its business which involves a loss or exposure of more than $100,000.
"Pension Plan" shall mean any employee pension benefit plan within
------------
the meaning of Section 3(2) of ERISA.
"Permits" shall mean all licenses, permits, orders, consents,
-------
approvals, registrations, authorizations, qualifications and filings under all
federal, state, local or foreign laws with governmental or regulatory bodies, or
any other Person.
"Person" shall mean an individual, a partnership, a limited liability
------
company, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof or any other
entity.
"Representative" shall mean any officer, director, principal,
--------------
attorney, accountant, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Tax" or "Taxes" shall mean any federal, state, local, foreign or
--- -----
other tax, levy, impost, fee, assessment or other government charge, including
without limitation income, estimated income, business, occupation, franchise,
property, payroll, personal property, sales, transfer, use, import duty,
employment,
3.
commercial rent, occupancy, franchise or withholding taxes, and any
premium, including without limitation interest, penalties and additions in
connection therewith.
"VCI Common Stock" shall mean shares of common stock, $0.01 par value
----------------
per share, of VCI.
"VCI Documents" shall mean this Agreement and any other documents,
-------------
instruments or certificates to be delivered by VCI in connection with this
Agreement.
"Video Tyme Common Stock" shall mean shares of common stock, no par
-----------------------
value per share, of Video Tyme.
"Video Tyme Disclosure Schedules" shall mean all Disclosure Schedules
-------------------------------
delivered by Xxxxxxx or the Selling Shareholders pursuant to this Agreement.
"Video Tyme Documents" shall mean this Agreement and any other
--------------------
documents, instruments or certificates to be delivered by Xxxxxxx or the Selling
Shareholders in connection with this Agreement.
"Video Tyme Intangible Property" means all intangible property owned
------------------------------
by Video Tyme or in which Video Tyme has any interest (including the right to
use) or owned by any Selling Shareholder and used in Video Tyme's business
(other than intangible property owned by third parties and available generally
for commercial license from others), including without limitation, (i) Video
Tyme's name and all Marks; (ii) all statutory, common law and registered
copyrights and mask work rights, and all applications for the registration
thereof; (iii) all patents and applications therefor; (iv) all software; (v) all
other inventories, discoveries, improvements, processes, formulae (secret or
otherwise), trade secrets, information, know-how and ideas (including those in
the possession of third parties, but that are the property of Video Tyme); and
(vi) all technical documentation relating thereto.
"Welfare Plan" shall mean any employee welfare benefit plan within
------------
the meaning of Section 3(1) of ERISA.
I.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
Term Section
---- --------
Basket Amount 11.4
Claim 11.5
Closing 2.3(a)
Closing Date 2.3(a)
Losses 11.2
4.
Term Section
---- --------
Noncompetition Agreement 6.5
Purchase Price 2.2(a)
Termination Date 6.1
VCI Indemnified Parties 11.2
Video Tyme Balance Sheet 3.8(b)
Video Tyme Consents 3.7
Video Tyme Financial Statements 3.8(a)
Video Tyme Indemnified Parties 11.3
Video Tyme Permits 3.14
ARTICLE II
PURCHASE AND SALE OF STOCK
--------------------------
II.1 Purchase and Sale. Upon the terms and subject to the conditions set
-----------------
forth herein, each of the Selling Shareholders agrees to sell to VCI, and VCI
agrees to purchase from the Selling Shareholders, all of the outstanding shares
of capital stock of Video Tyme, free and clear of all Encumbrances, at the
Closing.
II.2 Purchase Price.
--------------
(a) The aggregate purchase price (the "Purchase Price") for all of the
outstanding shares of capital stock of Video Tyme shall consist of the
following:
(i) 875,000 shares of VCI Common Stock; and
(ii) cash in the amount of $1,760,000 reduced by (x) the total amount of
all debt and liabilities of Video Tyme immediately prior to the Closing Date and
(y) the total amount of dollar reduction, if any, called for by Section 2.5
below.
(b) Of the amount of the Purchase Price in cash to be delivered
pursuant to Section 2.2(a)(ii), cash in the amount of $1,670,000 shall be
delivered on the Closing Date. The remainder of the Purchase Price in cash
shall be delivered not later than 75 days after the Closing Date, reflecting the
adjustments described in Sections 2.2(a)(ii) and 2.5; and if the total amount of
all debt and liabilities of Video Tyme immediately prior to the Closing Date and
the reduction (if any) under Section 2.5 exceed $90,000, so that no remaining
amount of cash is required to be delivered by VCI to the Selling Shareholders,
then the Selling Shareholders shall return to VCI, no later than 75 days after
the Closing Date, cash equal to the amount of which the total amount of all debt
and liabilities of Video Tyme immediately prior to the Closing Date and the
reduction (if any) under Section 2.5 exceeds $90,000.
5.
II.3 The Closing.
-----------
(a) Subject to the terms and conditions of this Agreement, the closing
of the transactions contemplated by this Agreement (the "Closing") shall be held
at the offices of Xxxx & Xxxxx Professional Corporation, 0000 Xxxxxxx Xxxx Xxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or at such other place as the parties
may agree (the day on which the Closing takes place being the "Closing Date").
(b) At the Closing, the Selling Shareholders shall deliver or cause to
be delivered to VCI stock certificates representing all of the issued and
outstanding shares of Video Tyme Common Stock, free and clear of all
Encumbrances, duly endorsed in blank or accompanied by stock powers duly
executed in blank, and VCI shall deliver or cause to be delivered to the Selling
Shareholders (i) stock certificates representing 875,000 shares of VCI Common
Stock, duly endorsed in the name of the Selling Shareholders and registered at
the address of the Selling Shareholders identified in Section 12.2 hereof, and
(ii) cash in the amount of $1,670,000 by bank cashiers check or by wire transfer
in immediately available funds, to an account or accounts designated at least
five business days prior to the Closing Date by the Selling Shareholders in a
written notice to VCI. At the Closing, certificates representing shares of VCI
Common Stock will bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SAID ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE IN THE OPINION OF
COUNSEL FOR THE ISSUER."
II.4 Reimbursable and Pro Rata Expenses; Cash and Accounts Receivable.
----------------------------------------------------------------
Except as otherwise provided in this Agreement, all rent payments, insurance
premiums and utility payments (but not utility deposits or lease deposits) made
by Video Tyme and covering time periods in which the Closing occurs shall be
prorated as of the Closing Date; and VCI shall cause Video Tyme to pay to
Xxxxxxx or the Selling Shareholders the amount, if any, by which such payments
made prior to the Closing which are applicable to periods following the Closing
exceed such payments that are made after the Closing and are allocable to
periods prior to the Closing; or, conversely, Xxxxxxx and the Selling
Shareholders shall pay to Video Tyme the amount, if any, by which such payments
made after the Closing for expenses allocable to periods prior to the Closing
exceed the amounts paid by Video Tyme prior to the Closing for expenses
allocable to periods following the Closing. Any amounts of cash remaining at
Video Tyme's video stores or at Video Tyme's corporate office immediately after
the Closing shall be deemed to be the assets of the Selling Shareholders and
shall be credited to the Selling Shareholders. All amounts of accounts
receivable of Video Tyme
6.
accrued before, but uncollected by Video Tyme as of, the Closing Date shall be
credited by Video Tyme to the Selling Shareholders after the Closing Date to the
extent and only to the extent such amounts of accounts receivable are collected
by Video Tyme after the Closing Date.
II.5 Inventory. An itemized physical inventory of Video Tyme's
---------
videocassettes shall be taken by VCI or its representatives. In the event such
inventory as of the Closing Date shows that the number of videocassettes on hand
is less than the number in Video Tyme's inventory as of April 1, 1998, the
amount of cash payable pursuant to Section 2.2(a)(ii) of this Agreement as part
of the Purchase Price shall be reduced by an amount equal to $10.00 multiplied
by the number of videocassettes less than the number of videocassettes in Video
Tyme's inventory as of April 1, 1998. There shall be no increase in the amount
of cash payable pursuant to Section 2.2(a)(ii) of this Agreement as part of the
Purchase Price if the number of videocassettes on hand as of the Closing Date is
greater than the number of videocassettes in Video Tyme's inventory as of April
1, 1998.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF XXXXXXX
-----------------------------------------
AND THE SELLING SHAREHOLDERS
----------------------------
Subject to the exceptions set forth in the Video Tyme Disclosure Schedules,
Xxxxxxx and each of the Selling Shareholders hereby represent and warrant to VCI
that:
III.1 Formation, Existence and Power. Video Tyme is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Nevada and has all corporate power and authority and all governmental licenses,
authorizations, consents and approvals required to carry on its business and
operations as now conducted. The Xxxxxxx Trust is a trust duly formed, validly
existing and in good standing under the laws of the State of Nevada. The
Xxxxxxx Partnership is a limited partnership duly formed, validly existing and
in good standing under the laws of the State of Nevada.
III.2 Authorization. The execution, delivery and performance by the
-------------
Xxxxxxx Trust of this Agreement and all of the other Video Tyme Documents and
the consummation by the Xxxxxxx Trust of the transactions contemplated hereby
and thereby are within the powers of the Xxxxxxx Trust, and the co-trustees of
the Xxxxxxx Trust have the power and authority to bind the Xxxxxxx Trust under
the terms of the applicable trust document with respect to this Agreement and
all of the other Video Tyme Documents and the consummation by the Xxxxxxx Trust
of the transactions contemplated hereby and thereby. The execution, delivery
and performance by the Xxxxxxx Partnership of this
7.
Agreement and all of the other Video Tyme Documents and the consummation by the
Xxxxxxx Partnership of the transactions contemplated hereby and thereby are
within the powers of the Xxxxxxx Partnership, and the general partners of the
Xxxxxxx Partnership have the power and authority to bind the Xxxxxxx Partnership
under the terms of the applicable partnership agreement with respect to this
Agreement and all of the other Video Tyme Documents and the consummation by the
Xxxxxxx Partnership of the transactions contemplated hereby and thereby. This
Agreement is, and as of the Closing Date the other Video Tyme Documents shall
be, the legal, valid and binding obligations of each of the Xxxxxxx Trust and
the Xxxxxxx Partnership, enforceable against each of the Xxxxxxx Trust and the
Xxxxxxx Partnership in accordance with their respective terms.
III.3 Governmental Authorization. The execution, delivery and performance
--------------------------
by each of the Xxxxxxx Trust and the Xxxxxxx Partnership of this Agreement and
the other Video Tyme Documents require no action by or in respect of, or filing
with, any governmental body, agency, official or authority.
III.4 Non-Contravention. The execution, delivery and performance by each
-----------------
of the Xxxxxxx Trust and the Xxxxxxx Partnership of this Agreement and the other
Video Tyme Documents do not and will not (i) contravene or conflict with the
Articles of Incorporation or Bylaws of Video Tyme, (ii) contravene or conflict
with the applicable trust documents or the applicable partnership agreements of
the Xxxxxxx Trust or the Xxxxxxx Partnership, (iii) contravene or conflict with
or constitute a violation of any provision of any law, statute, rule,
regulation, judgment, injunction, order, writ or decree binding upon or
applicable to Video Tyme or any part of its business, or binding upon or
applicable to the Xxxxxxx Trust or the Xxxxxxx Partnership, (iv) assuming the
obtaining of all Video Tyme Consents (as hereinafter defined), constitute a
default under or breach of, or violate or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Video Tyme, or to a
loss of any benefit relating to its business or operations to which Video Tyme
is entitled under any provision of any Contract to which Video Tyme is a party
or by which any of its assets is or may be bound, or (v) result in the creation
or imposition of any Encumbrance on any of Video Tyme's assets.
III.5 Video Tyme Capitalization. The authorized capital stock of Video
-------------------------
Tyme consists solely of 2,500 shares of Video Tyme Common Stock, of which 1,000
shares are issued and outstanding. Of the 1,000 shares of issued and
outstanding Video Tyme Common Stock, 600 shares are owned by the Xxxxxxx Trust
and 400 shares are owned by the Xxxxxxx Partnership. The Xxxxxxx Trust and the
Xxxxxxx Partnership own, and are the record holders of, all of the outstanding
shares of capital stock of Video Tyme. All such outstanding shares are duly
authorized, validly issued, fully
8.
paid and non-assessable. All outstanding shares of Video Tyme Common Stock have
been issued in compliance with all federal and state securities laws and are not
subject to any rights or obligations that require the registration of such
shares. Except as set forth on Schedule 3.5, there are no outstanding options,
warrants or other rights in or with respect to any shares of Video Tyme Common
Stock or any securities convertible into such stock, and Video Tyme is not
obligated to issue any additional shares of Video Tyme Common Stock or any
options, warrants or other rights to acquire stock or any other securities
convertible into such stock.
III.6 Subsidiaries. Video Tyme does not own, directly or indirectly,
------------
securities or other ownership interests in any other entity, nor is Video Tyme a
party to any agreement relating to the formation of any other entity or joint
venture.
III.7 Consents. Schedule 3.7 sets forth each Contract of Video Tyme and
--------
each of the Video Tyme Permits (as hereinafter defined) that requires a consent,
approval, authorization, order or other action of or filing with any Person as a
result of the execution, delivery and performance of this Agreement or any of
the other Video Tyme Documents or the consummation of the transactions
contemplated hereby or thereby (each of the foregoing, a "Video Tyme Consent").
III.8 Financial Statements.
--------------------
(a) Video Tyme has delivered to VCI unaudited financial statements of
Video Tyme consisting of statements of operations for the years ended October
31, 1995, 1996 and 1997 and the seven months ended May 31, 1998, and balance
sheets as of October 31, 1997 and May 31, 1998 (collectively, the "Video Tyme
Financial Statements"). The Video Tyme Financial Statements fairly present, in
conformity with general accepted accounting principles applied on a consistent
basis, the financial position of Video Tyme as of the dates thereof and the
results of operations of Video Tyme for the periods then ended.
(b) Except for (i) those liabilities specifically reflected or
reserved against on the Video Tyme balance sheet as of May 31, 1998 (the "Video
Tyme Balance Sheet"), (ii) those current liabilities for trade or business
obligations incurred since May 31, 1998 in connection with the purchase of goods
or services in the ordinary course of Video Tyme's business and consistent with
past practices (none of which is, individually or in the aggregate, material and
none of which is for breach of contract, breach of warranty, tort or
infringement), (iii) those liabilities arising under any Contract (none of which
liabilities is for breach of contract, breach of warranty, tort or infringement)
or (iv) those matters otherwise disclosed on Schedule 3.8 (none of which
liabilities, except as stated in a
9.
Schedule hereto, is for breach of contract, breach of warranty, tort or
infringement), Video Tyme does not have, as of the date hereof, any direct or
indirect indebtedness, liabilities, claims, losses, damages, deficiencies,
obligations (including, without limitation, the obligation to indemnify any
other Person for any liabilities or expenses which have been or may in the
future be incurred by or asserted against such other Person, or
responsibilities, known or unknown, liquidated or unliquidated, accrued,
absolute, contingent or otherwise, and whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement), which individually or in the aggregate are material to the condition
(financial or otherwise), assets, liabilities, business or operations of Video
Tyme. To the best knowledge of Video Tyme, there are no circumstances,
conditions, events or arrangements which may hereafter give rise to any
liabilities of Video Tyme except in the ordinary course of business or as
otherwise set forth in this Section 3.8 or in a Schedule to this Agreement.
III.9 Absence of Certain Changes. Except as set forth on Schedule 3.9,
--------------------------
since May 31, 1998, Video Tyme has conducted its business in the ordinary course
consistent with past practices, and there has not been:
(a) any Material Adverse Change or any event, occurrence, development
or state of circumstances or facts which could reasonably be expected to result
in a Material Adverse Change;
(b) any dividend or other distribution declared or paid with respect
to any of the Video Tyme Common Stock;
(c) any loan or forgiveness of indebtedness to any holder of Video
Tyme Common Stock or any Affiliate thereof;
(d) any bonus, salary or other compensation paid or agreed to be paid
to any employee except in accordance with Schedule 3.17 hereto;
(e) any incurrence of indebtedness for borrowed money;
(f) any creation or other incurrence of any Encumbrance on any of its
assets;
(g) any transaction, Contract entered into, or commitment made, by
Video Tyme relating to its business, operations or any of its assets (including
the acquisition or disposition of any assets) or any relinquishment by Video
Tyme of any contract or other right, in either case other than transactions and
commitments in the ordinary course of business consistent with past practices
and those contemplated by this
10.
Agreement (other than payments of compensation); or
(h) any transfer of any assets of Video Tyme to any Person who is a
shareholder or other Affiliate of Video Tyme.
III.10 Title to Assets. Video Tyme has good and marketable title to the
---------------
Assets owned or stated to be owned by Video Tyme, free and clear of all
Encumbrances except: (i) as set forth in the Video Tyme Financial Statements,
(ii) Encumbrances for current taxes not yet due, (iii) Encumbrances incurred in
the ordinary course of business, (iv) Encumbrances that are not substantial in
character, amount or extent (individually or collectively) and that do not
(individually or collectively) materially detract from the value, or interfere
with present use, of the property subject thereto or affected thereby, or
otherwise materially impair the conduct of business of Video Tyme, or (v) as set
forth on Schedule 3.10. All of the material properties and assets used by Video
Tyme or held by Video Tyme, other than any leased assets listed on Schedule
3.10, are owned by Video Tyme, free and clear of any Encumbrances except as set
forth on Schedule 3.10.
III.11 Real Property. Schedule 3.11 sets forth a true and complete list of
-------------
all leaseholds owned by Video Tyme. Video Tyme has valid leasehold interest in
such leaseholds, free and clear of all Encumbrances, except: (i) for rights of
lessors and such matters that are reflected in the relevant lease, (ii) current
Taxes not yet due and payable, (iii) Encumbrances of public record, (iv)
Encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property, and (v) as set forth
on Schedule 3.11.
III.12 Litigation. Other than as set forth on Schedule 3.12, there is no
----------
action, suit, investigation, hearing or proceeding pending against or, to the
best knowledge of Video Tyme, threatened against or affecting, Video Tyme, any
of its officers, directors, or shareholders, its business or any assets or any
Contract before any court or arbitrator or any governmental body, agency
official, which would have a Material Adverse Effect, or in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement. There are no outstanding judgments against Video
Tyme.
III.13 Contracts. Each Contract of Video Tyme is a valid and binding
---------
agreement of Video Tyme, and is in full force and effect, and Video Tyme is not
in default (whether with or without the passage of time or the giving of notice
or both) under the terms of any such Contract. Video Tyme has not assigned,
delegated, or otherwise transferred any of its rights or obligations with
respect to any Contracts, or granted any
11.
power of attorney with respect thereto. Schedule 3.13 is a true and correct list
of all Contracts involving an outstanding monetary obligation greater than
$25,000 or with a remaining term greater than one year.
III.14 Licenses and Permits. Schedule 3.14 correctly lists each material
--------------------
license, franchise, permit or other similar authorization affecting, or relating
in any way to Video Tyme's business, together with the name of the governmental
agency or entity issuing such license or permit (the "Video Tyme Permits"). The
Video Tyme Permits are valid and in full force and effect and, assuming the
related Video Tyme Consents have been obtained prior to the Closing, will not be
terminated or impaired or become terminable as a result of the transactions
contemplated by this Agreement.
III.15 Compliance with Laws. Video Tyme is not in material violation of,
--------------------
has not violated, and is neither under investigation with respect to nor has
been threatened to be charged with or given notice of any violation of, any law,
rule, statute, ordinance or regulation, or judgment, order or decree entered by
any court, arbitrator or governmental authority, domestic or foreign, materially
applicable to Video Tyme's assets or the conduct of its business.
III.16 Intangible Property.
-------------------
(a) Schedule 3.16 sets forth all material Video Tyme Intangible
Property and identifies each material contract to which Video Tyme is a party
relating to any item of Video Tyme Intangible Property. No Contract requires
Video Tyme to (or will require VCI to) pay any material royalty, license fee, or
other compensation with respect to the Video Tyme Intangible Property. Except
as set forth on Schedule 3.16, no Video Tyme Intangible Property development was
funded by a third Person (other than the Selling Shareholders or any person with
an interest in any of the Selling Shareholders) or was conducted by or as a
joint venture, in partnership, or otherwise in collaboration, with any other
Person (except an employee solely in his or her capacity as such). The
transactions contemplated hereby will not adversely affect in any manner any
item or part of the Video Tyme Intangible Property or the nature or usefulness
thereof in the hands of VCI.
(b) All Video Tyme Intangible Property and all federal, state and
foreign registrations with respect thereto, and all applications therefor are
valid and in full force and effect and are not subject to any taxes, maintenance
fees or actions.
(c) None of the Video Tyme Intangible Property which is purportedly
an asset of Video Tyme was developed or conceived
12.
by any Video Tyme employee, officer or director while employed by any other
Person and no Selling Shareholder has violated any agreement with any former
employer which pertains to any of such property.
III.17 Employees.
---------
(a) Schedule 3.17 sets forth a true and complete list of the names,
titles, annual salaries or wage rates and other compensation and office location
of all employees of Video Tyme, indicating part-time and full-time employment,
and all changes in salaries and wage rates per employee since October 31, 1997.
(b) Except as set forth on Schedule 3.17, Video Tyme is not a party
to or subject to any employment contract, consulting agreement, collective
bargaining agreement, confidentiality agreement restricting the activities of
Video Tyme, non-competition agreement restricting the activities of Video Tyme,
or any similar agreement.
III.18 Prepaids. Except as set forth on Schedule 3.18, Video Tyme has
--------
not received any material payments with respect to any services to be rendered
or goods to be provided after the Closing.
13.
III.19 Taxes.
-----
(a) Video Tyme has filed all federal and foreign income tax returns,
all state and local franchise and income tax, real and personal property tax,
sales and use tax, premium tax, excise tax, employment tax and other tax returns
of every character required to be filed by it and has paid in full all Taxes
(including, without limitation, all tax deposits), together with any interest
and penalties owing in connection therewith, shown on such returns to be due in
respect of the periods covered by such returns, other than Taxes which are being
contested in good faith and for which adequate reserves have been established.
Adequate provision has been made in the Books and Records of Video Tyme and, to
the extent required by generally accepted accounting principles, reflected in
the Video Tyme Financial Statements, for all Tax liabilities, including interest
or penalties, whether or not due and payable and whether or not disputed, with
respect to any and all Taxes for the periods covered by the Video Tyme Financial
Statements and for all prior periods. Schedule 3.19 sets forth the date or
dates through which the Internal Revenue Service has examined the federal income
taxes of Video Tyme and the date or dates through which any foreign, state,
local or other taxing authority has examined any other tax returns of Video
Tyme. Schedule 3.19 also contains a complete list of each year for which any
federal, state, local or foreign tax authority has obtained or has requested an
extension of the statute of limitations from Video Tyme and lists each tax case
of Video Tyme currently pending in audit, at the administrative appeals level or
in litigation. Schedule 3.19 further lists the date and issuing authority of
each statutory notice of deficiency, notice or proposal assessment and revenue
agent's report issued to Video Tyme within the last twelve months. Except as
set forth on Schedule 3.19, to Video Tyme's best knowledge, neither the Internal
Revenue Service nor any foreign, state, local or other taxing authority has,
during the past three years, examined or is in the process of examining any
federal, foreign, state, local or other tax returns of Video Tyme. Neither the
Internal Revenue Service nor any foreign, state, local or other taxing authority
is now asserting or threatening to assert any deficiency or claim for additional
taxes (or interest thereon or penalties in connection therewith) except as set
forth on Schedule 3.19.
(b) Video Tyme has not made any requests for rulings, and Video Tyme
has not received any subpoenas or requests for information, or notices of
proposed reassessment of any property owned or leased by Video Tyme. There are
no liens for Taxes upon any property or assets of Video Tyme (other than for
real property taxes, not yet due, on premises leased by Video Tyme for which
Video Tyme will be liable under the terms of the applicable leases).
14.
(c) Video Tyme has delivered to VCI true and complete copies of all
federal, state and foreign income tax returns (together with any Revenue Agent's
Reports) filed by Video Tyme relating to its operations for taxable years ended
October 31, 1996 and October 31, 1997.
(d) Video Tyme has not filed a consent pursuant to Section 341(f) of
the Code, and has not filed, and would not be deemed to have filed, any election
under Section 338 of the Code.
(e) Video Tyme has never been, nor is Video Tyme currently, bound by
or subject to any obligation under any agreement relating to the sharing of any
liability for, or payment of, Taxes with any other Person.
(f) Video Tyme has withheld or will withhold, and has paid over or
will pay over to applicable taxing authorities amounts from its employees and
has filed or will file all federal, foreign, state, and local returns and
reports with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Closing Date, in compliance with the provisions of the Code and other applicable
federal, foreign, state and local laws.
III.20 Environmental Compliance. Video Tyme has not received any notice
------------------------
that it or any of its properties have not been or are not now in complete
compliance with all applicable environmental law.
III.21 Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 3.21, as of the date hereof;
(1) The employment of each employee of Video Tyme is terminable
at will by Video Tyme, except as otherwise provided by statute or decisional
authority;
(2) To Video Tyme's best knowledge, no key executive employee of
Video Tyme and no group of employees of Video Tyme has plans to terminate his or
her employment at or prior to the Closing, whether or not as a result of the
transactions contemplated herein, and Xxxxxxx shall provide notice to VCI as
soon as practicable upon knowledge thereof;
(3) Video Tyme has not had any material labor relations
problems; and
15.
(4) Video Tyme has complied in all material respects with all
collective bargaining agreements and all applicable laws and orders relating to
the employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of Taxes and other sums as required
by appropriate governmental authorities and has withheld and paid to the
appropriate governmental authorities, or is holding for payment not yet due to
such governmental authorities, all amounts required to be withheld from such
employees of Video Tyme and is not liable for any arrears of wages, Taxes,
penalties or other sums for failure to comply with any of the foregoing. No
present or former employee, officer or director of Video Tyme has notified Video
Tyme that he or she has or will have at the Closing Date, any claim against
Video Tyme for any matter, including but not limited to (i) overtime pay for
work done through the Closing Date; (ii) wages or salary for the work done
through the Closing Date; (iii) vacation time off or pay in lieu of vacation
time off for the period through the Closing Date; (iv) any violation of any
statute, ordinance or relation relating to minimum wages or maximum hours or
work-place conditions; or (v) injuries or other damages which are not fully
covered by Video Tyme's insurance policies; except, in the case of clauses (i)
and (ii), for amounts accrued in the current pay period that are not yet due and
payable, and in the case of clause (iii), for vacation accrued in accordance
with Video Tyme's policies and set forth in Schedule 3.21, which its employees
have not yet taken.
(b) Except as disclosed on Schedule 3.21, as of the date hereof,
Video Tyme has not received any notice of any:
(1) unfair labor practice complaint against Video Tyme pending
before the National Labor Relations Board or any state or local agency;
(2) pending labor strike or other material labor trouble
affecting Video Tyme;
(3) material labor grievance pending against Video Tyme;
(4) pending representation question respecting the employees of
Video Tyme; or
(5) pending arbitration proceedings arising out of or under any
collective bargaining agreement to which Video Tyme is a party.
(c) In addition: (i) none of the matters specified in clauses (b) (1)
through (5) is threatened against Video Tyme; (ii) no union organizing
activities have taken place with respect to Video Tyme; and (iii) no basis
exists for which a claim may be made under any collective bargaining agreement
to which Video
16.
Tyme is a party.
III.22 Pension and Benefit Plans.
-------------------------
(a) All accrued obligations of Video Tyme applicable to its employees,
whether arising by operation of law, by contract, by past custom or otherwise,
for payments by Video Tyme to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social security
benefits or any other benefits for its employees with respect to the employment
of said employees through the date hereof have been paid or adequate accruals
therefor have been made on, as applicable, the Books and Records of Video Tyme
and the Video Tyme Financial Statements.
(b) Except for the Profit Sharing Plan of Video Tyme, neither Video
Tyme nor any of its ERISA Affiliates maintains or has any obligations to
contribute to, or has in effect or has committed to adopt, any Pension Plan or
any Welfare Plan or any other ERISA Plans.
(c) Video Tyme does not maintain any health or life insurance plan
that provides for continuing benefits or coverage for any participant or any
spouse, dependent or beneficiary under such plan after termination of
employment, other than as may be required under Section 4980B of the Code and
regulations thereunder ("COBRA"). Video Tyme is in compliance with the COBRA
notice and continuation coverage requirements with respect to Plans maintained
by Video Tyme.
(d) Video Tyme's Profit Sharing Plan shall be terminated by Video Tyme
as soon as practicable, but not later than 180 days after the Closing Date.
III.23 Insurance. Schedule 3.23 sets forth a true and correct list of all
---------
policies or binders of fire, liability, workers' compensation, vehicular or
other insurance held by or on behalf of Video Tyme specifying the insurer, the
policy number or covering note number with respect to binders, and describing
each pending claim thereunder of more than $5,000. Such policies and binders are
in full force and effect. No such policy is terminable or cancelable by the
insurer by virtue of the consummation of the transactions contemplated herein.
III.24 Books and Records. Video Tyme has heretofore furnished or made
-----------------
available to VCI for its examination the following, each of which is, and will
be maintained so as to remain until the Closing, accurate and complete in all
material respects:
(a) copies of the Articles of Incorporation and Bylaws of Video Tyme,
as in effect on the date of this Agreement;
17.
(b) the minute books of Video Tyme containing all proceedings,
consents, actions and meetings of its shareholders and Boards of Directors;
(c) copies of all Video Tyme Permits, orders and consents with respect
to Video Tyme's securities issued by any administrative agency or governmental
body regulating the issuance or transfer of such securities and all applications
for such permits, orders and consents;
(d) the stock transfer books of Video Tyme setting forth all
transfers of its securities;
(e) copies of all agreements and documents referred to in any Video
Tyme Disclosure Schedule;
(f) all other Books and Records of Video Tyme; and
(g) an accurate list of all of the incumbent officers and directors
of Video Tyme.
III.25 Inventory. The inventory of Video Tyme reflected as of April 1,
---------
1998, in the amount of approximately 60,500 videocassettes, as well as other
inventory items acquired since April 1, 1998 that are now the property of Video
Tyme, are of such quality and held in such quantities as are being used and will
be usable and salable or rentable in the ordinary course of the business of
Video Tyme. Since April 1, 1998, Video Tyme has continued to replenish its
inventories in a normal and customary manner consistent with practice prevailing
in the retail video sales and rental industry.
III.26 Investor Representations.Each of Xxxxxxx and the Selling
------------------------
Shareholders who receives shares of VCI Common Stock in connection with the
transactions contemplated by this Agreement represents that (i) he or it is an
accredited investor as defined in Regulation D under the Securities Act, or (ii)
by reason of his or its business and financial experience, and the business and
financial experience of those persons unaffiliated with VCI retained by him or
it, if any, to advise him or it with respect to an investment in the shares of
VCI Common Stock, Xxxxxxx and such Selling Shareholder together with such
advisers have such knowledge, sophistication and experience in business and
financial matters as to be capable of evaluating the merits and risk of the
prospective investment, and that he or it is acquiring the shares of VCI Common
Stock for his or its own account or for one or more separate accounts maintained
by him or it, if any, for investment and not with a view to the distribution
thereof except in compliance with the Securities Act or an exemption available
thereunder. Xxxxxxx and each of the Selling Shareholders who receive shares of
VCI Common Stock in
18.
connection with the transactions contemplated by this Agreement understand and
agree that the shares of VCI Common Stock have not been registered under the
Securities Act and may be resold only if registered pursuant to the applicable
provisions of the Securities Act or if an exemption from registration is
available.
III.27 No Brokers. Neither Xxxxxxx nor the Selling Shareholders nor any of
----------
their respective Representatives or Affiliates has employed or made any
agreement with any broker, finder or similar agent, person or firm or incurred
any liability for any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby which would
result in any liability of Video Tyme or VCI.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VCI
-------------------------------------
Except as set forth in a Disclosure Schedule delivered by VCI hereunder,
and except for the transactions contemplated by this Agreement, VCI hereby
represents and warrants to Xxxxxxx and the Selling Shareholders as follows:
IV.1 Organization of VCI. VCI is a corporation duly organized, validly
-------------------
existing and in good standing under the laws of the State of Delaware, has full
corporate power and authority to conduct its business as it is presently being
conducted and to own, lease and operate its properties and assets, and is duly
qualified to do business and is in good standing in each jurisdiction in which
the ownership of its property or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not result in a Material Adverse Change to VCI
or its business.
IV.2 VCI Capital Stock. The authorized capital stock of VCI consists of
-----------------
30,000,000 shares of common stock, $0.01 par value per share, and 2,000,000
shares of preferred stock, $0.01 par value per share. 11,725,719 shares of
common stock and 700 shares of Series A Convertible Redeemable Preferred Stock
were issued and outstanding as of the date of this Agreement. No shares of any
other class or series of capital stock are authorized, issued or outstanding as
of the date of this Agreement.
IV.3 Authorization Relative to this Agreement. The execution, delivery
----------------------------------------
and performance by VCI of this Agreement and all of the other VCI Documents and
the consummation by VCI of the transactions contemplated hereby and thereby are
within the corporate powers of VCI and have been duly authorized by all
necessary corporate action on the part of VCI. This Agreement is, and as of the
Closing the other VCI Documents shall be, the legal, valid and binding
obligations of VCI, enforceable against
19.
VCI, in accordance with their respective terms.
IV.4 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement nor the consummation of the transactions contemplated hereby will
result in (a) a violation of or a conflict with any provision of the Certificate
of Incorporation, Bylaws or other organizational document of VCI, (b) a breach
of, or a default under, any Material term or provision of any Material Contract,
indebtedness, Encumbrance, Permit or concession to which VCI is a party or is
subject or by which any assets of VCI are bound, including, without limitation,
any such breach or default which would interfere in any way with its ability to
consummate the transactions contemplated by this Agreement, (c) a Material
violation by VCI of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, including any violation which would
interfere with its ability to consummate the transactions contemplated by this
Agreement, (d) the imposition of any Material Encumbrance, restriction or charge
on the business or assets of VCI, or (e) give rise to any right of termination,
cancellation or acceleration under any Material Contract or other agreement to
which VCI is a party or by or to which they or any of their Material assets or
properties may be bound or subject.
IV.5 Litigation. There are no Actions pending, or to the best of VCI's
----------
knowledge, threatened (a) against, related to or affecting VCI, which Actions,
if determined adversely to VCI, would be reasonably likely to have a Material
adverse effect on VCI, or (b) seeking to delay, limit or enjoin the transactions
contemplated by this Agreement, including any derivative suits brought by or on
behalf of VCI. VCI is not in default with respect to or subject to any
judgment, order, writ, injunction or decree of any court or governmental agency,
and there are no unsatisfied judgments against VCI involving amounts in excess
of $100,000. For purposes of this Section 4.5, an Action will be deemed to have
an "adverse effect" on VCI if in connection with such Action, VCI is reasonably
likely to pay $500,000 or more in the aggregate with respect to the defense,
settlement, dismissal or other disposition or satisfaction of such Action.
IV.6 Board Approval. The Board of Directors of VCI has approved and
--------------
adopted the transactions contemplated by this Agreement.
IV.7 Validity of Shares Issued to Selling Shareholders. The shares of VCI
-------------------------------------------------
Common Stock to be issued to the Selling Shareholders hereunder will, when
issued and paid for in accordance with this Agreement, be duly and validly
issued, nonassessable shares free and clear of any and all Encumbrances (other
than Encumbrances which may exist prior to the Closing on the Video Tyme Common
Stock), and will be issued in compliance with all applicable federal and state
securities laws.
20.
IV.8 VCI Shareholder Approval. No approval of the shareholders of VCI is
------------------------
required for the consummation of the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS OF EACH PARTY
-----------------------
Xxxxxxx, the Selling Shareholders and VCI each covenant with the other for
the period from the date hereof through the Closing Date as follows:
V.1 Notification of Certain Matters. From the date hereof through the
-------------------------------
Closing Date, Xxxxxxx, the Selling Shareholders and VCI shall each give prompt
notice to the other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or threatened against, relating to or involving or otherwise affecting
Video Tyme or its business that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 3.12 or that
relate to the consummation of the transactions contemplated by this Agreement.
V.2 Confidential Information.
------------------------
(a) Preservation of Confidentiality. In connection with the
-------------------------------
negotiation of this Agreement, the preparation for the consummation of the
transactions contemplated hereby, and the performance of obligations hereunder,
each of the parties hereto acknowledges that it will have access to confidential
information relating to the other parties. Each party shall treat such
information as confidential, preserve the confidentiality thereof and not
disclose such information, except to its respective Representatives and
Affiliates in connection with the transactions contemplated hereby. Each party
agrees to maintain in confidence, and not to disclose to any third party, any
ideas, methods, developments, inventions, improvements and business plans and
information which are the confidential information of the other parties. If,
however, confidential information is disclosed, the disclosing party shall
immediately notify the other parties in writing and take all reasonable steps
required to prevent further disclosure.
21.
(b) Property Right in Confidential Information. Until the Closing
------------------------------------------
Date or the Termination Date (as hereinafter defined), all confidential
information shall remain the property of the party who originally possessed such
information. In the event of the termination of this Agreement for any reason
whatsoever, Xxxxxxx and the Selling Shareholders shall return to VCI, and VCI
shall return to Xxxxxxx and the Selling Shareholders, all documents, work papers
and other material (including all copies thereof) obtained from the other party
in connection with the transactions contemplated hereby and will use all
reasonable efforts, including, without limitation, instructing its employees and
others who have had access to such information, to keep confidential and not to
use any such information, unless such information is now, or is hereafter
disclosed, through no act or omission of such party, in any manner making it
available to the general public. If VCI or any of its Affiliates is required by
legal process or by operation of law to disclose any confidential information in
anticipation of a possible acquisition of Video Tyme by VCI or any such
Affiliate, VCI shall provide Xxxxxxx with written notice of such request at
least 48 hours prior to making such disclosure (or, if it is not practicable to
give at least 48 hours' prior notice, written notice shall be given as promptly
as practicable) and, without any need to obtain the consent of such other
parties, shall be entitled to make such disclosure. If any party is compelled
by legal process to disclose any confidential information, such party shall
provide the other parties with prompt written notice of such request and,
without any need to obtain the consent of such other parties, shall be entitled
to make such disclosure.
(c) Termination of Agreement. Subject to the requirements of law,
------------------------
each party hereto and its Affiliates shall, and shall use all reasonable efforts
to cause their Representatives who obtain such information from the other party
to, hold in confidence all such non-public information until such time as such
information is otherwise publicly available, and, if this Agreement is
terminated and if so requested by another party, each party and its Affiliates
shall, and shall use all reasonable efforts to cause their Representatives who
obtain such information to, deliver to such other party all documents, work
papers and other material (including copies of extracts and summaries thereof)
obtained by or on behalf of any of them directly or indirectly as a result of
this Agreement or in connection herewith, whether so obtained before or after
the execution hereof.
V.3 Employment Agreements. At or prior to the Closing Date, VCI shall
---------------------
execute employment agreements (the "Employment Agreements") with Xxxxxx X.
Xxxxxxx and Xxxxxx Xxxxxxx, Xx. containing such terms and conditions as may be
mutually agreed upon by VCI and such employee.
22.
ARTICLE VI
ADDITIONAL COVENANTS OF XXXXXXX
-------------------------------
AND THE SELLING SHAREHOLDERS
----------------------------
VI.1 Conduct of Business. From the date hereof through the Closing Date
-------------------
or the date, if any, on which this Agreement is earlier terminated pursuant to
Section 10.1 (the "Termination Date"), except as contemplated or as may be
required by this Agreement, or as set forth on Schedule 6.1, or any other
Schedule made as part of this Agreement, or as consented to by VCI in writing,
Xxxxxxx and the Selling Shareholders shall cause Video Tyme to diligently carry
on its business and in the ordinary course only, and to cause Video Tyme to use
its best efforts to preserve its present business organization intact and to
keep available the services of its present officers, agents or employees
(nothing herein implying an obligation of Video Tyme to maintain or retain any
specific officer, agent or employee), and preserve its present relationships
with customers and other Persons having business dealings with it, and will not
take any action inconsistent with this Agreement or with the consummation of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, Xxxxxxx and the Selling Shareholders shall not cause Video Tyme to,
except as specifically contemplated by this Agreement:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, modify, terminate or renew any Material
Contract, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any Material assets, or any interests therein,
and, without limiting the generality of the foregoing, Video Tyme shall maintain
and sell or rent inventory consistent with its past practices and in accordance
with any other provision in this Agreement;
(d) incur any obligations or liability for long-term indebtedness, or
incur any other obligation or liability of $10,000 or more except in the
ordinary course of business;
(e) (i) increase in any manner the base compensation or fringe
benefits of any employee or pay any benefit not required by any existing Video
Tyme Employee Plan or policy;
(ii) make any change in the key management structure of Video
Tyme, including, without limitation, the hiring of additional officers or the
termination without cause of existing officers;
23.
(iii) adopt, enter into or amend any Video Tyme Employee Plan,
agreement (including, without limitation, any collective bargaining or
employment agreement), trust, fund or other arrangement for the benefit or
welfare of any employee;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
Material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of Video Tyme's capital stock;
(h) fail to expend funds for budgeted capital expenditures or
commitments that have been disclosed to VCI;
(i) willingly allow or permit any of Video Tyme's insurance policies
to be suspended, impaired or canceled;
(j) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business;
(k) enter into, renew, modify or revise any agreement or transaction
with any of its Affiliates;
(l) fail to maintain any assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
Video Tyme's past practice inoperable, worn-out or obsolete or destroyed assets;
(m) make any loans or advances to any partnership, firm, corporation,
officer, director or Affiliate, or, except for expenses incurred in the ordinary
course of business, any individual who is not an officer, director or Affiliate;
(n) make any Material income tax election or settlement or compromise
with tax authorities;
(o) fail to comply in any Material respect with all laws applicable
to it;
(p) intentionally do any other act which would cause any
representation or warranty of Video Tyme in this Agreement to be or become
untrue in any Material respect;
(q) issue any shares of Video Tyme Common Stock or any options,
warrants, rights or other securities convertible into, or exercisable or
exchangeable for, Video Tyme Common Stock; or
24.
(r) enter into any agreement, arrangement or understanding or
otherwise become obligated, to do any action prohibited hereunder.
VI.2 Public Statements and Press Releases. Except as provided for
------------------------------------
hereinbelow, Xxxxxxx and the Selling Shareholders shall not from and after the
date hereof make, issue or release any public announcement, press release,
statement or acknowledgment of the existence of, or reveal publicly the terms,
conditions and status of, the transactions provided for herein, without the
prior written consent of VCI as to the content and time of release of such
statement or announcement.
VI.3 No Solicitation. Prior to the Closing Date (or the earlier
---------------
termination of this Agreement in accordance with its terms), neither Xxxxxxx,
the Selling Shareholders nor any of their Affiliates or Representatives shall
directly or indirectly solicit or initiate any discussions, offers or
negotiations with, or participate in any negotiations or discussions with, or
provide any information or data of any nature whatsoever to, or otherwise
encourage any effort or attempt by, any Person other than VCI, concerning any
Alternative Transaction with respect to Video Tyme. Xxxxxxx and the Selling
Shareholders shall promptly notify VCI if any proposal, offer, inquiry or other
contact is received by Video Tyme in respect of an Alternative Transaction, and
shall indicate the identity of the offeror and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts, and thereafter
shall keep VCI informed on a current basis of the status and terms of any such
proposals or offers and the status of any such discussions or negotiations.
VI.4 Delivery of Video Tyme Common Stock. The Selling Shareholders shall
-----------------------------------
deliver stock certificates representing all issued and outstanding capital stock
of Video Tyme at or prior to the Closing Date.
VI.5 Noncompetition Agreement. At or prior to the Closing Date, Xxxxxx X.
------------------------
Xxxxxxx shall have executed a noncompetition agreement in favor of VCI with such
terms and conditions as may be mutually agreed upon by Xxxxxxx and VCI (the
"Noncompetition Agreement").
VI.6 Insurance. From the date hereof through the Closing Date, Xxxxxxx
---------
and the Shareholders shall cause Video Tyme to maintain in force (including
necessary renewals thereof) the insurance policies listed on Schedule 3.23.
VI.7 Reporting and Compliance With Law. From the date hereof through the
---------------------------------
Closing Date, Xxxxxxx and the Shareholders shall cause Video Tyme to duly and
timely file all tax returns required to be filed with governmental authorities
and duly
25.
observe and conform in all material respects to all applicable laws and orders.
VI.8 Termination of Employee Benefit Plans. Xxxxxxx and the Shareholders
-------------------------------------
agree that Video Tyme's employee benefit plans, programs and arrangements (in
addition to those for non-employee directors) (and if required by such plans,
programs or arrangements, any agreements entered thereunder and awards and
options granted thereunder) shall be terminated or amended, to the extent
necessary or appropriate, to reflect the transactions contemplated by this
Agreement.
VI.9 Access to Information. Xxxxxxx and the Shareholders shall afford VCI
---------------------
and its Representatives reasonable access during normal business hours,
throughout the period prior to the earlier of the Closing Date or the
Termination Date (as hereinafter defined), to Video Tyme's personnel,
facilities, contracts, commitments, books, computer software application
systems, files and records and to furnish such financial and operating data and
other information with respect to Video Tyme's business, assets and properties,
and shall use their best efforts to cause Video Tyme's Representatives to
furnish promptly to VCI and its Representatives such additional financial and
operating data and other information as to its business and properties as the
other or its duly authorized Representatives may from time to time reasonably
request.
26.
ARTICLE VII
PIGGYBACK REGISTRATION RIGHTS
-----------------------------
VII.1 Piggyback Registration Rights. Each time that VCI proposes to file a
-----------------------------
registration statement under the Securities Act with respect to an offering of
VCI Common Stock either by VCI or by shareholders of VCI on a form that would
also permit the registration of shares of VCI Common Stock held by the Selling
Shareholders, VCI will give written notice of such proposal to each Selling
Shareholder. Each Selling Shareholder may, by written request given within ten
business days after receipt of any such notice, require VCI to use its best
efforts to cause all or part of such person's shares of VCI Common Stock to be
issued pursuant to this Agreement to be included in such registration statement.
Notwithstanding the foregoing, if the managing underwriter or underwriters, if
any, of such offering advise VCI in writing that inclusion of such shares would
(a) make it impracticable to conduct an underwritten offering of the VCI Common
Stock being registered at the price at which such VCI Common Stock could be sold
with such inclusion, or (b) materially and adversely interfere with the
offering, then the number of shares of VCI Common Stock requested to be included
in such registration by the Selling Shareholders may be reduced or eliminated.
In connection with any registration pursuant to this Section 7.1 covering an
underwritten public offering, VCI and each Selling Shareholder whose shares are
included therein shall enter into a written agreement with a managing
underwriter containing such provisions as are customary in the securities
business for such an arrangement. In connection with any such registration,
each such Selling Shareholder shall (a) provide such information and execute
such documents as may be reasonably required in connection with such
registration, (b) agree to sell such shares on the basis provided in any
underwriting arrangements, and (c) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Notwithstanding the
foregoing, the registration rights set forth in this Section 7.1 shall terminate
at such time as the Selling Shareholders are eligible, pursuant to Rule 144(k)
under the Securities Act, to resell their shares without restriction under the
federal securities laws.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF XXXXXXX
----------------------------------------
AND THE SELLING SHAREHOLDERS
----------------------------
The obligations of Xxxxxxx and the Selling Shareholders to consummate the
transactions contemplated hereby are subject, in the discretion of Xxxxxxx and
the Selling Shareholders, to the satisfaction, at or prior to the Closing Date,
of each of the
27.
following conditions, any of which may be waived by Xxxxxxx and the Selling
Shareholders:
VIII.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of VCI contained in this Agreement shall be true and correct at and
as of the date of this Agreement and at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and VCI
shall have performed all agreements and covenants required hereby to be
performed by it prior to or at the Closing Date.
VIII.2 Permits. All Material Permits, waivers and approvals from
-------
governmental authorities and other parties necessary to permit VCI to consummate
the transactions contemplated hereby shall have been obtained.
VIII.3 No Governmental Actions. No governmental action or proceeding
-----------------------
shall have been commenced or threatened seeking any injunction, restraining or
other order which seeks to prohibit, restrain, invalidate or set aside the
effectuation of the transactions contemplated by this Agreement and no order,
statute, rule, regulation, executive order, stay, decree, judgment or injunction
shall have been enacted, entered, issued, promulgated or enforced by any court
or governmental authority which prohibits or restricts the effectuation of the
transactions contemplated by this Agreement.
VIII.4 No Material Adverse Change. Since May 31, 1998, there shall not
--------------------------
have occurred any change in the business, financial condition or prospects of
VCI taken as a whole, except for changes contemplated hereby or changes which
have not, individually or in the aggregate, resulted in a Material Adverse
Change to the business, financial condition or prospects of VCI.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF VCI
------------------------------------
The obligations of VCI to consummate the transactions provided for hereby
are subject, in the discretion of VCI, to the satisfaction, at or prior to the
Closing Date, of each of the following conditions, any of which may be waived by
VCI:
IX.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Xxxxxxx and the Selling Shareholders contained in this Agreement
shall be true and correct at and as of the date of this Agreement and at and as
of the Closing Date as if such representations and warranties were made at and
as of the Closing Date, and Xxxxxxx and the Selling Shareholders shall have
performed all agreements and covenants required hereby to be performed by them
prior to or at the Closing Date, and Xxxxxxx and the Selling Shareholders shall
have delivered a certificate signed by Xxxxxxx and the Selling Shareholders to
such effect.
28.
IX.2 Permits. All Permits, waivers and approvals from governmental
-------
authorities and other parties, necessary to permit the Selling Shareholders to
consummate the transactions contemplated hereby shall have been obtained.
IX.3 Board of Directors Approval. The Board of Directors of VCI shall
---------------------------
have adopted and approved this Agreement and the transactions contemplated
hereby.
IX.4 Opinion of Counsel. Xxxxxxx shall have delivered to VCI an opinion
------------------
of Xxxxxx X. Xxxxxxxx, counsel to Xxxxxxx and the Selling Shareholders, in
substantially the form as may be reasonably requested by VCI.
IX.5 No Governmental Actions. No governmental action or proceeding shall
-----------------------
have been commenced or threatened seeking any injunction, restraining or other
order which seeks to prohibit, restrain, invalidate or set aside the
effectuation of the transactions contemplated by this Agreement, and no order,
statute, rule, regulation, executive order, stay, decree, judgment or injunction
shall have been enacted, entered, issued, promulgated or enforced by any court
or governmental authority which prohibits or restricts the effectuation of the
transactions contemplated by this Agreement.
IX.6 No Material Adverse Change. Since May 31, 1998, there shall not
--------------------------
have occurred any change in the business, financial condition or prospects of
Video Tyme, except for changes contemplated hereby or changes which have not had
a material adverse effect on the business, financial condition or prospects of
Video Tyme.
IX.7 Delivery of Stock Certificates. Stock certificates representing all
------------------------------
of the issued and outstanding capital stock of Video Tyme shall have been
delivered to VCI by the Xxxxxxx Trust and the Xxxxxxx Partnership.
IX.8 Inventory. Notwithstanding any other provision in this Agreement,
---------
Video Tyme's rental and sale inventory at the Closing will be not less than the
amount set forth on April 1, 1998.
IX.9 Store Lease Assignments. VCI shall have received from Video Tyme
-----------------------
copies of all necessary third party consents to the assignment to VCI or the
change of control of Video Tyme of any store leases held by Video Tyme. Other
than such consents, there shall not be any other change of control or similar
provisions in any Contracts of Video Tyme which would prevent the assignment to
VCI of any store leases held by Video Tyme.
IX.10 Due Diligence. VCI and its counsel shall have found
-------------
29.
satisfaction with the results of their due diligence investigation of the
financial condition, assets and operations of Video Tyme.
IX.11 Cash Flow of Video Tyme. The aggregate operating cash flow of Video
-----------------------
Tyme's video stores (excluding general and administrative expenses) during the
fiscal year ended October 31, 1997, as reasonably estimated in good faith by
Video Tyme, shall exceed $950,000, and Xxxxxxx shall have delivered a
certificate to such effect.
IX.12 Approvals and Consents. VCI shall have obtained approval or consents
----------------------
of this Agreement and the transactions contemplated hereby from FINOVA Capital
Corporation and Xxxxxx Entertainment Inc.
IX.13 Limit on Liabilities. In no event shall the aggregate of all notes
---------------------
payable, loans payable, accounts payable and other debts and liabilities of
Video Tyme immediately prior to the Closing exceed $90,000.
IX.14 Employment Agreements. The Employment Agreements shall be in effect.
---------------------
IX.15 Audited Financial Statements. VCI shall have completed or arranged
----------------------------
to have completed, at its own expense, audited financial statements of Video
Tyme covering the three year period ending October 31, 1997 and the interim
period ending March 31, 1998, as may be required by the disclosure requirements
of the rules of the Securities and Exchange Commission or any financing source.
ARTICLE X
TERMINATION, AMENDMENTS AND WAIVERS
-----------------------------------
X.1 Termination.
-----------
(a) Termination. This Agreement and the transactions contemplated
-----------
hereby may be terminated at any time prior to the Closing Date:
(1) By mutual written consent of Xxxxxxx and VCI;
(2) By either Xxxxxxx or VCI, if the Closing shall not have
occurred on or before July 31, 1998 unless such date is extended by the mutual
agreement of the parties; provided however, that this provision shall not be
available to Xxxxxxx if VCI has the right to terminate this Agreement under
clause (4) of this Section 10.1(a), and this provision shall not be available to
VCI if Xxxxxxx has the right to terminate this Agreement under
30.
clause (3) of this Section 10.1(a);
(3) By Xxxxxxx, if there is a breach of any representation or
warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by VCI pursuant to the terms of this Agreement or an
occurrence of any event which results or would result in the failure of a
condition set forth in Article VIII to be satisfied at or prior to the Closing
Date; or
(4) By VCI, if there is a breach of any representation or
warranty set forth in Article III hereof or of any covenant or agreement to be
complied with or performed by Xxxxxxx or the Selling Shareholders pursuant to
the terms of this Agreement or the occurrence of any event which results or
would result in the failure of a condition set forth in Article IX to be
satisfied at or prior to the Closing Date.
(b) Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and no party hereto shall have any liability or further obligation to any
other party hereto under or by reason of this Agreement or the transactions
contemplated hereby, except for any willful breach of this Agreement occurring
prior to or as a result of termination of this Agreement, and except that:
(1) Each party shall redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same; and
(2) The provisions of Sections 5.2 and 12.5 shall continue in
full force and effect.
The foregoing provisions shall not limit or restrict the availability of
specific performance or other injunctive relief to the extent that specific
performance or such other relief would otherwise be available to a party
hereunder.
X.2 Amendments. This Agreement may not be amended except by action of
----------
each of the parties hereto set forth in an instrument in writing signed by or on
behalf of each of the parties hereto.
X.3 Waivers. At any time prior to the Closing Date, any party hereto may
-------
(i) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (ii) waive any inaccuracies in the representations
and warranties of any other party contained herein or in any document delivered
pursuant hereto, or (iii) waive compliance with any of the agreements of any
other party or with any conditions to its own
31.
obligations. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party by a duly authorized officer. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
ARTICLE XI
INDEMNIFICATION; SURVIVAL
-------------------------
XI.1 Survival of Representations, Etc. The representations, warranties,
--------------------------------
covenants and agreements of Xxxxxxx, each Selling Shareholder and VCI contained
herein and the indemnification by Xxxxxxx and the Selling Shareholders under
Section 11.2 with respect thereto, and the indemnification by VCI under Section
11.3 with respect thereto, shall survive the Closing Date for two years;
provided, however, that the representations and warranties of Xxxxxxx and the
Selling Shareholders in Section 3.19 and the related indemnification by Xxxxxxx
and the Selling Shareholders with respect thereto shall survive until the
applicable statutes of limitations have expired, and those contained in Section
3.5 and the related indemnification by Xxxxxxx and the Selling Shareholders with
respect thereto shall survive without any limitation in time. For purposes of
this Article XI, "representations" and "warranties" of Xxxxxxx and each Selling
Shareholder shall mean collectively those representations and warranties of
Xxxxxxx and each Selling Shareholder set forth in Article III and the Disclosure
Schedules referenced therein and "representations" and "warranties" of VCI shall
mean collectively those representations and warranties of VCI set forth in
Article IV and the Disclosure Schedules referenced therein.
XI.2 Indemnification by Xxxxxxx and the Selling Shareholders. Subject to,
-------------------------------------------------------
and in the manner described in, this Article XI, Xxxxxxx and each of the Selling
Shareholders, jointly and severally, shall indemnify and hold harmless VCI and
its Representatives and Affiliates (the "VCI Indemnified Parties") to the
fullest extent lawful, for the respective periods of time specified in Section
11.1, from and against any and all losses, damages, diminution in value, claims,
liabilities, actions and expenses (including, without limitation, costs of
investigating, preparing or defending any such claim or action, costs of
settlement, judgments, and reasonable legal fees and expenses), net of any
amounts actually received under any insurance policy as a result of such loss,
damage, diminution in value, claim, liability, action, or expense (collectively
"Losses") arising out of or in
32.
connection with the breach of any representation, warranty, covenant or
agreement of Xxxxxxx or any Selling Shareholder contained in this Agreement or
arising out of or in connection with the establishment, maintenance, compliance
with applicable laws, termination, severance and any other aspects of Video
Tyme's Profit Sharing Plan and any Pension Plan, Welfare Plan or any other ERISA
Plans of Video Tyme established or in existence before the Closing Date. The
term "Losses" as used in this Section 11.2 is not limited to matters asserted by
third parties against a VCI Indemnified Party, but includes Losses incurred or
sustained by a VCI Indemnified Party in the absence of third party claims.
XI.3 Indemnification by VCI. Subject to, and in the manner described in,
----------------------
this Article XI, for a period of two years from the Closing Date, VCI shall
indemnify and hold harmless Xxxxxxx and the Selling Shareholders and their
respective Representatives and Affiliates (the "Video Tyme Indemnified Parties")
to the fullest extent lawful, from and against any and all Losses arising out of
or in connection with the breach of any representation, warranty, covenant or
agreement of VCI. The term "Losses" as used in this Section 11.3 is not limited
to matters asserted by third parties against a Video Tyme Indemnified Party, but
includes Losses incurred or sustained by a Video Tyme Indemnified Party in the
absence of third party claims.
XI.4 Basket and Cap. VCI shall be indemnified by Xxxxxxx and the Selling
--------------
Shareholders and Xxxxxxx and the Selling Shareholders shall be indemnified by
VCI, in each case to the extent that the aggregate of all Losses, determined
without regard to whether any Loss was Material or not, exceeds $10,000 ("Basket
Amount"), provided that in no circumstance shall the aggregate liability of
Xxxxxxx and the Selling Shareholders or VCI exceed $1,500,000. Notwithstanding
the foregoing, there shall be no Basket Amount applicable to any Loss resulting
from a breach of representations and warranties in Sections 3.5 or 3.19 or from
a failure to make any adjustment or pay any amount payable under Article II.
33.
XI.5 Indemnification Procedure.
-------------------------
(a) If a third party asserts a claim against any indemnified party
for which indemnification would be available under this Article XI (a "Claim"),
the indemnified party shall promptly give notice of such Claim, describing such
Claim with reasonable specificity, to the indemnifying party. If the amount of
the Claim exceeds, or the aggregate amount of Losses incurred prior to such date
have exceeded, the Basket Amount, the indemnifying party shall be entitled to
assume the defense of such Claim, including the employment of counsel reasonably
satisfactory to the indemnified party; provided, however, that if the
indemnified party reasonably determines in good faith that its interests with
respect to such Claim cannot appropriately be represented by the indemnifying
party, such indemnified party shall have the right to assume control of the
defense of such Claim and to have its expenses reimbursed promptly with respect
to such Claim to the extent entitled thereto. In addition, in the event that
such indemnifying party, within a reasonable time after notice that any such
Claim or the total Losses incurred exceeds the Basket Amount, fails to defend
any indemnified party, such indemnified party will (upon further notice to such
indemnifying party) have the right to undertake its defense of such Claim for
the account of such indemnifying party and to have its expenses reimbursed
promptly with respect to such Claim to the extent entitled thereto. Regardless
of which party is controlling the defense of any Claim, (i) both the
indemnifying party and the indemnified party shall act in good faith; (ii) no
settlement of such Claim may be agreed to without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld; and (iii)
no part of any Claim shall be paid without such consent or unless a final
judgment from which no appeal may be taken is entered on such Claim against the
indemnified party. The controlling party shall deliver, or cause to be
delivered, to the other party copies of all correspondence, pleadings, motions,
briefs, appeals or other written statements relating to or submitted in
connection with the defense of any such Claim, and timely notices of any hearing
or other court proceeding relating to such Claim.
(b) In the absence of a third party Claim, if any party shall have a
claim that another is liable for Losses, the party seeking indemnification shall
provide notice within 90 days of the discovery of the Loss of the nature and
extent thereof, and the other party shall repay such Losses within 90 days
thereafter to the extent the Losses exceed the Basket Amount, or shall inform
the party seeking indemnification that it is denying in good faith all or a
portion of such Claim. If the party seeking indemnification disputes the denial
of such Claim, it may thereupon proceed to enforce its rights under this
Agreement.
34.
ARTICLE XII
GENERAL PROVISIONS
------------------
XII.1 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other Person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise.
XII.2 Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., FED EX); and upon
----
receipt, if sent by certified or registered mail, return receipt requested. In
each case notice shall be sent to:
If to Xxxxxxx or the Selling Shareholders, addressed to:
Xxxxxx X. Xxxxxxx
Video Tyme, Inc.
0000 Xxxxx Xxxxxxxxx
Xxx Xxxxx, Xxxxxx 00000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx X. Xxxxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx X-0
Xxx Xxxxx, Xxxxxx 00000
Facsimile: (000) 000-0000
If to VCI, addressed to:
Xxxxxx X. Xxx
Video City, Inc.
0000 Xxxxxxxx Xxxxxxxxx
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxxx X. Xxxx, Esq.
Xxxx & Xxxxx Professional Corporation
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
35.
Facsimile: (000) 000-0000
or to such other place and with such other copies as each party hereto may
designate as to itself by written notice to the other parties hereto.
XII.3 Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California without reference to choice
of law provisions.
XII.4 Multiple Counterparts. This Agreement may be executed in one or
---------------------
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
XII.5 Expenses. Each party hereto shall pay its own legal, accounting,
--------
out-of-pocket and other expenses incident to this Agreement and to any action
taken by such party in preparation for carrying this Agreement into effect.
XII.6 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
XII.7 Titles. The titles, captions or headings of the Articles and
------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
XII.8 Cumulative Remedies. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
XII.9 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto and thereto (including the Disclosure Schedule), constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, including, without
limitation, the letter of intent dated April 1, 1998.
XII.10 Attorneys' Fees. In the event of any legal action or proceeding to
---------------
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final
36.
judgment.
XII.11 Waiver of Right to Trial by Jury. Each party to this Agreement
--------------------------------
hereby waives its rights to a trial by jury.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first above written.
VIDEO CITY, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------
Xxxxxxx X. Xxxxxx,
Chief Financial Officer
XXXXXX X. XXXXXXX
/s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
THE XXXXXXX FAMILY TRUST
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------------
Xxxxxx X. Xxxxxxx
Trustee
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------------
Xxxxxx X. Xxxxxxx
Trustee
THE XXXXXXX FAMILY PARTNERSHIP
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------------
Xxxxxx X. Xxxxxxx
General Partner
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxx X. Xxxxxxx
General Partner
37.
ADDENDUM
This Addendum ("Addendum") is entered into as of September 30, 1998 by and
among VIDEO CITY, INC., a Delaware corporation ("VCI"), XXXXXX X. XXXXXXX
("Xxxxxxx"), THE XXXXXXX FAMILY TRUST, a Nevada trust (the "Xxxxxxx Trust"), and
THE XXXXXXX FAMILY PARTNERSHIP, a Nevada limited partnership (the "Xxxxxxx
Partnership"), with reference to the following facts:
A. VCI, Xxxxxxx, the Xxxxxxx Trust and the Xxxxxxx Partnership have
entered into that certain Stock Purchase Agreement, dated as of July 3, 1998
(the "Stock Purchase Agreement");
B. VCI, Xxxxxxx, the Xxxxxxx Trust and the Xxxxxxx Partnership desire to
agree upon certain terms and conditions of the Stock Purchase Agreement to
modify and clarify the rights and obligations of the parties thereto; and
C. All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Purchase Price. Section 2.2 of the Stock Purchase Agreement is hereby
--------------
amended and restated in its entirety to read in full as follows:
" 2.2 Purchase Price.
--------------
(a) The aggregate purchase price (the "Purchase Price") for all of
the outstanding shares of capital stock of Video Tyme shall consist of the
following:
(i) 1,050,000 shares of VCI Common Stock; plus
(ii) cash in the amount of $1,000,000 reduced by (x) the total amount
of all debt and liabilities of Video Tyme immediately prior to the Closing
Date and (y) the total amount of dollar reduction, if any, called for by
Section 2.5 below.
(b) Cash in the amount of $1,000,000 shall be delivered by VCI to
the Selling Shareholders on the Closing Date as part of the Purchase Price
pursuant to Section 2.2(a)(ii), provided, however, the Selling Shareholders
-------- -------
shall return to VCI, no later than 75 days after the Closing Date, cash equal
to the amount by which the total amount of all debt and liabilities of Video
Tyme immediately prior to the Closing Date and the reduction (if any) under
Section 2.5 exceeds $300."
2. The Closing. Section 2.3 of the Stock Purchase Agreement is hereby
-----------
amended and restated in its entirety to read in full as follows:
" 2.3 The Closing.
-----------
(a) Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing")
shall be held at the offices of Xxxx & Xxxxx Professional Corporation, 0000
Xxxxxxx Xxxx Xxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or at such other
place as the parties may agree (the day on which the Closing takes place being
the "Closing Date").
(b) At the Closing, the Selling Shareholders shall deliver or
cause to be delivered to VCI stock certificates representing all of the issued
and outstanding shares of Video Tyme Common Stock, free and clear of all
Encumbrances, duly endorsed in blank or accompanied by stock powers duly
executed in blank, and VCI shall deliver or cause to be delivered to the
Selling Shareholders (i) stock certificates representing 1,050,000 shares of
VCI Common Stock, duly endorsed in the name of the Selling Shareholders and
registered at the address of the Selling Shareholders identified in Section
12.2 hereof, and (ii) cash in the amount of $1,000,000 by bank cashiers check
or by wire transfer in immediately available funds, to an account or accounts
designated at least two business days prior to the Closing Date by the Selling
Shareholders in a written notice to VCI. At the Closing, certificates
representing shares of VCI Common Stock will bear a legend substantially as
follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND
2
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER
SAID ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE IN THE
OPINION OF COUNSEL FOR THE ISSUER."
3. Inventory. Section 2.5 of the Stock Purchase Agreement is hereby
---------
amended and restated in its entirety to read in full as follows:
" 2.5 Inventory. An itemized physical inventory of Video Tyme's
---------
videocassettes shall be taken by VCI or its representatives. In the event such
inventory as of the Closing Date shows that the number of videocassettes on hand
is less than 50,000, the amount of cash payable pursuant to Section 2.2(a)(ii)
of this Agreement as part of the Purchase Price shall be reduced by an amount
equal to $10.00 multiplied by the number of videocassettes less than 50,000.
There shall be no increase in the amount of cash payable pursuant to Section
2.2(a)(ii) of this Agreement as part of the Purchase Price if the number of
videocassettes on hand as of the Closing Date is greater than 50,000."
4. Rainbow Store; Satellite Dish Business. The parties hereto hereby
--------------------------------------
acknowledge and agree that as part of the transactions contemplated by the Stock
Purchase Agreement, all of the assets relating to Store Number 31 located at 000
Xxxxx Xxxxxxx Xxxxxxxxx, Xxx Xxxxx, Xxxxxx 00000 and referred to herein as the
"Rainbow Store" which were owned and operated by Video Tyme have been
transferred by Video Tyme to the Selling Shareholders immediately prior to the
Closing as a pro-rata redemption in exchange for certain shares of capital stock
of Video Tyme (the "Redemption") in proportion to which the total outstanding
shares of capital stock of Video Tyme related to the then total assets of Video
Tyme. Upon the Closing, the Selling Shareholders shall grant an option to VCI
to purchase the Rainbow Store from the Selling Shareholders at a purchase price
of (i) $400,000 if such option to purchase is exercised during the six months
following the Closing Date or (ii) $440,000 if such option to purchase is
exercised during the six-month period commencing six months after the Closing
Date, pursuant to a Management and Option Agreement attached hereto as Exhibit
A. In addition, VCI shall manage the Rainbow Store during the 12 months period
commencing on the Closing Date pursuant to the Management and Option Agreement.
VCI and each of the Selling Shareholders shall execute the Management and Option
Agreement on or prior to
3
the Closing Date and shall deliver such agreement at the Closing. VCI shall
indemnify the Selling Shareholders for any additional tax paid by the Selling
Shareholders to the Internal Revenue Service on account of the Redemption not
being treated in the same or similar manner as a sale or exchange of stock by
the Selling Shareholders to VCI.
The parties hereto hereby further acknowledge and agree that the assets
relating to the satellite dish business, all of which were owned and operated by
Video Tyme, were transferred by Video Tyme to the Selling Shareholders or to
their designees prior to the Closing and shall not be owned by Video Tyme as of
the Closing Date.
5. Certain Tax Liabilities and Filings. The parties hereto understand that
-----------------------------------
Video Tyme Inc. ("Video Tyme") will be required to file a federal corporate
income tax return covering the period from the commencement of its current
taxable year through and including the Closing Date. The Selling Shareholders
hereby acknowledge and agree that all tax liabilities of Video Tyme applicable
to such period and to any prior periods (collectively, "Prepurchase Tax
Liabilities") shall be the responsibility of the Selling Shareholders, and that
the Selling Shareholders shall, jointly and severally, indemnify and hold
harmless VCI, Video Tyme and their affiliates from Prepurchase Tax Liabilities.
Xxxxxxx agrees to timely file all tax returns, and pay all taxes, penalties and
interest, required of Video Tyme which are applicable to any such periods and
agrees to bear all costs and expenses of preparing and filing such tax returns.
VCI and Video Tyme hereby appoint and confer full authority upon Xxxxxxx to
prepare, execute, and file all tax returns required of Video Tyme that are
applicable to such periods.
6. Option to Purchase VCI Common Stock. Upon the Closing, the Selling
-----------------------------------
Shareholders shall grant an assignable option to VCI to purchase 800,000 shares
of VCI Common Stock that are part of the Purchase Price at an exercise price of
the greater of (i) $0.95 per share of VCI Common Stock, or (ii) the average of
the closing sale price of the VCI Common Stock during the five consecutive
trading days immediately preceding the exercise of such option, pursuant to a
Stock Purchase Option Agreement attached hereto as Exhibit B. VCI and each of
the Selling Shareholders shall execute and deliver the Stock Purchase Option
Agreement on the Closing Date.
4
7. Termination Date. The reference to "July 31, 1998" in Section
----------------
10.1(a)(2) of the Stock Purchase Agreement is hereby changed to "September 30,
1998."
8. Payment for Certain Videocassettes Purchased Before the Closing;
----------------------------------------------------------------
Payment of Pro-rations. The parties hereto hereby acknowledge and agree that VCI
----------------------
shall be responsible for payment of the invoice cost of all videocassettes
purchased by and delivered to Video Tyme during the period commencing on Monday
of the week preceding the Closing Date. Xxxxxxx shall deliver to VCI an invoice
listing such videocassettes not later than 15 days after the Closing Date and
VCI shall pay the Selling Shareholders the invoice cost of such videocassettes
not later than 75 days after the Closing Date. The parties hereto hereby confirm
and agree that all payments pursuant to Section 2.4 of the Stock Purchase
Agreement shall be paid not later than 75 days after the Closing Date.
9. Employment Agreements. The agreed forms of the Employment Agreements
---------------------
are attached hereto as Exhibits C-1 and C-2.
10. Noncompetition Agreement. The agreed form of Xxxxxxx'x Noncompetition
------------------------
Agreement is attached hereto as Exhibit D.
11. Consulting Agreements. On or before the Closing, VCI shall enter into
---------------------
Consulting Agreements with Xxxx X. Xxxxxxx-Xxxxxxx, Xxxxxxx X. Xxxxxxx and Xxxx
X. Xxxxxxx in the form attached hereto as Exhibit E, each such agreement to be
for a term of two months from and after the Closing Date and providing for
payments of $1,000 per week for Xxxx X. Xxxxxxx-Xxxxxxx, and $850 per week for
each of Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx.
12. Disclosure Schedule. The following detail is added to the Video Tyme
-------------------
Disclosure Schedule:
a. In Schedule 3.9, cash bonuses paid or to be paid by Video Tyme to
its officers and employees from the date of the Stock Purchase Agreement to the
Closing Date shall not exceed an aggregate amount of $250,000. There is no
commitment, liability or obligation of Video Tyme to pay any other bonuses,
severance or termination before or after the Closing. The reference to an
automobile in Schedule 3.9
5
refers to a Chrysler Town And Country to be transferred to Xxxxxxx X. Xxxxxxx
prior to the Closing; this vehicle is not reflected on Video Tyme's balance
sheets.
b. In Schedule 3.14, Video Tyme's licensees are SkipJo Inc.; D.C. &
R.C. Inc.; R. W. and Xxxxx Xxxxxxxx; Xxxxxxx & XxXxxx Partnership; Xxxxx Xxxxxx
Xxxx; and Xxxxxx and Xxxxxx Xxxxxx. Video Tyme has no financial or contractual
liability to any licensee other than as set forth in the Trade Name License
Agreements and renewals thereof, complete copies of which were delivered by
Video Tyme to VCI.
c. The tax examinations listed in Schedule 3.19 have been completed
and Video Tyme has no unpaid liability with respect thereto.
13. Profit Sharing Plan. With respect to the Profit Sharing Plan referred
-------------------
to in Section 3.22(b) of the Stock Purchase Agreement, Video Tyme shall not have
any liability or obligation on or after the Closing Date to make any
contribution thereunder, and Video Tyme shall not have violated or be
responsible for any violation of ERISA or other laws applicable to the Profit
Sharing Plan.
14. Indemnification by VCI. VCI has been informed that Xxxxxxx has
----------------------
personally guaranteed Video Tyme's obligations and liabilities under leases for
one or more of the seven stores listed in Schedule 3.11. VCI shall use its
reasonable best efforts to have Xxxxxxx released from such guarantee (except as
to any guarantee on the lease for the Rainbow Store), and in any event VCI shall
indemnify and hold Xxxxxxx harmless from and against any personal liability
relating to such leases with respect to any period on or after the Closing Date
(except as to any liability that Xxxxxxx may have to VCI under Section 11.2 of
the Stock Purchase Agreement for breach of any representation or warranty with
respect to such leases and except as to any liability with respect to the lease
for the Rainbow Store).
15. Piggyback Registration Rights. The Selling Shareholders hereby
-----------------------------
acknowledge and agree that if the managing underwriter or underwriters, if any,
of an offering of VCI securities advises VCI that the number of shares of VCI
Common Stock requested to be included in a registration statement should be
reduced or eliminated, the shares of VCI Common Stock that may be requested to
be registered pursuant
6
to any registration rights of FINOVA Capital Corporation, Rentrak Corporation,
Mortco, Inc. and Xxxxxx Entertainment Inc. shall be registered prior to the
registration of any shares of VCI Common Stock of the Selling Shareholders
pursuant to the piggyback registration rights of the Selling Shareholders
provided under Section 7.1 of the Stock Purchase Agreement. Except as otherwise
provided herein, the piggyback registration rights of the Selling Shareholders
provided under Section 7.1 of the Stock Purchase Agreement shall be in full
force and effect.
16. Legal Expenses. Within 75 days after the Closing Date, VCI shall pay
--------------
the legal expenses actually and reasonably incurred by the Selling Shareholders
since August 1, 1998 in connection with the transactions contemplated by the
Stock Purchase Agreement and this Addendum in an amount not to exceed a total of
$15,000.
17. Effect of Addendum. Except as otherwise provided herein by this
------------------
Addendum, the terms and conditions of the Stock Purchase Agreement shall be in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to the
Stock Purchase Agreement to be duly executed and delivered as of the date and
year first above written.
VIDEO CITY, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxx X. Xxxxxx,
Chief Financial Officer
XXXXXX X. XXXXXXX
/s/ Xxxxxx X. Barauffi
------------------------------------
Xxxxxx X. Xxxxxxx
7
THE XXXXXXX FAMILY TRUST
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxx
Trustee
By: /s/ Xxxxxx X Xxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxx
Trustee
THE XXXXXXX FAMILY PARTNERSHIP
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Xxxxxx X. Xxxxxxx
General Partner
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxx
General Partner
8
