EXHIBIT No. 2
PURCHASE AGREEMENT
THIS AGREEMENT is made effective as of the 15th day of January 1997, by
and between Video Update Inc., a Delaware corporation having its principal place
of business at 3100 World Trade Center, 00 Xxxx Xxxxxxx Xxxxxx, Xx. Xxxx,
Xxxxxxxxx 00000 ("Video Update" or the "Company"), Video Warehouse, Inc., a
Washington corporation having its principal place of business at 0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000 ("VW"), and Xxxxxx and Xxxxxxxxx Xxxxxx,
individuals with an address at 0000 Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxx 00000,
the sole stockholders of VW (the "Stockholders"). VW and the Stockholders are
collectively referred to as the "Sellers."
RECITALS
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WHEREAS, VW owns all of the assets of VW used or useful in the video
rental business carried out at the stores (the "Stores") listed on Exhibit A
annexed hereto;
WHEREAS, Video Update wishes to acquire from VW and VW wishes to
transfer to Video Update, the Assets (as defined below) in exchange for which
Video Update shall issue and transfer to VW and the Stockholders certain
consideration on the terms and conditions set forth below; and
WHEREAS, the parties intend that this Agreement shall constitute a
complete transfer to Video Update of all of the Assets.
NOW, THEREFORE, intending to be legally bound hereby, and in
consideration of the mutual premises and the representations, warranties and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Purchase of VW Assets.
1.1 Purchase of Assets. Subject to the terms, provisions and conditions
of this Agreement and upon the basis of the representations and warranties made
herein, at the Closing (as defined below) VW shall sell, assign and transfer to
Video Update all its right, title and interest in and to the following assets
used in connection with the VW business carried on at the Stores, which assets
include but are not limited to the assets set forth on Schedule 1.1 annexed
hereto (the "Assets"):
(a) All tangible property, wherever located, including without
limitation, inventory, leaseholds, leasehold improvements, security systems,
racking, fixtures, equipment, furniture, office furnishings, office equipment,
computers and peripherals, unless specifically excluded on Schedule 1.1(a)
annexed hereto;
(b) All accounts or customer receivables as described on Schedule
1.1(b) annexed hereto, all intangible property, including without limitation,
patents and applications therefor (if any), all trademarks and trade names,
logos, trademark and trade name registrations, servicemark and servicemark
registrations, all copyrights, copyright registrations, the applications
therefor and the licenses thereto (if any), together with all goodwill and the
business appurtenant thereto;
(c) All trade secrets, "know how", confidential information and related
data;
(d) All customer lists, vendor lists, databases, catalogues, brochures,
art work, sales literature, advertising buys, advertising material, promotional
material and other selling material related to VW's customers or marketing
efforts;
(e) All books and records of the VW business, including, without
limitation, all movie rental records, customer credit applications, all
invoices, purchase orders, files, documents, papers, computer files and/or other
records of any description and in any medium which pertain in any way to the VW
business;
(f) All rights of VW under all material agreements as set forth on
Schedule 1.1(f) annexed hereto and under all warranties, licenses, governmental
permits or licenses of any description, distribution and franchise agreements,
equipment leases, sales orders and purchase orders;
(g) All rights as a member in any cooperative association and/or
"buying group" if any, to the extent such rights are transferable, and all
supplier information;
(h) All rights, as licensee or otherwise, to use and employ in its
business existing computer systems, together with all associated hardware,
software, documentation, computer files and back up files;
(i) All rights to VW's telephone number(s), fax number(s), telex
address(es) (if any), lock box(es) (if any) and post office box address(es); and
(j) All other assets, tangible and intangible, wherever located,
related to and owned by VW and the Stockholders in connection with the VW
business.
1.2 No Assumption of Liabilities. Video Update shall not be deemed by
anything in this Agreement to have assumed any liabilities of the Sellers of any
kind, character or nature and the indemnification provisions of Section 5 shall
apply with respect to any and all liabilities not expressly assumed by Video
Update in this Agreement. Effective on the Closing Date, as defined below, Video
Update shall assume:
(a) All obligations and liabilities arising subsequent to the Closing
under the leases for the Stores set forth on Schedule 1.1(f), excluding any and
all common area maintenance or other accrued but unpaid charges under such
leases, which shall remain the obligation of the Sellers following the Closing;
and
(b) Obligations arising under gift certificates sold, distributed or
otherwise issued by or on behalf of Video View, but solely to the extent that
such obligations do not exceed $8,000 in the aggregate, and, if such obligations
do exceed $8,000, then the indemnification provisions of Section 4 shall apply
with respect to any and all liabilities resulting hereunder (collectively, the
liabilities described in subsections 1.2(a) and 1.2(b) are hereinafter referred
to as the "Assumed Liabilities").
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1.3 Purchase Price.
(a) Consideration. At the Closing, Video Update shall:
(i) pay to or for the benefit of VW and the Stockholders in
immediately available funds by wire transfer or certified check the sum
of One Million Eight Hundred Three Thousand Dollars ($1,803,000), and
(ii) arrange for the issuance and delivery in accordance with
the instructions of VW of 25,000 shares (the "Video Update Shares") of
Video Update Class A Common Stock, $.01 par value per share (the
"Common Stock").
The Assumed Liabilities, the Video Update Shares, and the cash
consideration referenced above shall be the total consideration (the "Purchase
Price") for the Assets.
(b) Allocation of Purchase Price. The Purchase Price shall be allocated
by mutual agreement of the parties at Closing and set forth on Schedule 1.3(b)
annexed hereto. No party shall make any filing with any third party or take any
action that is inconsistent with such agreed-upon allocation.
1.4 Closing. The closing (the "Closing" ) of the purchase of the Assets
under this Agreement shall take place by facsimile transmission on or before the
15th day of January 1997 (with originals to follow by overnight courier), or
such other date and place as shall be agreed upon by the Sellers and Video
Update. The date of the Closing is hereinafter referred to as the "Closing
Date". All proceedings to be taken and all documents to be executed and
delivered by all parties at the Closing shall be deemed to have been taken and
executed simultaneously, and no proceedings shall be deemed to have been taken
nor any documents executed or delivered until all have been taken, executed and
delivered. At Closing:
(a) VW shall deliver to Video Update:
(i) All executed documents, including without limitation
bills of sale and assignments of lease, necessary to
transfer all right, title and interest in and to the
Assets to the Company;
(ii) All documents and instruments representing part of,
or evidencing ownership of, the Assets;
(iii) The legal opinion of counsel to VW and the
Stockholder dated the Closing Date in substantially
the same form as set forth in Exhibit B annexed
hereto; and
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(iv) All other documents previously requested by the
Company in writing but not delivered to the Company
relating to the business of VW; and
(b) Video Update shall deliver to VW:
(i) The Purchase Price as described in Section 1.3; and
(ii) This Agreement executed on behalf of Video Update.
2. Representations and Warranties of VW and the Stockholder.
Each of the Sellers, jointly and severally, represents and warrants to
Video Update, upon which representations and warranties Video Update relies, and
which representations and warranties shall survive the Closing, as follows:
2.1 Ownership of Assets. VW (i) is the sole owner of all of the Assets
and (ii) has good and marketable title to the Assets with full and absolute
authority to transfer the Assets to Video Update. None of the Assets are subject
to any mortgage, pledge, lien, security interest, lease, charge, encumbrance,
objection, claim or joint ownership except as set forth on Schedule 2.1 annexed
hereto.
2.2 Authorization. VW is a corporation duly organized, validly existing
and in good standing under the laws of the State of Washington, and has full
power to enter into this Agreement and to consummate the transactions
contemplated thereby.
2.3 Enforceability. This Agreement has been duly and validly
authorized, executed, and delivered by each of the Sellers. This Agreement and
all other agreements and obligations entered into and undertaken in connection
with the transactions contemplated hereby to which each of the Sellers is a
party constitute the valid and legally binding obligations of each of the
Sellers, as applicable, and are enforceable against them in accordance with
their respective terms except insofar as enforceability may be limited by
bankruptcy, insolvency, or similar laws affecting the rights of creditors and
general equitable principles. The execution, delivery and performance by the
Sellers of this Agreement and the agreements provided for herein, and the
consummation by the Sellers of the transactions contemplated hereby and thereby,
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any by-law, charter, law, rule or regulation
applicable to Sellers; (b) violate any judgment, decree, order or award of any
court, governmental body or arbitrator; or (c) conflict with or result in the
breach or termination of any term or provision of, or constitute a default
under, or cause any acceleration under, or cause the creation of any
indebtedness, contract, lease, license, permit, lien, charge or encumbrance upon
the properties or assets of VW pursuant to any indenture, mortgage, deed of
trust or other instrument or agreement to which any of the Sellers is a party or
by which any of the Assets is or may be bound or subject.
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2.4 Reviewed Financial Statements.
(a) VW Financial Statements. Annexed as Schedule 2.4(a) are true and
complete copies of VW's final reviewed financial statements for the years ended
December 31, 1994 and 1995 and for the period ended November 30, 1996 (the
"Financial Statements"). All such Financial Statements are in accordance with
the books and records of VW, and (i) present fairly and correctly the financial
position of VW as of the respective dates and for the respective periods
indicated, (ii) include all required adjustments, and (iii) have been prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with prior periods and practices except as specifically set forth
therein.
(b) No Adverse Changes or Undisclosed Liabilities. Except as set forth
on Schedule 2.4(b) annexed hereto, since November 30, 1996, none of the
following has occurred or arisen, whether or not in the ordinary course of
business: (i) a disposition or encumbrance of any Asset or portion of the
Assets, (ii) any adverse change in the assets, financial condition, operations
or business of VW, or (iii) any event, condition or state of facts of any
character known to the Sellers which might adversely affect the results of
operations, business, financial condition or prospects of VW. Except as set
forth on Schedule 2.4(b) annexed hereto no liabilities or obligations, fixed,
accrued, contingent or otherwise, exist with respect to or in connection with
the Assets that are not fully reflected or provided for on, or disclosed in the
notes to, the Financial Statements except liabilities and obligations incurred
in the ordinary course of business since November 30, 1996, none of which
individually or in the aggregate have been or is adverse to the Assets or the
operations, business, financial condition or prospects of VW. Schedule 2.4(b)
sets forth all promotions and promotional activities of VW, none of which shall
obligate Video Update, directly or indirectly, to continue such promotions or
provide anything of value in connection with the same after the Closing.
2.5 Accounts Receivable; Inventories. Except as set forth on Schedule
2.5 annexed hereto, (i) any accounts receivable reflected on the Financial
Statements have been collected or are collectible in the amounts shown, subject
to a reasonable allowance for doubtful accounts as set forth in the Financial
Statements; (ii) the inventories shown on the Financial Statements and the
inventories acquired since November 30, 1996 consist of items of a quantity and
quality usable, rentable, or salable in the normal course of the business of VW;
and (iii) the value at which the inventories are carried on the Financial
Statements reflects the lower of VW's cost or net realizable market value.
2.6 Tax Matters. Except as set forth on Schedule 2.6 annexed hereto:
(a) VW has paid all income taxes, capital gains taxes, withholding
taxes, capital taxes, sales and use taxes, goods and services taxes, business
taxes, ad valorem taxes, property taxes, excise taxes, customs and import
duties, imposts, rates, levies, assessments and fees, and all other taxes of
every kind, character or description, including all interest, fines, and
penalties relating thereto, imposed by any governmental or quasi-governmental
authority, domestic or foreign, whether federal, provincial, state, territorial
or municipal (collectively the "Taxes") required to be paid by it with respect
to VW for all periods prior to the Closing Date. No outstanding assessments,
reassessments, notices of determination, or notices of any kind whatsoever, or
increases in tax rates with respect to
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any such Taxes exist. All reports, returns and other documents relating to or
covering all such Taxes, which are due or required to be filed at or prior to
the Closing Date have been duly filed or caused to be filed; and
(b) None of the income tax returns for Taxes of the Stockholder or VW
has been audited by any taxing authority. No action, suit, proceeding, audit,
investigation or claim is pending or to the knowledge of the Sellers is
threatened, in respect of any Taxes for which any of the Sellers is liable, nor
has any deficiency or claim for any Taxes been proposed or asserted. No waiver
of any statute of limitations with respect to any taxation year has been
executed by the Sellers; and no agreement, waiver or consent providing for an
extension of time with respect to the assessment, reassessment or other
determination of any Taxes against any of the Sellers, and no power of attorney
granted by any of the Sellers with respect to any matters relating to Taxes, is
currently in force.
2.7 Required Consents, No Default. Except as described in Schedule 2.7
annexed hereto, neither the execution and delivery of this Agreement nor
compliance by any of the Sellers with its terms and provisions will require the
affirmative consent, approval, order or authorization of or any registration,
declaration or filing with any third party or authority. None of the Sellers is
in default under or in violation of any provision of any indenture, mortgage,
lease, loan or other agreement to which either is a party or is bound or to
which either of their properties is subject.
2.8 Litigation. Except as set forth on Schedule 2.8 annexed hereto (a)
no action, suit or proceeding to which any of the Sellers is a party (either as
a plaintiff or defendant) is pending or threatened before any court or
governmental agency, authority, body or arbitrator and no basis for any such
action, suit or proceeding exists; (b) neither the Stockholder nor VW nor any
officer, director or employee of VW has been permanently or temporarily enjoined
by any order, judgment or decree of any court or any governmental agency,
authority or body from engaging in or continuing any conduct or practice in
connection with the business, Assets, or properties of VW; and (c) there is not
in existence on the date hereof any order, judgment or decree of any court,
tribunal or agency enjoining or requiring either the Stockholder or VW to take
any action of any kind with respect to the business, Assets or properties of VW.
Video Update shall not under any circumstances assume or be deemed to have
assumed any obligation, responsibility or liability with respect to the matters
described on Schedule 2.8.
2.9 No Broker's or Finder's Fees. No agent, broker, investment banker,
person or firm has or will have, as a result of any act or omission of any
Seller or any of VW's affiliates, any right, interest or valid claim against
Video Update for any commission, fee or other compensation or similar fee as a
finder or broker in connection with the transactions contemplated by this
Agreement.
2.10 Copies of Documents. Upon request, the Sellers will make available
or cause VW to make available for inspection and copying by Video Update or its
attorneys or accountants true and correct copies of all documents referred to in
this Section 2 or in any schedule or exhibit delivered by any Seller to Video
Update in connection with this Agreement and any other agreements and records of
VW that Video Update requests.
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2.11 Intangible Property.
Schedule 2.11 annexed hereto sets forth: (i) a true, correct and
complete list and, where appropriate, a description of, all items of intangible
property owned by, or used or useful in connection with the business of, VW,
including, but not limited to, trademarks, trade secrets, know-how, any other
confidential information of VW, patents, trade names, trade registrations, and
applications for any of the foregoing (the "Intangible Property"); and (ii) a
true, correct and complete list of all licenses or similar agreements or
arrangements to which VW is a party, either as licensee or licensor, with
respect to the Intangible Property;
(a) VW is the sole and exclusive owner of all right, title and interest
in and to the Intangible Property and all designs, permits, labels and packages
used on or in connection therewith, free and clear of all liens, security
interests, charges, encumbrances, equities or other adverse claims;
(b) VW has the right and authority to use, and to transfer to Video
Update for use after the Closing, the Intangible Property in connection with the
conduct of its business in the manner presently conducted, and such use or
continuing use does not and will not conflict with, infringe upon or violate any
rights of any other person, corporation or entity; and
(c) there are no outstanding, nor any threatened disputes or other
disagreements with respect to any licenses or similar agreements or arrangements
or with respect to infringement by a third party or any of the Intangible
Property.
2.12 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required to be obtained or made by
Stockholder or VW in connection with the execution and delivery of this
Agreement or the sale and delivery of the Assets, as contemplated by this
Agreement, except such filings as shall have been made prior to and shall be
effective on and as of the Closing Date.
2.13 Compliance with Agreements and Laws. The Sellers have all
requisite licenses, permits and certificates, including environmental, health
and safety permits, from federal, provincial and local authorities necessary to
conduct its business as currently conducted. The business of VW as conducted
through the date hereof has not violated any federal, provincial, local or
foreign laws, regulations or orders (including, but not limited to, any of the
foregoing relating to employment discrimination, occupational safety,
environmental protection, hazardous waste, conservation, or corrupt practices).
Except as set forth on Schedule 2.13 annexed hereto, no Seller has had notice or
communication from any federal, state or local governmental or regulatory
authority or otherwise of any such violation or noncompliance.
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2.14 Employee Relations.
(a) VW is in compliance with all material federal, state and municipal
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and it is not engaged in any unfair labor
practice, and there are no arrears in the payment of wages or social security
taxes.
(b) Except as set forth on Schedule 2.14 annexed hereto:
(i) none of the employees of VW are represented by any labor
union;
(ii) there is no unfair labor practice complaint against VW
pending before any federal, provincial or local agency; and
(iii) there is no pending labor strike or other material
labor trouble affecting VW (including, without limitation, any
organizational drive).
2.15 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.15 annexed hereto, since November 30, 1996, VW has not entered into
any transaction that is not in the usual and ordinary course of business. Other
than as specifically described on Schedule 2.15, VW is not a party to any
material leases, contracts, franchises or commitments or agreements to enter
into any of the same, written or oral, extending beyond the Closing Date.
2.16 VW Personnel Information. Schedule 2.16 annexed hereto is a true
and complete list, as of the Closing Date, setting forth:
(a) The names of all persons, if any, holding powers of attorney from
VW, and a summary statement of the terms thereof;
(b) The name and address of each bank or other institution in which VW
has established an account for investment, deposit, checking, savings or
borrowing, or through which credit is extended, a brief description thereof, and
the names and titles of authorized signers and limits, if any;
(c) The names and addresses of all employees and their annual
compensation together with their social security numbers and all independent
contractors, consultants, subcontractors with whom VW or the Stockholder on
behalf of VW has contracted during the 12 months preceding the Closing Date, and
the social insurance numbers and the amount of any commission and monies owed or
paid by any of the Sellers to such independent contractors, consultants and
subcontractors during said 12 month period. Such independent contractors,
consultants and subcontractors have been treated as such by VW and have not been
and never have been treated as employees of VW for which any withholding taxes
or other applicable tax may be due from VW.
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(d) All contracts or arrangements, whether written or oral, pursuant to
which VW has or is receiving services.
2.17 Disclosure. No representation or warranty by any of the Sellers
(individually or collectively) in this Agreement, nor any statement, certificate
or Schedule furnished or to be furnished by or on behalf of the Stockholder or
VW pursuant to or in connection with this Agreement nor any document or
certificate delivered to Video Update pursuant to this Agreement contains or
will contain any untrue or misleading statement of a material fact or omits or
will omit to state a material fact reasonably related to the transactions
covered by this Agreement, and all such representations and warranties are, and
on the Closing, will be accurate and complete in all material respects.
3. Representations of Sellers Regarding the Video Update Shares.
Each of the Sellers, jointly and severally, represent and warrant to
Video Update, upon which representations and warranties Video Update relies, and
which representations and warranties shall survive the Closing, as follows:
3.1 Prohibitions on Transfer. Each Seller acknowledges and agrees that
the Video Update Shares issued to such Seller may not be sold, transferred,
pledged, assigned or otherwise encumbered or disposed of until the thirteen (13)
month anniversary of the Closing Date except in accordance herewith.
3.2 Investment Purposes Only. He, she or it is acquiring the Video
Update Shares for its own account and not with a view to reselling or otherwise
distributing such Video Update Shares in violation of any federal or state
securities laws, and each understands and agrees that the transfer of the Video
Update Shares to be issued hereunder is restricted and that the shares must be
held unless (i) they are registered under the Securities Act of 1933, as amended
(the "Act"), or (ii) an exemption from registration is available, and Video
Update has received an opinion of counsel, in form and substance satisfactory to
it, to such effect.
3.3 Unregistered Securities. Each Seller understands that the Video
Update Shares have not been registered under the Act, or the securities laws of
any state, and are being and will be issued in reliance upon specific exemptions
from registration thereunder, and agree that such Video Update Shares may be
neither sold, offered for sale, transferred, pledged, hypothecated or otherwise
disposed of except in compliance with the Act and applicable state securities
laws. Each of the Sellers has been advised that Video Update shall register the
Video Update Shares pursuant to Section 6 below. Each Seller understands that it
is not anticipated that any market for resale of the Video Update Shares will
exist unless and until such registration is completed and that it may not be
possible for such Seller to liquidate an investment in the Video Update Shares
on an emergency basis. Each Seller acknowledges that the following restrictive
legends shall be placed on the reverse side of each certificate representing the
Video Update Shares issued pursuant to this Agreement:
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"The Shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or under any
state law and, except pursuant to an effective registration statement
under the Act and other laws, may not be offered, sold, transferred, or
otherwise disposed of without an opinion of counsel, satisfactory to
the Company, that such disposition may be made without such
registration."
"The Shares represented by this certificate are also subject to certain
"lock-up" restrictions pursuant to a Purchase Agreement between the
holder and Video Update, dated January 15, 1997."
4. Representations and Warranties of Video Update.
Video Update represents and warrants to the Sellers, upon which
representations and warranties the Sellers rely, as follows:
4.1 Organization and Related Matters. Video Update is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby.
4.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement by Video Update have been duly and validly authorized and
approved by the Board of Directors of Video Update and no other proceedings on
the part of Video Update are necessary to authorize the execution, delivery and
performance of this Agreement by Video Update including the issuance by Video
Update of the Video Update Shares.
5. Indemnification
5.1 Subjects Indemnified Against by the Sellers. The Sellers, jointly
and severally, agree to defend, indemnify and hold harmless Video Update
(including any director, officer, employee, representative or agent), and its
successors and assigns, from and against any and all damages, losses and
expenses suffered by Video Update, or any subsidiary of Video Update, resulting
from (i) any breach of warranty or agreement or non-fulfillment of any
obligation on the part of the Sellers (individually or together) under this
Agreement (including the Schedules to this Agreement), (ii) any
misrepresentation in this Agreement or in any Schedule, certificate or other
instrument furnished by the Sellers to Video Update hereunder or any failure to
state herein or in any such Schedule, certificate or instrument any fact
required by the terms herein or therein to be stated or necessary to be stated
in order to make the statements made herein or therein not misleading, (iii) all
demands, assessments, judgments, settlements, costs and legal and other expenses
arising from or in connection with any action, suit, proceeding or claim by any
third party resulting in damage or loss to Video Update or any subsidiary of
Video Update as a consequence of any such misrepresentation, breach of warranty
or nonfulfillment of obligation, and (iv) all claims, judgments, settlements,
costs and legal and other expenses arising from or in connection with any
action, suit or proceeding or claim in respect of the matters referenced on
Schedule 2.8.
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5.2 Conditions to Indemnification. The obligations and liabilities of
the Sellers hereunder with respect to their respective indemnities pursuant to
this Section, resulting from any claim or other assertion of liability by third
parties, shall be subject to the following terms and conditions:
(a) Video Update or any of its subsidiaries seeking indemnification
(the "Indemnified Party") shall give the Sellers or Seller, as the case may be
(the "Indemnifying Party"), notice in writing within thirty (30) days of (i) any
claim or potential claim, (ii) the commencement of any action or proceeding, or
(iii) the occurrence of any other event giving rise to indemnification rights
under this Section. The individual or corporation receiving notice of such
claim, commencement of such action or proceeding or the occurrence of such event
shall give the Indemnifying Party written notice of such claim, the commencement
of such action or proceeding or the occurrence of such event and, in each case,
the basis therefor, provided, however, that failure to give such notice within
such thirty (30) day period shall not affect the liability of the Indemnifying
Party under this Agreement unless the failure to give such notice within such
time period materially adversely affects the Indemnifying Party's ability to
defend itself against the claim giving rise to the Indemnified Party's claim for
indemnification or to cure the default giving rise to such claim. With respect
to threatened or asserted claims of third parties, the Indemnifying Party shall
have the right to control the defense of such claim by counsel of its own
choosing, provided that the Indemnified Party shall have the option at its
expense to cooperate in such defense with counsel of its choosing. If the
Indemnified Party is named as a party against which any claim is asserted or
action or proceeding is commenced, the Indemnified Party shall have the right
(i) to defend any such claim, action or proceeding brought by a third party of
which notice has been delivered pursuant hereto and, (ii) to compromise or
settle such claim, action or proceeding brought by a third party of which notice
has been delivered pursuant hereto. In the event that the Indemnified Party
shall undertake to compromise, settle or defend any such asserted liability, it
shall promptly notify the Indemnifying Party of its intention to do so and the
terms of such compromise or settlement, and the Indemnifying Party agrees to
cooperate in the compromise of, or defense against, any such asserted liability.
In any event, the Indemnified Party shall have the right at its own expense to
participate in any claim, action or proceeding that is being defended by another
party.
(b) If the Indemnifying Party within thirty (30) days after notice of a
claim hereunder fails to defend such claim, the Indemnified Party shall be
entitled to undertake the defense, compromise or settlement of such claim at the
expense of and for the account and risk of the Indemnifying Party subject to the
right of the Indemnifying Party to cooperate in the defense of such claim at any
time prior to the settlement, compromise or final determination thereof.
(c) The Indemnifying Party will not, without the Indemnified Party's
prior written consent, settle or compromise any claim or consent to any entry or
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party of a release from all
liability with respect to such claim, provided, however, that should the
Indemnified Party assume the control of the defense of a claim, the Indemnified
Party shall have the authority to settle or compromise any claim or consent to
any entry of judgment, without the Indemnifying Party's prior consent.
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5.3 Payment for Indemnification. The Sellers shall pay to Video Update
the amount of established claims for indemnification within fifteen (15) days
after the establishment thereof (the "Due Date") in cash or by certified check,
provided, however, that Video Update shall not seek indemnification from the
Sellers for any loss, claim, damage or claim for indemnification resulting from
any and all gift certificates, coupons or other similar promotional items issued
by, on behalf of or for the benefit of VW (the "Promotional Liability"), unless
and until the amount of the Promotional Liability exceeds $8,000 in the
aggregate. Video Update may set off the amount of any claim (or cancel shares in
respect of such claim) due it from the Sellers against any amount due to the
Sellers. Any amounts not paid by the Sellers when due under this Section shall
bear interest from the Due Date thereof until the date paid at the lower of
eighteen percent (18%) per annum or the highest rate allowed by law.
5.4 Survival of Indemnification. The indemnification provided in this
Section shall survive the Closing.
5.5 Intent of Parties. The parties hereto intend for the
indemnification provisions of this Section to be construed as a full
indemnification in accordance with its terms, notwithstanding the use of any
"substantial" or "material" standard contained elsewhere in this Agreement. Any
remedies of Video Update shall be cumulative and not exclusive. Specifically,
but not by way of limitation, the parties make no attempt to limit any claims
based on common law fraud or other similar remedies.
6. Registration Rights
(a) For purposes of this Section:
(i) The term "1933 Act" means the Securities Act of 1933, as
amended;
(ii) The term "register", "registered", and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the 1933 Act and the declaration or
ordering of effectiveness of such registration statement (other than in
connection with a merger or pursuant to Form X-0, X-0, or S-8 or any
other comparable registration statement);
(iii) The term "Registrable Securities" means the Video
Update Shares issued pursuant to this Agreement and any common stock or
other securities of Video Update issued as a dividend or other
distribution with respect to, or in exchange, in conversion of or in
replacement of, the Video Update Shares;
(iv) The term "Holder" means the entity or entities to whom
the Registrable Securities are issued pursuant to this Agreement.
(b) From and after four months from the Closing Date and continuing for
two (2) years thereafter, on each occasion, if any, that the Company
contemplates a public offering of shares of
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its Common Stock to be registered under the 1933 Act, the Company shall so
notify the Holder in writing at least five (5) business days prior to the filing
of a registration statement in respect of the offering of its intention to do
so. If the Holder gives written notice to the Company, within five (5) business
days of the receipt of such notice from the Company, of its desire to have any
of the Registrable Securities included in such registration statement, it may,
subject to the provisions of this Section, have the Registrable Securities
included in such registration statement.
(c) In the case of any registration effected pursuant to this Section,
the Holder shall bear all additional registration and qualification fees and
expenses (including underwriters' discounts, commissions and expenses), but not
legal, accounting or printing expenses of such registration, with such
additional expenses of the registration being borne by all Holders pro-rata on
the basis of the amount of securities so registered; provided, however, that if
any such cost or expense is attributable solely to one selling Holder and does
not constitute a normal cost or expense of such registration, such cost or
expense shall be allocated to that selling Holder. In addition, each selling
Holder shall bear the fees and costs of any separate counsel it may select.
(d) Notwithstanding the foregoing, with respect to any underwritten
offering, if the managing underwriter or underwriters of any offering, in its
sole discretion, determines that the number of Registrable Securities proposed
to be included in the registration statement and sold by the Holders would
materially and adversely affect the successful marketing of the securities
proposed to be registered and sold for the account of the Company, then the
number of Registrable Securities to be offered for the account of the Holders
shall be reduced (or, if necessary, excluded) to the extent necessary to reduce
the total amount of the securities to be included in the offering to the amount
recommended by the managing underwriter or underwriters and the securities so
included shall be apportioned pro rata among all selling stockholders according
to the total amount of securities of the Company owned by them.
(i) In the case of a registration of which the Company is
given notice pursuant to this Section, if such registration is for an
underwritten offering and the underwriter determines not to include all
of the Registrable Securities requested to be registered in the
underwriting, the balance of such shares permitted to be included in
the registration shall, at the request of the Holders thereof, and
subject to the approval of the managing underwriter, be included in the
registration statement, provided that the Holders thereof agree not to
dispose of such shares until a date reasonably determined by the
underwriter pursuant to a "Lock-Up Agreement" or "Standstill Agreement"
in a form satisfactory to the underwriter, provided such "Lock-up
Agreement" or "Standstill Agreement" shall not exceed one hundred
eighty (180) days. Notwithstanding the foregoing, if a Holder owns five
percent (5%) or more of the Company's Common Stock (including shares
issuable pursuant to the exercise of Class A Warrants, Class B
Warrants, and/or Stock Options that have been granted under the
Company's Stock Option Plan) that is issued and outstanding at the time
of an offering contemplated in this Section, then such Holder shall
agree not to dispose of his shares until a date reasonably determined
by the underwriter pursuant to a "Lock-Up Agreement" or "Standstill
Agreement" in a form satisfactory to the underwriter, and such "Lock-Up
Agreement" or "Standstill Agreement" shall not be subject to the one
hundred
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eighty (180) day limit described above. The Company shall have the
right to designate the managing underwriter in respect of a public
offering pursuant to this Section.
(e) Whenever required under this Section to effect the registration of
any Registrable Securities, Video Update shall:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective; provided,
however, that in connection with any proposed registration intended to
permit an offering of any securities from time to time, the Company
shall in no event be obligated to cause any such registration to remain
effective for more than one hundred eighty (180) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that Video Update shall not be
required in connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of process in
any such states or jurisdictions, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to the
bearing of expenses) if any jurisdiction in which the securities are to
be qualified shall require that expenses incurred in connection with
the qualification of the securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by selling
shareholders pro-rata, to the extent required by such jurisdiction.
(f) It shall be a condition precedent to the obligations of Video
Update to take any action pursuant to this Section that the Holders agree not to
sell, transfer, pledge, hypothecate or encumber the Video Update Shares held by
them for a period of thirteen months from the date of this Agreement. Such
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such Registrable Securities as Video Update or its counsel shall request and as
shall be required in connection with the action to be taken by Video Update.
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(g) Whenever the Registrable Securities are to be registered pursuant
to this Section 6, the Holder shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such Registrable Securities as Video Update or its
counsel shall request and as shall be required in connection with the action to
be taken by Video Update.
(h) In the event any Registrable Securities are included in a
registration statement under this Section:
(i) To the extent permitted by law, Video Update will
indemnify and hold harmless each Holder requesting or joining in a
registration, any underwriter (as defined in the 0000 Xxx) for it, and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages, or
liabilities, joint or several, to which they may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based
on any untrue or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading or
arise out of any violation by Video Update of any rule or regulation
promulgated under, or any provision of, the 1933 Act applicable to
Video Update and relating to action or inaction required of Video
Update in connection with any such registration; and will reimburse
each such Holder, such underwriter, or controlling person for any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this Section shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is
effected without the written consent of Video Update (which consent
shall not be unreasonably withheld) nor shall Video Update be liable in
any such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with information furnished in connection with
registration by any such Holder, underwriter, or controlling person.
(ii) To the extent permitted by law, each Holder
requesting or joining in a registration will indemnify and hold
harmless Video Update, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who
controls Video Update within the meaning of the 1933 Act, and each
agent and any underwriter for Video Update (within the meaning of the
0000 Xxx) against any losses, claims, damages, or liabilities to which
Video Update or any such director, officer, controlling person, agent,
or underwriter may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages, or liabilities to which Video
Update or any such director, officer, controlling person, agent, or
underwriter may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto)
-15-
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary
or final prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with information furnished by such Holder for
use in connection with such registration, and each such Holder will
reimburse any legal or other expenses reasonably incurred by Video
Update or any such director, officer, controlling person, agent, or
underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this subsection, notify the
indemnifying party who shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume the defense thereof
with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified
party under this subsection, but the omission so to notify the
indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this Section.
(i) The registration rights of the Holders under this Section may be
transferred to any transferee of any Registrable Securities provided, however,
that Video Update is given written notice by the Holder at the time of such
transfer stating the name and address of the transferee and identifying the
securities with respect to which the rights under this Section are being
transferred.
(j) In consideration for Video Update agreeing to its obligations under
this Section, the Holders whose Registrable Securities are included in any
registration of Video Update's securities shall agree, upon the request of the
underwriters managing any underwritten offering of Video Update's securities,
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of such underwriters, for
such period of time (not to exceed ninety (90) days) from the effective date of
such registration as the underwriters may specify.
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(k) Notwithstanding anything to the contrary in this Section, Video
Update shall not be required to register any Registrable Securities that may, at
the time such registration would occur, be sold pursuant to Rule 144 under the
1933 Act.
7. Disclosure of Information.
(a) With respect to the operations of VW, each of the Sellers
recognizes and acknowledges that (i) all plans, systems, methods, designs,
procedures, books and records relating to the operations, personnel and
practices (whether instituted or commenced prior or subsequent to the date
hereof) of the VW business, (ii) all other records, documents and information
concerning VW's business activities, practices, and procedures, and any name or
style under which it shall have been operated prior or shall operate subsequent
hereto, and (iii) any logo or other descriptive or illustrative form thereof, as
they may have existed from time-to-time, may constitute valuable, special and
unique assets of the business of VW to be acquired by Video Update. Each of the
Sellers therefore covenants and agrees that he or she or it will not, following
the date of this Agreement, disclose any part thereof that is confidential, or
use or permit to be used any name, style, logo or form to the extent included in
the Assets, to or by any person, firm, corporation, association or other entity,
for any reason or purpose whatsoever.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which VW is engaged, are
reasonable and necessary to protect its legitimate interests, and that any
violation thereof could result in irreparable injuries to Video Update. Each of
the Sellers therefore acknowledges that, in the event of a breach or threatened
breach of the provisions of this paragraph by the Sellers, Video Update shall be
entitled to request from any court of competent jurisdiction, preliminary and
permanent injunctive relief restraining the Sellers from disclosing any such
records, documents or information or using or permitting to be used any such
name, style, logo or form.
8. Restrictive Covenant.
(a) Each of the Sellers agrees that for a period of three (3) years
from the Closing, neither they nor their respective successors or assigns shall
engage directly as a principal or indirectly as (i) an advisor, (ii) an agent
(whether a salesperson or otherwise), (iii) a broker, or (iv) a partner,
coventurer, stockholder or other proprietor owning directly or indirectly more
than five percent (5%) interest in any firm, corporation, partnership, trust,
association, or other organization, which engages in the sale, rental or
distribution of video tapes, video games or similar items, in the State of
Washington.
(b) Each of the Sellers acknowledges that the restrictions contained in
this Section, in view of the nature of the business in which Video Update is
engaged, are reasonable and necessary to protect the legitimate interests of
Video Update, and that any violation thereof could result in irreparable
injuries to Video Update. The Sellers further acknowledge and agree that, in the
event of a breach or threatened breach of the restrictions of this Section, by
any of the Sellers, Video
-17-
Update shall be entitled to request from any court of competent jurisdiction,
preliminary and permanent injunctive relief restraining it (or its respective
successors, assigns, or transferees) from any violation of the foregoing.
(c) Nothing herein shall be construed as prohibiting Video Update from
pursuing any other remedies available for such breach or threatened breach,
including recovery of damages and an equitable accounting of all earnings,
profits and other benefits arising from such violation, from the Sellers.
(d) Each of the Sellers acknowledges the intention that Video Update
shall have the broadest possible protection of the value of the business of
Video Update in the trade areas set forth above (to the extent that the business
is actively conducted in any such trade area as of the Closing) consistent with
public policy, and it will not violate the intent of the parties if any court of
competent jurisdiction should determine, in an appropriate decree, that,
consistent with established precedent of the forum state, the public policy of
such state requires a more limited restriction in geographical area or duration
of the aforesaid covenant.
9. General.
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of the Sellers contained herein or in any
Schedule or certificate delivered hereunder shall survive the Closing Date,
shall remain in full force and effect and shall be unaffected by any
investigation made by Video Update hereunder. All covenants and agreements
contained herein which are to be performed or fulfilled after the Closing Date
shall survive and remain in full force and effect.
9.2 Press Releases. Unless approved in advance by Video Update, neither
VW nor the Stockholder shall issue any press release or written statement for
general circulation relating to the transactions contemplated hereby, except as
required by law in the opinion of their counsel.
9.3 Payment of Expenses. Whether or not the transactions contemplated
hereby are consummated, Video Update shall pay its own expenses, and the Sellers
shall pay their own expenses, in connection with the negotiation, authorization,
preparation, execution and performance of this Agreement, including, without
limitation, all fees and expenses of investment banking firms, agents,
representatives, counsel and accountants.
9.4 Governing Law. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance or otherwise, by the
internal laws of the State of Minnesota in which it has been executed and in
which it has a situs, without regard to its conflict of laws provisions. If any
provision of this Agreement shall be held invalid by a court with jurisdiction
over the parties to this Agreement, then and in that event such provision shall
be deleted from the Agreement, which shall then be construed to give effect to
the remaining provisions thereof. Each of the Sellers consents to the exclusive
jurisdiction of the courts of the State of Minnesota, and any federal court
located therein, and to the appropriateness of the venue of such courts, in
connection
-18-
with any dispute which may arise pursuant to this Agreement or is related to the
transactions contemplated hereby.
9.5 Notices. Any payments, notices or other communications required or
permitted hereunder shall be given in writing and deemed to have been properly
given if and when delivered personally or sent by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
if to Video Update: Video Update, Inc.
3100 World Trade Center
00 Xxxx Xxxxxxx Xxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx,
Chief Executive Officer
with a copy to: Xxxxxxxx X. Xxxxxxx, Esquire
X'Xxxxxx, Broude & Xxxxxxx
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxxxxx 00000
if to the Sellers: Video Warehouse, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxx, President
with a copy to: Xxxxxxx X. Xxxxxx, Esquire
0000 X.X. Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
or such other address as shall be furnished in writing by any party, and any
such payment, notice or communication shall be deemed to have been made or given
three business days after the date so mailed (except that a notice of change of
address shall not be deemed to have been given until received by the addressee)
or on the date of actual receipt, whichever first occurs.
9.6 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors,
assigns, heirs, executors, administrators and legal representatives, provided,
however, that no Seller shall assign any of his, her or its rights or delegate
any of its obligations hereunder to any party without the prior written consent
of Video Update.
9.7 Headings. The descriptive headings of the several Sections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
-19-
9.8 Counterparts. This Agreement may be executed originally or by
facsimile and in one or more counterparts, all of which together shall
constitute one and the same agreement.
9.9 Waiver. The failure of any party to this Agreement at any time or
times to complete the required performance of any provision hereof shall in no
manner affect such party's right at a later time to enforce the same. No waiver
by any party of any condition, or of the breach of any term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach or a waiver of any
other condition or the breach of any other term, covenant, representation or
warranty of this Agreement.
9.10 Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein,
and supersedes all prior agreements and understandings, whether written or oral,
among the parties hereto with respect to the subject matter of this Agreement.
9.11 Additional Actions. Video Update and the Sellers agree to execute
and deliver such other documents, certificates, agreements and other writings
and to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement, including without limitation that the Sellers agree to use their best
efforts to assist and to cooperate with Video Update in its efforts to obtain
consents to the transactions contemplated by this Agreement from the landlords
of the Stores.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been signed by a duly authorized
officer of Video Update and VW, and by the Stockholders as of the day and year
first above written.
VIDEO UPDATE, INC.
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Xxxxxx X. Xxxxxx
Chief Executive Officer
VIDEO WAREHOUSE, INC.
By: /s/ Xxxxxx Xxxxxx
----------------------------
Xxxxxx Xxxxxx
President
(addresses and social security
numbers to be provided):
XXXXXX XXXXXX
/s/ Xxxxxx Xxxxxx
-------------------------------
XXXXXXXXX XXXXXX
/s/ Xxxxxxxxx Xxxxxx
-------------------------------
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LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit Title
------- -----
A List of Stores
B Opinion of Counsel to Video Warehouse
Schedule Title
-------- -----
1.1 Purchased Assets
1.1(a) Excluded Assets
1.1(b) Accounts and Customer Receivables
1.1(f) Material Agreements
1.3(b) Allocation of Purchase Price
2.1 Encumbrances on Assets
2.4(a) Financial Statements
2.4(b) Statement of Adverse Changes, Undisclosed Liabilities
and Promotional Activity
2.5 Exceptions to Accounts Receivable and Usable Inventory
2.6 Exceptions to Tax Payments
2.7 Required Consents
2.8 Litigation
2.11 Intangible Property
2.13 Notice of Violations or Noncompliance
2.14 List of Labor Unions, Unfair Practices and other Labor Matters
2.15 List of Transactions Not in the Ordinary Course of Business and Contracts
Extending Beyond the Closing
2.16 List of Powers of Attorney, Deposit Accounts and Signing Authorities, and
of Employees and Service Contracts
Copies of the Exhibits and Schedules will be provided to the Commission upon
request.
