EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made this 24th day of October, 2002, by and
between VIDEO CITY, INC., a Delaware corporation d/b/a "Video City," "Video
Land," "Adventures in Video" and "Video Tyme", whose address is 0000 Xxxxxx
Xxxxx, Xxxxx 000, Xxxxxxxxxxx, XX 00000 ("Seller") and M.G. MIDWEST, INC., a
Delaware corporation, whose address is 000 X. Xxxx Xxxxxx, Xxxxxx, Xxxxxxx 00000
("Purchaser").
WHEREAS, Seller and Purchaser desire that certain assets of Seller be sold
to Purchaser pursuant to this Agreement; and
WHEREAS, Seller and Purchaser desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the sale and certain additional agreements related to the sale;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises,
conditions, representation, warranties and covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchased Assets. Subject to and upon the terms and conditions set
forth herein, Seller agrees to and will sell, transfer, assign and deliver to
Purchaser at Closing (as hereinafter defined), and Purchaser agrees to and will
purchase, acquire and take assignment and delivery of, the assets of Seller
located at Seller's leased store spaces listed on Schedule 1.1 (the "Stores"),
used in connection with the operation of the Stores, or that otherwise relate
primarily to Seller's business at the Stores, as same shall exist on the Closing
Date (as hereinafter defined) (collectively, the "Assets") including, but not
limited to:
1.1.1 (a) All machinery, appliances, equipment, tools, supplies,
leasehold improvements, construction in progress, furniture and fixtures of
Seller located at, or related to, the Stores; (b) except as provided below,
real property leaseholds and subleaseholds therein, improvements, fixtures
and fittings thereon, and easements, rights-of-way, and other appurtenants
thereto (such as appurtenant rights in and to public streets) for the
Stores; (c) tangible personal property located at, or related to, the
Stores (such as inventories, equipment, supplies and furniture ); (d)
intellectual property, goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to
protection of interests therein under the laws of all jurisdictions; (e)
accounts receivable and other receivables at the Stores (such as customer
account balances); (f) claims, rent/security deposits, prepayments, and
rent credits for the leased premises at the Stores; (g) franchises,
approvals, permits, licenses, orders, registrations, certificates,
variances, and similar rights obtained from governments
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and governmental agencies related to the Stores; and (h) copies of all
books, records, ledgers, files, documents, correspondence, customer lists,
creative materials, advertising and promotional materials for, or with
respect to, the Stores.
1.1.2 All inventory and equipment held by Seller for rental or sale,
located at the Stores or in the possession of customers, including without
limitation, video cassette tapes, digital video discs ("DVDs"), and video
games, audio books, laser discs, music CDs and cassettes, books, video
hardware and software, video cassette recorders and players, video game
players and DVD players held at the Stores for rental and sale; provided
that Seller shall deliver to Purchaser at Closing not less than the
quantity of pre-recorded video cassette tapes, DVDs, video games, music CDs
and cassettes and books at the Stores, which is set forth on Schedule
1.1.2. Schedule 1.1.2 further identifies all orders for new release title
("New Release Title") and the number of copies of each such title by format
purchased (or to be purchased) by Seller for each of the Stores, within the
ninety (90) day period prior to the Closing Date. At Closing, Seller and
Purchaser shall reinspect the Assets and determine the number of copies of
inventory and New Release Title owned by Seller and on hand at each of the
Stores on the Closing Date.
1.1.3 Except as provided in Section 1.2.8 below, all of the interest
of and the rights and benefits accruing to Seller as lessee under the
leases by and between Seller and the landlords for the leased premises
specifically listed on Schedule 5.1.3 (the "Assumed Store Leases").
1.1.4 Customer lists and related information of the Stores.
1.1.5 All of Seller's right, title and interest in and to any and a1l
other tangible or intangible assets located at the Stores, including
goodwill, used in connection with the operation of the Stores, or that
otherwise relate primarily to the Stores and the business conducted
thereat.
1.1.6 All of Seller's right, title, and interest in and to the
intellectual property further described, but not limited to, the assets
listed on Schedule 1.1.6.
1.2 Excluded Assets. Anything to the contrary in Section 1.1
notwithstanding, the Assets shall exclude all of the assets and property of
Seller which are not specifically listed in Section 1.1, including, but not
limited to the following:
1.2.1 Any real property owned by Seller in fee simple.
1.2.2 All cash, bank deposits and/or cash equivalents; provided,
however, Seller shall leave cash in the Stores in an amount not less than
the amounts indicated on the attached Schedule 1.2.2 (the "Change Funds"),
and Purchaser shall separately reimburse Seller for the actual amount of
the Change Funds at Closing.
1.2.3 All vehicles owned or leased by Seller.
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1.2.4 All books, ledgers, files, documents, correspondence, customer
lists, creative materials, advertising and promotional materials that do
not relate to the Stores.
1.2.5 All video cassette tape, DVD, and video game inventory located
at the Stores which is leased by Seller from any distributor or movie
studio or subject to any contractual restrictions on the sale or transfer
thereof, all of which shall be identified by Seller on Schedule 1.2.5, and
removed from the Stores by Seller prior to the Closing Date.
1.2.6 Any other tangible or intangible assets owned by Seller which
are not used directly in connection with the operation of the Stores, or
which otherwise do not relate directly to the Stores or the business
conducted thereat, including, but not limited to, all tangible and
intangible assets located at Seller's support center ("Seller's Support
Center").
1.2.7 Any tangible personal property or intellectual property, which
is leased by Seller from any third party.
1.2.8 The real property leases for the stores located at: 0000 Xxxx
Xxxx Xxxx, Xxxxxxx, XX 00000; 0000 Xxxxx Xxxxxx, Xxxxxxx, XX 00000; 000
Xxxxx Xxxxxxxx, Xxxxx Xxxx, XX 00000; and 0000 Xxxxxxx Xxxx, Xxxxxxxxx, XX
00000 (individually, an "Excluded Lease," and collectively, the "Excluded
Leases").
1.2.10 Any assets or property of Seller not specifically identified as
an Asset in Section 1.1 above.
1.2.11 Any assets or property of Seller related to its stores located
at the Crystal Store, the Ottumwa Store, the Xxxxx City Store and the
Urbandale Store (all as defined on Schedule 1.1 below), except for any
furniture, fixtures, equipment and inventory that Purchaser elects to
include with the purchase of the Assets; trade names; trade marks; customer
lists and goodwill located at or associated with each of the Crystal Store,
the Ottumwa Store, the Xxxxx City Store and the Urbandale Store.
ARTICLE II
PURCHASE PRICE; ASSUMPTION OF LIABILITIES
2.1 Purchase Price. The purchase price due from Purchaser to Seller for the
Assets and the Covenants Not To Compete shall be Two Million Eighty Thousand
Five Hundred and No/100 Dollars ($2,080,500.00) (the "Purchase Price").
2.2 Payment. The Purchase Price, less the Hold Back Amount (as defined
below) shall be paid to Seller by Purchaser by wire transfer at Closing to the
bank account(s) designated by Seller.
2.3 Hold Back. Fifty Thousand and No/100 Dollars ($50,000.00) of the
Purchase Price shall be held back by the Purchaser (the "Hold Back Amount")
pending the determination by the
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Purchaser, on or before September 10, 2003, that the Gross Revenue (as
determined by Purchaser) for the Nampa Store (as defined on Schedule 1.1 below)
for the six month period ending August 31, 2003, is not less than eighty percent
(80%) of the Gross Revenue for the six month period ending August 31, 2002 (the
"Gross Revenue Test").
In the event that the Gross Revenue Test for the Nampa Store is not
satisfied, Purchaser shall retain the Hold Back Amount. In the event that the
Gross Revenue Test for the Nampa Store is satisfied, Purchaser shall pay to
Seller the Hold Back Amount within one (1) business day following the completion
by Purchaser of the Gross Revenue Test. The obligations of the parties under
this Section 2.3 shall survive the Closing.
2.4 No Shop. Seller agrees that during the period commencing on the date
hereof and ending on the earlier of the Closing Date or the termination of this
Agreement, Seller will not, directly or indirectly (a) encourage, solicit or
initiate discussions or negotiations with any corporation, partnership, person,
entity or group, other than Purchaser, concerning any merger, consolidation,
sale of assets, sale of securities or acquisition of beneficial ownership with
respect to the Assets or the Stores, or (b) otherwise initiate any action
(unless in response to an unsolicited offer) which would prejudice the ability
of Purchaser to close under this Agreement.
2.5 Assumed Liabilities. The Purchaser agrees to and will at Closing assume
and agree to pay, discharge and perform when lawfully due (i) all obligations
and liabilities of Seller under the Assumed Store Leases accruing and/or arising
on or after the Closing Date; and (ii) all obligations and liabilities of the
Seller with respect to all rental inventory (including video cassette tapes,
DVDs and video games) purchased or ordered by Seller in the ordinary and normal
course of business, which has a "street date" (as such term is normally used and
understood in the video business) during the two weeks prior to the Closing
Date, during the calendar week of Closing, or after the Closing Date; and
otherwise, Purchaser assumes no liabilities of Seller of any nature. The
Purchaser does not assume any obligations of Seller with respect to any gift
certificates issued by Seller prior to the Closing Date that are charged to the
account of Seller when tendered as payment by the holder thereof at any of the
Stores.
2.6 Allocation of the Purchase Price Among the Purchased Assets. The
Purchase Price shall be allocated, for tax purposes, among each item or class of
the Assets pursuant to Schedule 2.6 hereof. The Seller and the Purchaser agree
that they will prepare and file any notice or other filings required pursuant to
section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"), and
that any such notices or filings will be prepared based on such tax allocation
of the Purchase Price. At Closing, Seller and Purchaser shall agree to the terms
of and complete an IRS Form 8594 ("Asset Acquisition Statement" under Section
1060 of the Code) with respect to this transaction.
2.7 Employment of Seller's Personnel. The Seller will use its reasonable
best efforts to persuade its employees at the Stores to make themselves
available for employment by the Purchaser. Purchaser shall use its reasonable
best efforts to interview and review said current employees of Seller prior to
the Closing Date. Purchaser will only be able to offer employment to those of
Seller's employees who meet Purchaser's normal employment criteria and to the
extent job openings then exist. To the extent job openings are not available,
Purchaser intends to retain in its
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files the personnel information about Seller's employees who meet Purchaser's
criteria and to consider the same for other suitable job openings as they may
become available. It is not the intent of this Section 2.7 to make Seller's
employees third party beneficiaries to this Agreement. Employment of Seller's
personnel by Purchaser shall be solely at Purchaser's option in the exercise of
its business judgment. Purchaser is not assuming any of Seller's employment
liabilities that have accrued, including but not limited to, unpaid FICA, FUTA,
unemployment tax, pension or profit-sharing plan contributions, employee fringe
benefits, bonuses or incentive programs of any type, obligations under COBRA or
any other federal, state or local law, statute or regulation, or accrued and/or
unpaid vacation time or allowances, nor is Purchaser acquiring or assuming any
interest or obligation under any employee benefit plans of Seller.
2.8 Taxes and Prorations. Seller shall be responsible for all bulk sales
taxes, ad valorem taxes or assessments relating to the Assets for taxable
periods up to the Closing Date, regardless of when the same shall become due and
payable, and such taxes shall be pro-rated between Seller and Purchaser as of
the Closing Date. Back taxes and assessments for back taxes, if any, shall be
paid by Seller. If, at the time of Closing, the Assets shall be subject to or
affected by any assessment payable in installments of which the first
installment shall be a charge or lien or shall have been paid, all the remaining
installments shall be deemed due and payable for the purposes of this Agreement
and shall be paid by Seller at the time of Closing. If the parties are unable to
determine the exact amount of taxes for proration at Closing, or if the taxes or
assessments are reassessed subsequent to Closing, it is agreed that the parties
will make the necessary financial adjustments at the time the assessment is
determined. Seller shall be responsible for any gift certificates issued by
Seller prior to the Closing Date and all rent and other payments due under the
Assumed Store Leases prior to the Closing Date, or otherwise attributable to the
period prior to Closing (including all CAM, tax and insurance charges and other
amounts due and payable under the Assumed Store Leases); provided, however, the
rent and other lease charges paid by Seller for the month in which the Closing
occurs shall be prorated between Seller and Purchaser as of the Closing Date,
and upon proof of payment, Purchaser shall reimburse Seller at Closing for
Purchaser's pro-rated share thereof. The parties shall reimburse one another for
any expense paid by one party that the other party has agreed to pay or share
pursuant to this Agreement. If Seller and Purchaser are unable to determine the
exact amount of any expenses for proration at Closing, or if it is determined
subsequent to the Closing that any proration was not correct, it is agreed that
Seller and Purchaser shall make any necessary financial readjustments at the
time such incorrect proration is determined. The obligations of the parties
under this Section 2.8 shall survive the Closing.
2.9 Contracts and Agreements. Except for the Assumed Store Leases or as
otherwise specifically provided herein, Purchaser is not assuming any of
Seller's contracts or agreements, or any of Seller's obligations or liabilities
thereunder.
2.10 Liens. The Assets shall be transferred by Seller to Purchaser free and
clear of any and all liens, claims, encumbrances, security interests, pledges
and charges (collectively, "Security Interests"), other than liens for taxes and
assessments for the current year and taxes and assessments, which are not yet
due and payable. Purchaser does not assume, and shall not be liable for, any
obligations or liabilities whatsoever of Seller relating to the Assets, or the
ownership or operation of the Assets or the Stores, accruing, arising, or
otherwise attributable to the period prior
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to the Closing Date, unless specifically provided for elsewhere in this
Agreement.
2.11 Other Closing Costs. Seller and Purchaser shall each remain liable for
their own closing expenses including attorney's fees. Seller shall remain liable
for any closing expenses incurred by Seller and/or Seller's agents or employees
and shall indemnify Purchaser against any actions brought against Purchaser or
the Assets resulting from Seller's failure to pay any such closing expenses.
Purchaser shall remain liable for any closing expenses incurred by Purchaser
and/or Purchaser's agents or employees and shall indemnify Seller against any
actions brought against Seller resulting from Purchaser's failure to pay any
such closing expenses.
2.12 Bulk Sales. Seller and Purchaser do not believe that this transfer is
subject to any "Bulk Sales Act" provisions or other similar legal requirements.
Notwithstanding the accuracy of this belief, it will not be practicable to
comply or to attempt to comply with the procedures of the "Bulk Sales Act" or
any similar law of the States of Colorado, Idaho, Iowa, Nevada, South Dakota and
Minnesota, or of any other state which may be asserted to be applicable to the
transactions anticipated in this Agreement. Accordingly, to induce Purchaser to
waive any requirement for compliance with the procedures of any Bulk Sale law,
Seller agrees that the indemnity provisions of this Agreement shall apply to any
claim asserted against Purchaser arising out of, or resulting from the failure
of Purchaser or Seller to comply with or perform, any actions in connection
with, in preparation for, or incident to, the transactions anticipated in this
Agreement which might be required under the terms and provisions of any "Bulk
Sales Act" or similar law, or which may be asserted to be applicable.
ARTICLE III
CLOSING
3.1 Closing. The closing of the transaction contemplated by this Agreement
(the "Closing") shall take place at the offices of the Purchaser, 000 Xxxx Xxxx
Xxxxxx, Xxxxxx, Xxxxxxx 00000, or by facsimile and overnight mail for the
convenience of the parties, on November 6, 2002 (the "Closing Date"). All
computations, adjustments, and transfers for the purposes herein shall be
effective as of the opening of business on the Closing Date. Time is of the
essence of this Agreement.
3.2 Closing Documents. At closing and thereafter if requested by Purchaser,
the Seller shall tender to Purchaser fully executed affidavits, assignments,
bills of sale and other documentation as Purchaser may require for all Assets,
including but not limited to the following items:
3.2.1 Xxxx of Sale covering the Assets being conveyed.
3.2.2 Assignment and Amendment of Lease executed by Seller and
Seller's landlord for each of the Assumed Store Leases.
3.2.3 Possession of the Assets.
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3.2.4 All records and the executed originals of all lease agreements,
service contracts, warranties, maintenance agreements that may be in effect
and other documents affecting the Assets.
3.2.5 Such other documents as may be reasonably requested by Purchaser
in connection with the conveyance of the Assets and the continued effective
operation thereof.
3.2.6 A statement that there is no accrued vacation pay or other
benefits which are due and payable to the current employees of Seller. If
any are due and payable, Seller shall be responsible for the payment
thereof at or prior to Closing.
3.2.7 Opinion of Seller's counsel as to the matters set forth on the
attached Exhibit 3.2.7 and in a form reasonably satisfactory to Purchaser.
3.2.8 Assignments for all warranties and other documents related to
the Assets.
ARTICLE IV
INDEMNIFICATION
4.1 Each party shall indemnify and hold harmless the other against and in
respect of any and all losses, damages, costs, expenses or deficiencies
(including reasonable attorney's fees and costs) resulting from, arising out of,
or relating to, any misrepresentation, breach of warranty, or non-fulfillment of
any agreement on the part of the breaching party under this Agreement or from
any misrepresentation in or omission from any exhibit, transfer document,
certificate or other instrument furnished or to be furnished to the
non-breaching party under this Agreement.
4.2 Seller shall indemnify and hold harmless Purchaser against and in
respect of all losses, damages, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses (including reasonable attorney's fees
and costs) incident to any of the foregoing, including claims of third parties
against Purchaser, for debts, services, contracts, liabilities, obligations or
actions by Seller prior to the Closing Date and not specifically assumed by
Purchaser under the terms of this Agreement.
4.3 Seller agrees to indemnify and hold harmless Purchaser from and against
all losses, damages, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including reasonable attorney's fees and costs)
resulting from, arising out of, relating to, or caused by, the breach of any of
Seller's representations, warranties or covenants contained in this Agreement,
any liability or obligation of Seller which is not expressly assumed by
Purchaser under this Agreement, or any liability of Purchaser arising by
operation of law (including under any bulk transfer law of any jurisdiction or
under any common law doctrine of defacto merger or successor liability) which is
not expressly assumed by Purchaser under this Agreement.
4.4 Seller agrees to indemnify and hold harmless Purchaser against and in
respect of all
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income, gross receipts, value added, service, sales, bulk sales, use, rental,
excise, ad valorem and property taxes or other federal, state or local taxes or
assessments levied upon or relating to the Assets or Seller for taxable periods
up to the Closing Date, regardless of when the same shall become due and
payable, unless otherwise specifically agreed to herein.
4.5 Purchaser shall indemnify and hold harmless Seller against and in
respect of all losses, damages, actions, suits, proceedings, demands,
assessments, judgments, costs and expenses (including reasonable attorney's fees
and costs) incident to any of the foregoing, including claims of third parties
against Seller, for debts, services, contracts, obligations, liabilities or
actions by Purchaser, attributable to the period of operations of the Stores on
or after the Closing Date, or otherwise assumed by Purchaser.
4.6 Purchaser agrees to indemnify and hold harmless Seller from and against
all losses, damages, actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including reasonable attorney's fees and costs)
resulting from, arising out of, relating to, or caused by, the breach of any of
Purchaser's representations, warranties or covenants contained in this
Agreement, or Purchaser's failure to pay or perform any liability or obligation
expressly assumed by Purchaser under this Agreement.
4.7 The Indemnified Party shall promptly notify the Indemnifying Party of
the existence of any claim, demand, or other matter to which the Indemnifying
Party's indemnification obligation would apply, and shall give the Indemnifying
Party a reasonable opportunity to defend the same at Indemnifying Party's own
expense, and with counsel of Indemnifying Party's own selection reasonably
satisfactory to Indemnified Party. Indemnified Party shall at all times also
have the right to fully participate in the defense at its own expense. If the
Indemnifying Party within reasonable time after that notice, but no later than
fifteen (15) days, fails to defend, the Indemnified Party shall have the right,
but not the obligation, to undertake the defense of, and to compromise or settle
(exercising reasonable business judgment) the claim, demand, or other matter on
behalf, for the account, and at the risk, of the Indemnifying Party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Seller. In addition to any warranties
and representations otherwise contained herein, Seller also represents and
warrants to Purchaser as of the date hereof and on the Closing Date as follows
(all representations and warranties shall survive the Closing):
5.1.1 Title. Seller owns licenses or leases the Assets and any
other tangible assets necessary for the conduct of its business at the
Stores, as is now being conducted and as presently proposed to be
conducted. The Assets and any other tangible assets necessary for the
conduct of its business at the Stores are free from defects (patent
and latent), have been maintained in accordance with normal industry
practice and are in good operating condition and repair (subject to
normal wear and tear and breakage). Seller leases no such assets
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except for ones specifically identified as leased on Schedule 5.1.1. Seller has
good and marketable title to the Assets to be transferred pursuant to this
Agreement, subject to no Security Interest, except for:
5.1.1.1 Liens reflected, which shall be fully satisfied at
or before the Closing, on Schedule 5.1.1.1 as securing specified
liabilities with respect to which no default exists.
5.1.1.2 Liens for current taxes and assessments not yet due
and payable.
5.1.2 Intellectual Property.
5.1.2.1 Seller has title to or has the right to use pursuant
to license, sublicense, agreement or permission all intellectual
property necessary for the operation of the business of the
Seller as presently conducted and as presently proposed to be
conducted. Each item of intellectual property owned or used by
Seller immediately prior to the Closing hereunder will be owned
or available for use by the Purchaser on identical terms and
conditions immediately subsequent to the Closing hereunder.
5.1.2.2 Seller has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any
intellectual property rights of third parties, and none of the
employees with responsibility for intellectual property matters
of Seller has ever received any charge, complaint, claim or
notice alleging any such interference, infringement,
misappropriation, or violation. To the knowledge of the Seller
and its employees with responsibility for intellectual property
matters of Seller, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
intellectual property rights of Seller.
5.1.2.3 Schedule 1.1.6 identifies each registration which
has been issued to Seller with respect to any of its intellectual
property, identifies each pending application for registration
which Seller has made with respect to any of its intellectual
property, and identifies each license, agreement, or other
permission which Seller has granted to any third party with
respect to any of its intellectual property (together with any
exceptions). Seller has delivered to the Purchaser correct and
complete copies of all such registrations, applications,
licenses, agreements and permissions (as amended to date) and has
made available to the Purchaser correct and complete copies of
all other written documentation evidencing ownership and
prosecution (if applicable) of each such item.
5.1.2.4 Schedule 1.1.6 also identifies each item of
intellectual property that any third party owns and that Seller
uses pursuant to license, sublicense, agreement or permission.
Seller has supplied the Purchaser with correct and complete
copies of all such licenses, sublicense, agreements and
permissions (as amended to date).
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5.1.3 Assumed Store Leases. Seller has delivered to the Purchaser a
correct and complete copy of each of the Assumed Store Leases (as amended
to date), which leases are listed and more particularly described in
Schedule 5.1.3, and Excluded Leases (as amended to date) With respect to
each of the Assumed Store Leases and Excluded Leases and subject to each
landlord's consent to and approval of the assignment and transfer of the
Assumed Store Leases to Purchaser as provided herein, Seller warrants that:
5.1.3.1 The lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
5.1.3.2 The Assumed Store Leases will continue to be legal,
valid, binding, enforceable and in full force and effect on identical
terms following the Closing and the Excluded Leases will continue to
be legal, valid, binding, enforceable and full force and effect on
identical terms up to the Closing;
5.1.3.3 No party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification or acceleration thereunder;
5.1.3.4 No party to the lease or sublease has repudiated any
provision thereof;
5.1.3.5 There are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
5.1.3.6 Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold
or sub-leasehold; and
5.1.3.7 All facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses
and permits) required in connection with the operation thereof and
have been operated and maintained in accordance with applicable laws,
rules and regulations.
5.1.3.8 Seller shall, prior to Closing, cure any breach or
default in any of the Assumed Store Leases or Excluded Leases and
shall cooperate with the Purchaser to ensure that Purchaser and
Seller's landlords for each Store subject to an Excluded Lease, enter
into a new lease for such store as of the Closing Date.
5.1.4 Violations, Suits, Etc. To the best of Seller's knowledge, in
all respects material to the Stores and Assets, Seller is not in default
under any law or regulation, or under any order of any court of federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality wherever located. To the best of Seller's
knowledge and except to the extent set forth on the Schedule 5.1.4, there
are (1) no claims, actions, suits or proceedings instituted or filed and,
(2) there are no claims, actions, suits or proceedings threatened
presently, or which in the future may be threatened against
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or affecting Seller, the Stores, or the Assets at law or in equity, by any
person or entity before or by any federal, state, municipal or other
governmental department, commission, board, court, bureau, agency or
instrumentality wherever located. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby (including the assignments and assumptions referred to hereinabove),
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge or other restriction of any government,
governmental agency, or court to which the Seller is subject or any
provision of its charter or bylaws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject. The Seller does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the parties
to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to hereinabove).
5.1.5 Tax Returns. Seller has filed or will file all requisite
federal, state and other tax returns due for all fiscal periods ended
within 120 days of the Closing Date relevant to the Assets. All such taxes
due and owing shall be or have been paid by Seller.
5.1.6 Financial Statements. Attached hereto as Schedule 5.1.6 are the
following financial statements for the Seller (collectively the "Financial
Statements"): (i) balance sheet and profit and loss statements as of and
for the fiscal year ended January 31, 2002 (the "Most Recent Fiscal Year
End") and (ii) fixed asset listing and profit and loss statements (the
"Most Recent Financial Statements") as of and for the seven (7) months
ended August 31, 2002 (the "Most Recent Fiscal Month End"). The Financial
Statements have been prepared on a consistent basis throughout the periods
covered thereby, are materially correct and complete, and accurately
reflect Seller's assets and liabilities, revenues and expenses, and the
operations of the business, at the Stores.
5.1.7 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Month End, there has not been any adverse change in the
assets, liabilities, business, financial condition, operations, and results
of operations or future prospects of the Seller or the Stores.
5.1.8 Present Status. With respect to the Stores and the Assets, since
the Most Recent Fiscal Month End, the Seller has not: incurred any
obligations or liabilities, absolute, accrued, contingent, or otherwise,
except current liabilities in the ordinary course of business; discharged
or satisfied any lien or encumbrances, or paid any obligations or
liabilities, except current liabilities and current liabilities incurred
since the Most Recent Fiscal Month End, in each case, in the ordinary
course of business; mortgaged, pledged or subjected to lien, encumbrance,
or charge any of its assets; canceled any debt or claim; sold or
transferred any assets, except sales from inventory in the ordinary course
of business;
11
suffered any damage, destruction, or loss (whether or not covered by
insurance) materially affecting its properties, business or prospects;
waived any rights of substantial value; nor entered into any transaction
other than in the ordinary course of business.
5.1.9 Undisclosed Liabilities. With respect to the Stores and the
Assets, Seller has no liability (and there is no basis for any present or
future charge, complaint, action, suit, proceeding, hearing, investigation,
claim or demand against Seller giving rise to any liability), except for
(i) liabilities set forth on the face of the Most Recent Financial
Statements (other than in any notes thereto) and (ii) liabilities which
have arisen after the Most Recent Fiscal Month End in the ordinary course
of business (none of which relates to any breach of contract, breach of
warranty, tort, infringement or violation of law or arose out of any
charge, complaint, action, suit, proceeding, hearing, investigation, claim
or demand).
5.1.10 Operations Until Closing. Between the date of this Agreement
and the Closing Date, the Seller shall:
5.1.10.1 Carry on its business and operate the Stores in the
ordinary and normal course of business and maintain normal levels of
rental and sell-through inventory and equipment; and specifically,
Seller shall continue to purchase "new release" video cassette tape,
DVD, and video game inventory, music CDs and cassettes and books
consistent with its present and prior operation of the Stores. On the
Closing Date, Seller shall transfer to Purchaser a full complement of
rental and sell-through video cassette tapes, DVDs, video games, music
CDs and cassettes and books, as is customary with Seller's operations
at Stores prior to the date hereof, but in no event less than the
quantity of video cassette tapes, DVDs, video games, music CDs and
cassettes and books at the Stores which is set forth in Schedule
1.1.2.
5.1.10.2 Maintain the Assets in as good working order and
condition as at present, ordinary wear and tear excepted.
5.1.10.3 Perform all material obligations under agreements
relating to or affecting its Assets, properties and rights.
5.1.10.4 Keep in full force and effect until Closing present
insurance policies or other comparable insurance coverage.
5.1.10.5 Not, without Purchaser's consent, enter into any
contracts or obligations, other than those normal consumer contracts
in the ordinary course of business, which by their terms would either
necessitate or, require as a practical business matter, assumption of
or action by Purchaser after the Closing Date.
5.1.10.6 Not sell, assign, lease or otherwise transfer or dispose
of the Assets except in the ordinary course of business. Sales of
used/previously viewed video cassette tapes, DVDs and video games
shall be consistent with Seller's prior
12
operations.
5.1.10.7 Not enter into any employment contracts which are not
terminable at will.
5.1.11 Operations after Closing.
5.1.11.1 Seller represents and warrants that it shall cease
operations at the Stores as of the Closing Date.
5.1.11.2 Seller represents and warrants that it shall terminate
or abandon the Excluded Leases as of the Closing Date.
5.1.11.3 Seller represents and warrants that it shall continue to
operate the Crystal Store after Closing and until such time as
determined by Purchaser. In the event such operations shall continue
beyond January 31, 2003, Purchaser shall reimburse Seller for the base
rent under the lease for the Crystal Store for the period commencing
on February 1, 2003, and ending on the date that such operations shall
cease.
5.1.12 Organizational Representations and Warranties of Seller. Seller
represents and warrants as follows:
5.1.12.1 Seller is a corporation duly organized, validly existing
and as of the Closing Date in good standing under the laws of the
State of Delaware.
5.1.12.2 The execution and delivery of this Agreement by Seller
has been duly authorized, and on the Closing Date, Seller will have
all necessary power and authority to consummate the transactions
provided herein.
5.1.12.3 The officers whose signatures are affixed hereto have
all power and authority to bind Seller.
5.1.13 Title to Assets. In the event that any Agreements, contracts,
warranties, maintenance agreements and other documents related to the
Assets are titled in any person or entity other than the Seller and are
required to be assigned or transferred to Purchaser hereunder, the Seller
shall cause such person or entity to assign or transfer its interest in
such agreements to the Purchaser.
5.1.14 Access to Records. The Seller will afford the Purchaser access,
during normal business hours, to all its business operations, properties,
books, files, and records at or directly related to the Stores, and will
cooperate in the Purchaser's examination thereof. No such examination,
however, shall constitute a waiver or relinquishment by the Purchaser of
its right to rely upon the Seller's covenants, representations, and
warranties as made herein or pursuant hereto. Until the Closing, the
Purchaser will hold in confidence all
13
information so obtained, except as hereinafter provided, and any document
or instrument heretofore or hereafter obtained by the Purchaser in
connection herewith shall be held on an express trust for and on behalf of
the Seller, except as hereinafter provided.
5.1.15 Compliance. Through the Closing Date, the Seller will use its
reasonable best efforts to cause its employees to comply with all
applicable provisions of this Agreement.
5.1.16 Financial Reports. The Seller's revenue and expense data
provided to Purchaser and the Seller's Sales Tax Returns for 2001 and 2002
to date, copies of which are hereby furnished to Purchaser by Seller upon
execution of this Agreement, are true, accurate and complete as of their
dates, and as of the date hereof.
5.1.17 Environment, Health and Safety. With respect to the Stores and
the Assets:
5.1.17.1 Seller has complied with all laws (including rules and
regulations thereunder) of federal, state and local governments (and
all agencies thereof) concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand or
notice has been filed or commenced against Seller alleging any failure
to comply with any such law or regulation.
5.1.17.2 Seller has no liability (and there is no basis related
to the past or present operations, properties or facilities of Seller
for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim or demand against Seller giving rise to
any liability) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972,
the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the
Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the
Emergency Planning and Community Right-To-Know Act of 1986 (each as
amended), or any other law (or rule or regulation thereunder) of any
federal, state or local government (or agency thereof), concerning
release or threatened release of hazardous substances, public health
and safety, or pollution or protection of the environment.
5.1.17.3 Seller has no liability (and Seller has not handled or
disposed of any substance, arranged for the disposal of any substance
or owned or operated any property or facility in any manner that could
form the basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim or demand (under the
common law or pursuant to any statute) against Seller giving rise to
any Liability) for damage to any site, location or body of water
(surface or subsurface) or for illness or personal injury.
5.1.17.4 Seller has no liability (and there is no basis for any
present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim or
14
demand against Seller giving rise to any Liability) under the
Occupational Safety and Health Act, as amended, or any other law (or
rule or regulation thereunder) of any federal, state or local
government (or agency thereof) concerning employee health and safety.
5.1.17.5 Seller has obtained and been in compliance with all of
the terms and conditions of all permits, licenses and other
authorizations which are required under, and has complied with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables which are
contained in, all federal, state and local laws (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions and charges thereunder) relating to public health and
safety, worker health and safety, and pollution or protection of the
environment, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants,
or chemical, industrial, hazardous or toxic materials or wastes.
5.1.17.6 Lawful Operations Without Hazardous Wastes. In the
operation of Seller's business at the Stores, Seller has complied with
all applicable laws and regulations, including permits, during its
possession, and during its possession, there has been no on site
disposal at the leased spaces of hazardous or toxic waste as defined
by federal or state laws and there has been no storage of hazardous or
toxic waste at the leased spaces, nor off site disposal of hazardous
or toxic waste generated from any operation at the leased spaces.
Further, Seller agrees to provide Purchaser with any hazardous or
toxic waste evaluations that have been prepared by a private engineer,
business, or a governmental entity. Seller also agrees to allow
Purchaser, at Purchaser's option and expense, to have facilities and
premises at the leased spaces evaluated and inspected for hazardous or
toxic waste. If any of these evaluations demonstrate the presence of
hazardous or toxic waste or the likelihood thereof, the Purchaser, at
Purchaser's option, may terminate this Agreement entirely at any time
prior to Closing Date. After Closing, Purchaser relinquishes such
right to terminate this Agreement, but nothing shall be construed to
terminate Purchaser's rights under this Agreement.
5.1.17.7 Construction Assurances. The construction of the
facilities and premises at the leased spaces is according to plans and
specifications of any applicable county, state or federal standards.
Seller agrees to furnish Purchaser with a set of plans and
specifications for the facilities and premises at the leased spaces,
where available.
5.1.18 Brokers' Fees. Seller has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by
15
this Agreement for which the Purchaser could become liable or obligated.
5.2 Representations and Warranties of Purchaser.
5.2.1 Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
5.2.2 The execution and delivery of this Agreement by Purchaser has
been duly authorized by proper Corporate action, and on the Closing Date,
Purchaser will have all necessary power and authority to consummate the
transactions provided herein.
5.2.3 Brokers' Fees. Purchaser has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
ARTICLE VI
CONDITIONS TO OBLIGATION TO CLOSE
6.1 Conditions to Obligation to Close.
6.1.1 Conditions to Obligation of the Purchaser. The obligation of the
Purchaser to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
6.1.1.1 The representations and warranties of Seller set forth
hereinabove shall be true and correct in all material respects at and
as of the Closing Date.
6.1.1.2 Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing.
6.1.1.3 Seller and Purchaser shall have procured all of the third
party consents specified hereinabove, including, but not limited to,
the written consent of Seller's landlords to the assignment of the
Assumed Store Leases by Seller to Purchaser.
6.1.1.4 Seller and Purchaser shall have re-inspected the Assets,
and based upon such re-inspection, Purchaser shall be satisfied that
the purchase and sale of inventory by Seller has been substantially
consistent with Seller's prior operations.
6.1.1.5 Seller shall deliver to Purchaser executed covenants not
to compete from Seller in the form attached hereto as Exhibit 6.1.1.5
(the "Covenant Not To Compete").
6.1.1.6 Purchaser and Seller shall have resolved any of the
matters related to
16
the Assumed Lease set forth on Schedule 6.1.1.6 to the reasonable
satisfaction of Purchaser.
6.1.2 Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
6.1.2.1 The representations and warranties of Purchaser set forth
hereinabove shall be true and correct in all material respects at and
as of the Closing Date.
6.1.2.2 The Purchaser shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing.
ARTICLE VII
ADDITIONAL PROVISIONS
7.1 Default.
7.1.1 In the event that Seller fails for any reason to close the
transaction contemplated by this Agreement, or in the event that Purchaser,
based upon a material failure by Seller for any reason to operate the
Stores in the normal course of business, determines not to close the
transaction contemplated by this Agreement, then Seller shall pay, or cause
to be paid, to Purchaser a break-up fee in the amount of Sixty Thousand and
No/100 Dollars ($60,000.00) (the "Break-up Fee") for the time and resources
invested and the costs and expenses incurred by Purchaser n connection with
its evaluation, due diligence examination of Seller and the negotiation and
execution of this Agreement. Any occurrence, act or omission ("triggering
Event") that would constitute a cause for the payment of the Break-up Fee
to Purchaser under this Agreement shall require payment to Purchaser For
the purposes of this Section 7.1.1, the term "material failure" shall mean
a failure that is reasonably likely to have a material adverse effect o the
Assets or business of Seller at the Stores.
7.1.2 In the event all conditions and contingencies contained herein
shall be met and Purchaser shall fail to purchase the Assets as provided
herein, Purchaser shall reimburse Seller for the cost of all fees, costs
and expenses it may have incurred or thereafter incur, including, but not
limited to, reasonable attorney's fees.
7.2 Continued Inspection. With reasonable advance notice given to Seller,
the Purchaser has the right to examine the Assets after acceptance of this
Agreement by Seller. This right to examine the Assets shall continue until
Closing Date. Purchaser's right to examine shall be during normal business
hours, or as otherwise arranged and shall not unreasonably interfere with the
operation of Seller's business at the Stores. Upon the request of Purchaser,
Seller shall provide for Purchaser's review copies of all leases, agreements or
other documents relating to Seller's business at the Stores.
17
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Audit Requirements. Seller hereby agrees that at any time prior to
Closing and for a period of three (3) years after Closing, and upon reasonable
notice to Seller, the Purchaser, its parent corporation, Movie Gallery, Inc.,
and their respective officers, employees, agents, independent auditors and
financial consultants, shall have full access to all financial records of Seller
for the current fiscal year and for the prior three complete fiscal years of
Seller, for the purpose of conducting and completing an unqualified audit of
Seller's financial statements and business operation utilizing GAAP. Seller
agrees to cooperate fully with Purchaser in this effort and to maintain and
provide Purchaser with the financial records necessary to conduct and complete
such audit. Purchaser shall reimburse Seller for any expenses incurred by Seller
in connection with any such post-closing audit. Seller agrees that Purchaser's
parent corporation, Movie Gallery, Inc., shall have the right to include the
audited financial statements of Seller in any of its public filings with the
Securities and Exchange Commission, as may be required by law or by the terms of
any listing agreement with a securities exchange, and to present such financial
statements to any interested parties, including but not limited to potential
underwriters and potential investors in a private or public offering of the
Purchaser's capital stock, debentures, or other securities of Purchaser or its
parent corporation, Movie Gallery, Inc.
8.2 Risk of Loss. The risk of loss prior to the Closing Date shall be with
Seller. In the event the Assets or the operations at the Stores shall have been
damaged adversely or affected in any material way as a result of any strike,
accident or other casualty or act of God or the public enemy, or any judicial,
administrative or governmental proceeding at such time as Seller proposed to
close, then Purchaser shall have the options of either (i) prorating the
Purchase Price to adjust for the loss; or (ii) proceeding to close with an
assignment of any insurance proceeds which may be paid to reflect such loss or
damage, or (iii) terminating this Agreement and the transaction contemplated
therein.
8.3 Severability and Operations of Law. If any provision of this Agreement
is prohibited by the laws of any jurisdiction as those laws apply to this
Agreement, that provision is ineffective to the extent of such prohibition
and/or is modified to conform with such laws, without invalidating the remaining
provisions hereto; and any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction.
8.4 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Alabama applicable to contracts
executed and to be performed in such state. The parties to this Agreement hereby
submit to the exclusive jurisdiction of the federal and state courts sitting in
Dothan, Alabama, and agree that any action hereunder or in any way related to
this Agreement shall be brought in such courts.
8.5 Modification. This Agreement may not be changed or modified except in
writing
18
specifically referring to this Agreement and signed by the undersigned Purchaser
and Seller.
8.6 Continuation and Survival. The representations and warranties of the
respective parties and all of the other terms, covenants and conditions
contained herein shall be deemed material and shall survive the Closing for
three (3) years after the Closing Date, except in the case of Sections 5.1.1,
5.1.5 and 5.1.17, which shall be governed by statutory time limits.
8.7 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.
8.8 Confidentiality; Publicity. Except as may be required by law or as
otherwise permitted herein, no party hereto or their respective affiliates,
employees, agents and representatives shall disclose to any third party the
subject matter or terms of this Agreement without the prior consent of the other
parties; provided, however, that any party hereto may discuss the terms of this
Agreement and the transactions contemplated herein with its counsel, financial
advisors, lenders and equity investors and their respective counsel. No press
release or other public announcement related to this Agreement or the
transactions contemplated hereby will be issued by any party hereto without the
prior approval of the other parties, except that any party may make such public
disclosure which it believes in good faith to be required by law or by the terms
of any listing agreement with a securities exchange (in which case such party
will consult with the other parties prior to making such disclosure).
Notwithstanding anything above to the contrary, Seller and Purchaser shall issue
a joint press release upon the execution of this Agreement. The content of such
press release shall be agreed upon by both Seller and Purchaser. No press
release shall be issued by either Seller or Purchaser unless the content thereof
is agreed upon. Disclosure of any financial data provided either party by the
other is strictly prohibited without the other party's prior written consent.
Notwithstanding anything herein to the contrary, the parties acknowledge that
Purchaser may pursue a private or public sale of the assets, capital stock or
securities of the Purchaser in the future. The Seller agrees that Purchaser is
hereby permitted to reveal any information provided by Seller as is reasonably
required by Purchaser, in order to facilitate the closing of any such sale or
offer to sell, or required by law.
8.9 Assignment; Successors and Assigns. Neither party to this Agreement may
assign any of its rights or delegate any of its responsibilities under this
Agreement, except that Purchaser may assign this Agreement to any subsidiary of
Purchaser or its parent corporation, or to any person that succeeds to all or
substantially all of the business of Purchaser through a purchase of assets,
merger or otherwise. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective heirs, successors, assigns and personal
representatives.
8.10 Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by overnight courier (i.e. Federal Express), or
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
19
If to Seller: With a copy to:
------------ --------------
Video City, Inc.
0000 Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: CEO
If to Purchaser:
---------------
M.G. Midwest, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxx, Xxxxxxx 00000
Attention: General Counsel
8.11 Enforcement. In the event either party hereto fails to perform any of
its obligations under this Agreement (including any breach or misrepresentation
by either party), or in the event a dispute arises concerning the meaning or
interpretation of any provision of this Agreement, the defaulting or breaching
party, or the party not prevailing in such dispute, as the case may be, shall
pay any and all costs and expenses incurred by the other party in enforcing or
establishing its rights hereunder, including, without limitation, court costs
and reasonable attorneys' fees.
8.12 Entire Agreement; Merger of Prior Agreements. This Agreement and the
other agreements required to be executed and delivered by the parties in
connection herewith contain the entire agreement of the parties relating to the
subject matter hereof. There are no other agreements or understandings, written
or oral concerning the same and this Agreement supersedes all prior agreements
and understandings between the parties hereto relating to the subject matter
hereof.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PURCHASER:
ATTEST: M.G. Midwest, Inc.
By: Unknown By: /s/ J. Xxxxxx Xxx
------- -----------------
Its Assistant Secretary Its Senior Vice President
----------------------- -------------------------
SELLER:
ATTEST: Video City, Inc
/s/ Xxxxxxx Xxxxxx By: /s/ Xxxxxx X. Xxx
------------------- -----------------
Its Chief Financial Officer Its Chairman of the Board
--------------------------- -------------------------
21
SCHEDULE 1.1
STORES
1. Video Land (VC# 61) ("Aurora Store")
00000 Xxxx Xxxxxxxxxxx Xxx.
Xxxxxx, XX 00000
2. Video Land (VC # 64) ("Conifer Store")
00000 XX Xxxxxxx 000 #X-000
Xxxxxxx, XX 00000
3. Video City (VC# 152) ("Des Moines Store")
0000 Xxxxx Xxxxx
Xxx Xxxxxx, XX 00000
4. Video Land (VC # 174) ("Newton Store")
0000 Xxxxx Xxxxxx Xxxx
Xxxxxx, XX 00000
5. Video Land (VC # 185) ("Oskaloosa Store")
000 X Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
6. Video City (VC # 203) ("Boone Store")
000 0xx Xxxxxx
Xxxxx, XX 00000
7. Video Land (VC # 182) ("Boise Store")
0000 Xxxxx Xxxxx Xxxxxx
Xxxxx, XX 00000
8. Video Land (VC # 160) ("Caldwell Store")
0000 Xxxx Xxxxxxxxx Xxxx.
Xxxxxxxx, XX 00000
9. Video Land (VC # 168) ("Meridian Store")
0000 Xxxx Xxxxxx Xxxx
Xxxxxxxx, XX 00000
10. Video Land (VC # 147) ("Moscow Store")
0000 Xxxxx Xxxxxx
Xxxxxx, XX 00000
22
11. Video Land (VC # 170) ("Nampa Store")
0000 00xx Xxxxxx Xx.
Xxxxx, XX 00000
12. Adventures in Video (VC # 89) ("Blaine Store")
00000 Xxxxxxxxxx Xxx
Xxxxxx, XX 00000
13. Adventures in Video (VC # 82) ("Ramsey Store")
00000 Xx. Xxxxxxx Xxxx.
Xxxxxx, XX 00000
14. Video Land (VC # 164) ("Vermillion Store")
000 Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
15. Video Tyme (VC # 72) ("Las Vegas Store")
000 Xxxx Xxxxx
Xxx Xxxxx, XX 00000
16. Adventures in Video (VC # 81) ("Crystal Store")
0000 Xxxx Xxxx Xxxx
Xxxxxxx, XX 00000
17. Video City (VC # 154) ("Ottumwa Store")
0000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
18. Video Land (VC # 191) ("Xxxxx City Store")
000 Xxxxx Xxxxxxxx
Xxxxx Xxxx, XX 00000
19. Video City (VC # 204) ("Urbandale Store")
0000 Xxxxxxx Xxxx
Xxxxxxxxx, XX 00000
23
SCHEDULE 1.1.2
STORE INVENTORY
See attached pre-orders and inventory lists.
24
SCHEDULE 1.1.6
INTELLECTUAL PROPERTY
5. Only in the states where the Stores are located, all of Seller's right,
title and interest, if any, in and to the "Video City" (except within the
State of California), "Video Land," "Adventures in Video" and "Video Tyme"
trade names and related marks, trade dress and logos, and all goodwill
associated therewith at, or with respect to, the Stores.
5. All Seller's rights, title and interest, if any, to the computer software
programs utilized by Seller in the operation of the Stores, and all
computer files and data contained therein.
25
SCHEDULE 1.2.2
CHANGE FUNDS
------------------------------ ----------------------------
STORE AMOUNT OF CHANGE FUNDS
------------------------------ ----------------------------
Aurora Store $600.00
Conifer Store $500.00
Des Moines Store $500.00
Xxxxxx Store $400.00
Oskaloosa Store $600.00
Xxxxx Store $300.00
Boise Store $400.00
Caldwell Store $600.00
Meridian Store $600.00
Moscow Store $500.00
Nampa Store $700.00
Blaine Store $600.00
Xxxxxx Store $400.00
Vermillion Store $400.00
Las Vegas Store $400.00
TOTAL CHANGE FUNDS: $ 7,500.00
26
SCHEDULE 1.2.5
EXCLUDED INVENTORY
None
27
SCHEDULE 2.5
ASSUMED LIABILITIES
None
28
SCHEDULE 2.6
ALLOCATION OF PURCHASE PRICE
1. Video Cassette Tapes, DVDs, Video Games & Other Inventory $ 535,000.00
2. Fixtures, Equipment & other Tangible Personal Property $ 190,000.00
3. Covenant Not To Compete from Seller $ 10,000.00
4. Business Goodwill and Intellectual Property $ 1,345,500.00
--------------
TOTAL $ 2,080,500.00
==============
29
SCHEDULE 5.1.1
LEASED PROPERTY
None
30
SCHEDULE 5.1.1.1
LIENS
1. Video Product Distributors
2. Video City Private Placement Investors
31
SCHEDULE 5.1.3
ASSUMED STORE LEASES
List of Leases attached.
32
SCHEDULE 5.1.4
SUITS AND CLAIMS
None
33
SCHEDULE 5.1.6
FINANCIAL STATEMENTS
See attached.
34
SCHEDULE 6.1.1.6
ASSUMED LEASE MATTERS
Aurora Store
Need lease extension with options or new lease
Need CAM exclusions
Delete language regarding LL lien
Conifer Store
Need CAM exclusions
Delete Management fee in sec. 1.12
Delete right to relocate
Need the right to re-brand
Des Moines Store
Tax clause appears to be using the "leased" area instead of "leaseable" area
Xxxxxx Store
Rent appears to be base rent + 10% in excess of $2800. This would be difficult
to monitor. Try to get flat rate for rent
Oskaloosa Store
Please verify terms
Boise Store
Need CAM exclusions
Delete continuous operation clause, if possible
Assignment clause needs adjusting (financial requirement)
Caldwell Store
Is this a free-standing building? No square footage
Insurance amount required needs to be lowered to 1 million
Meridian Store
Need CAM exclusions
35
Moscow Store
Lease expires 5/03. Requires 1 years notice. Need to extend.
Need CAM exclusions
Nampa Store
Need CAM exclusions.
Delete Management fees (sec. 2.05 & sec 10.01(a)
Need sec 15.04
Need statement from LL that Permitted use is not in violation or R&C
Blaine Store
Need CAM exclusions
Xxxxxx Store
Need to extend or documentation that options was exercised
Need CAM exclusions
Vermillion Store
Expound on Use clause
Delete cont. operation clause
Need right to re-brand
Las Vegas Store
Need extension or new lease
Need CAM exclusions
Reduce holdover to 150% maximum
36
EXHIBIT 3.2.7
OPINION OF SELLER'S COUNSEL
The Seller shall furnish to the Purchaser an opinion of its counsel in form
satisfactory to the Purchaser and its counsel and in substance to the effect
that:
(a) Corporate Organization. Seller is a business corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware, and has all requisite power and authority to enter into
this Agreement, and to carry out the transactions anticipated by this
Agreement.
(b) Foreign Qualification. Seller is duly qualified and authorized to
conduct business as a foreign business corporation in each jurisdiction
where it conducts business, or where failure on its part to be so qualified
would materially and adversely affect its business, financial condition, or
results of operation by reason of any disability affecting its right to own
or lease property, collect receivables, enforce contracts or otherwise.
(c) Property Ownership. Seller has all requisite power and authority to
own, or hold under lease or similar agreement, the assets and properties
owned or held by it and to carry on business as the same is now being
conducted by it.
(d) Authority. This Agreement has been duly executed and delivered by the
Seller, and constitutes the legal, valid and binding obligation of the
Seller, subject to the limitations of any bankruptcy, insolvency,
fraudulent conveyance, reorganization, or moratorium or other similar laws
or by the application of general principals of equity. No opinion is
rendered concerning the enforceability of any terms of it or of any allied
agreement, under the laws of the United States of America.
(e) Compliance. To the knowledge of counsel, the execution, delivery and
performance by the Seller of this Agreement will not violate, and will not
conflict with or result in the breach of any term, condition, or provision
of, or constitute a default under, the Articles of Incorporation or By-Laws
of the Seller.
(f) Closing Documents. The instruments of conveyance, transfer and
assignment to be delivered by the Seller to the Purchaser under this
Agreement at the Closing have been duly and validly executed and delivered
by the Seller, constitute the legal, valid and binding obligations of the
Seller (subject to the limitations of any bankruptcy, insolvency,
fraudulent conveyance, reorganization, or moratorium or other similar laws
or by the application of general principals of equity) in accordance with
their respective terms, and effectively convey, transfer and assign to the
Purchaser all right, title and interest of the Seller in and to the assets
and business purported to be conveyed to them.
(g) Liens. Counsel has no knowledge of any mortgages, liens, restrictions
or encumbrances on the assets and business to be conveyed to the Purchaser
except as described in this Agreement.
(h) Litigation. To the knowledge of counsel, except as set forth in this
Agreement, there is no litigation, proceeding or governmental investigation
pending, or threatened, against or relating to the Seller which might have
a material and adverse effect on the business of the Seller, or which
questions the validity of this Agreement of or any action taken, or to be
taken, by the Seller under this Agreement or in connection with the
provisions of this Agreement.
(i) Reliance. The opinion shall state that it may be relied upon by
Purchaser, and its counsel.
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EXHIBIT 6.1.1.5
COVENANT NOT TO COMPETE
THIS AGREEMENT ("Agreement") is made and entered this ____ day of November,
2002, by and between Video City, Inc. ("Covenantor"), whose address is 0000
Xxxxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxxx 00000 and M.G. Midwest, Inc. ("M.G.M."),
whose address is 000 Xxxx Xxxx Xxxxxx, Xxxxxx, Xxxxxxx 00000.
WITNESSETH:
M.G.M. and its affiliates are in the business of renting and retail sales
of pre-recorded video cassettes, digital video disks ("DVDs"), and video games,
video related equipment and other related merchandise, and services, including
tanning, to the general public (hereinafter referred to as the "Business")
within the continental United States of America. In consideration of M.G.M.
paying to Covenantor the sum which is included in the Purchase Price set out in
the Asset Purchase Agreement between Covenantor and M.G.M., dated October ___,
2002 (the "Asset Purchase Agreement") it is agreed that Covenantor will execute
this Covenant Not to Compete.
NOW, THEREFORE, the parties hereto mutually covenant and agree as follows:
That for a period of five (5) years from the date hereof, and within 10
miles from the Stores (as defined in the Asset Purchase Agreement) (the
"Business Area"), Covenantor will not:
(A) compete with M.G.M. in the Business, or engage in or carry on the
Business directly or indirectly, through any person or entity, or in any
capacity, including, without limitation, agent, lender, trustee,
consultant, shareholder, director, officer, employee, or partner;
(B) be employed by, or perform any services as employee, consultant,
or otherwise, for, any person, firm, partnership, joint venture,
corporation or other entity that competes with M.G.M. in the Business or
that is engaged in the Business within the Business Area.
(C) employ, solicit for employment, or advise or recommend to any
other person that such person employ, or solicit for employment, any
employee of M.G.M. or any corporation owned directly or indirectly by
M.G.M. engaged in the Business;
(D) deal with, invest in, lend money to, guarantee loans of, make
gifts to, advise, or by any other means assist any other person or entity
that competes with M.G.M. or any corporation owned directly or indirectly
by M.G.M. in the Business or that is engaged in the Business within the
Business Area.
(E) disclose to anyone other than key officers of M.G.M. any trade
secrets or
38
information about the Business or affairs of M.G.M. or any corporation
owned directly or indirectly by M.G.M. not generally available to the
public, including, without limitation, information relating to the actual
and potential customers of the Business and their needs and requirements
for products or services supplied by the Business.
M.G.M. and Covenantor agree that the period of time and the Business Area
applicable to the covenants herein are reasonable, in view of the receipt of the
payments made to Covenantor, directly or indirectly, as described above, the
geographic scope and nature of the Business in which M.G.A is and will be
engaged and Covenantor's knowledge of the Business. If for any reason any Court
of competent jurisdiction shall find the provisions of this Agreement
unreasonable in duration or in geographic scope, the prohibitions herein shall
be restricted to such time and geographic areas as such court determines to be
reasonable.
Covenantor recognizes that any breach of this Agreement by any of them is
likely to result in irreparable injury to M.G.M. and agree that M.G.M. shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to obtain damages for any
breach of this Agreement by Covenantor or to enjoin Covenantor from activities
in violation of this Agreement. The rights and remedies provided in this section
in favor of M.G.M. shall not be deemed exclusive, but shall be cumulative and
shall be in addition to all other rights and remedies available to M.G.M. under
this Agreement, the instruments and agreements delivered pursuant to this
Agreement, any statute, or at law or in equity.
Notwithstanding the foregoing, nothing in this Agreement shall prevent any
person from owning shares of a corporation having a class of stock which is (i)
traded on a stock exchange registered with the Securities and Exchange
Commission, or (ii) traded on the over-the-counter market and quoted in the
automated quotation system of the NASD, so long as such ownership is less than
five percent (5%) of the outstanding stock of any such competing corporation.
Neither this Covenant nor any term or condition hereof may be waived or
modified in whole or in part as against Covenantor except by written instrument
executed by or on behalf of the party other than the party seeking such waiver
or modification, expressly stating that it is intended to operate as a waiver or
modification of this Covenant or the applicable term or condition hereof.
If any provision of this Covenant shall be held or deemed to be invalid,
inoperative or unenforceable in any jurisdiction or jurisdictions, because of
conflicts with any constitution, statute, rule or public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
in question unenforceable in any other jurisdiction or in any other case or
circumstance or of rendering any other provisions herein contained unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Covenant
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative, or unenforceable provision had never been contained herein
and such provision reformed so that it would be enforceable to the maximum
extent permitted in such jurisdiction or in such case.
Covenantor acknowledges that the consideration provided by M.G.M. is full
and adequate
39
and that such consideration has been received by Covenantor. Covenantor
acknowledges that this consideration consists of the assumption by M.G.M., of
certain obligations of Covenantor, and includes the other promises and premises
set out in the other agreements executed in conjunction herewith.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Alabama applicable to contracts executed and to be
performed in such state. M.G.M. and Covenantor hereby consent to the
jurisdiction of any state or federal court located within Houston County,
Alabama.
Neither party to this Agreement may assign any of its rights or delegate
any of its responsibilities under this Agreement except that Buyer may assign
this agreement to any person that succeeds to all or substantially all of the
business of Buyer through a purchase of assets, merger or otherwise. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective heirs, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto by their duly authorized agents or
representatives have caused this Agreement to be executed in duplicate as of the
date first above written.
Video City, Inc.
_________________________ By:___________________________
Witness Its:________________________
M.G. Midwest, Inc.
_________________________ By:___________________________
Witness Its:________________________
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