EXHIBIT 10.4
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is entered into as of October 16,
1998, by and among VIDEO CITY, INC., a Delaware corporation ("VCI"), and
XXXXXX'X VIDEOLAND, INC., an Oregon corporation ("Videoland"), with reference to
the following facts:
A. VCI, Videoland, Xxxxxx X. Xxxxxx and Xxxx Xxxxxx have entered into that
certain Agreement of Merger and Plan of Reorganization, dated as of October 9,
1998 (the "Merger Agreement"), pursuant to which VCI shall acquire Videoland
(the "Acquisition");
B. As of the date hereof, Videoland owns and operates 78 video retail sale
and rental stores operating under the name "Videoland" (all of such stores
referred to herein, collectively, as the "Videoland Stores");
C. VCI owns and operates several chains of video retail sale and rental
stores, has extensive experience in the operation of video sale and rental
stores and shall own and operate the Videoland Stores upon the consummation of
the Acquisition; and
D. Videoland desires to retain the services of VCI to manage and operate
the Videoland Stores.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Management of Videoland Stores. Videoland hereby retains the services
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of VCI to operate and manage the Videoland Stores in accordance with the
policies and practices in which VCI operates and manages VCI's own stores and in
accordance with the terms and conditions set forth below. VCI agrees to use its
best efforts and reasonable diligence to operate and manage the Videoland Stores
in the best interests of Videoland, and giving due attention to the economies of
scale that can result from the combination of various administrative and
operating functions of VCI and of Videoland.
2. Term. The term of this Agreement shall be from October 19, 1998 until
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the closing of the Acquisition of Videoland by VCI; provided, however, this
Agreement may be terminated by either VCI or Videoland (a) after December 31,
1998 by delivering notice of such termination to the other party at least ten
business days in advance of such termination; or (b) on or prior to December 31,
1998 if the Merger Agreement is terminated prior thereto in accordance with its
terms, by delivering notice of such termination to the other party. Upon any
termination of this Agreement, this Agreement shall be of no further force or
effect, except that VCI shall be entitled to the Management Fee described below
through the date of termination (prorated for a short month as necessary), and
the parties shall cooperate with each other, including without limitation the
prompt and accurate transfer of books, accounts and records in all forms, as is
necessary and appropriate to achieve a smooth transition. Neither this
Agreement nor its
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termination shall affect the parties' respective rights and obligations under
the Confidentiality Agreement, dated as of October 9, 1998.
3. VCI's Authority. Videoland hereby confers upon VCI the authority to
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operate and manage the Videoland Stores, including, without limitation, the
following matters with respect to the Videoland Stores:
(a) To hire, train, supervise, relocate and discharge employees;
(b) To select suppliers and distributors and to purchase or lease
videocassettes, game cartridges, video players, game equipment, accessories,
concessions and other products as may be deemed appropriate by VCI;
(c) To sell "sell-through" merchandise, consisting of videocassettes,
accessories, concessions and other inventory held for sale in the ordinary
course of business;
(d) To negotiate on routine matters with the lessors of the real
property of the Videoland Stores;
(e) To negotiate and enter into agreements necessary or advisable for
the operation and management of the Videoland Stores;
(f) To advertise and market the products and services of the Videoland
Stores;
(g) To implement and manage inventory control and management
information systems at the Videoland Stores;
(h) To collect the revenue of the Videoland Stores; and
(i) To facilitate the payment of expenses incurred by the Videoland
Stores in the ordinary course of business, including but not limited to wages,
payroll taxes, rent, utilities, insurance, and the purchase and lease of
inventory; provided, however, in no event shall VCI or any of its officers,
directors, employees or agents have the authority to execute any checks, arrange
for the wire transfers of funds or make any other form of payment on behalf of
Videoland without the prior approval or authorization of Videoland, acting
through its President or other authorized officer.
Notwithstanding the foregoing, however, VCI shall have no authority,
express or implied, to (i) sign, terminate, amend, assign, sublease, or extend
any lease with any existing or potential lessor of any Videoland Store, (ii)
enter into or commit Videoland to any contract or arrangement for which
Videoland may be obligated in an amount exceeding $10,000 per year in each
instance, (iii) enter into any contract or arrangement having a term in excess
of one year, or (iv) book new releases, without consulting with and obtaining
the prior consent of the President or other authorized officer of Videoland in
each instance.
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4. Management Compensation. Videoland hereby agrees to pay VCI for all
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its services in operating and managing the Videoland Stores (the "Management
Services") an amount (collectively, the "Management Fee") equal to $390,000, as
a one time set up fee for all of the Videoland Stores, plus nine percent (9%) of
the gross revenues (after application of discounts, credits and rebates, if any)
actually collected from the operation and management of the Videoland Stores for
the period during which VCI manages and operates the Videoland Stores. The
Management Fee shall be payable to VCI by Videoland as follows:
(a) The greater of (i) $25,400 or (ii) four percent (4%) of the gross
revenues actually collected from the operation and management of the Videoland
Stores, shall be paid weekly on each Tuesday for the Management Services
rendered during the preceding week (Monday through Sunday); and
(b) The difference between the total amount of the Management Fee that
is payable under this Section 4 and the amount actually paid under Section 4(a)
above shall be payable on or before 60 days after the end of the month in which
the Management Services were rendered; provided, however, Videoland shall not be
obligated to pay such amount under this Section 4(b) in the event the closing of
the Acquisition of Videoland by VCI does not take place on or before December
31, 1998.
5. Limit on Liability. Except as set forth in Section 3 hereof, VCI shall
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have reasonable business judgment discretion with regard to the management and
operation of the Videoland Stores, including, but not limited to, the selection
and depth of inventory, the staffing, marketing and promotion of the Videoland
Stores, hours of operation and all other matters, and Videoland shall have no
claim against VCI or its officers, employees, subsidiaries or affiliates based
on, arising out of or relating to the revenues or operations of the Videoland
Stores during the term of this Agreement, or the financial condition, results of
operations, condition of assets, liabilities or prospects of the Videoland
Stores, other than claims, expenses and losses arising out of VCI's negligence,
willful misconduct or breach of this Agreement.
6. Computer Network. Videoland acknowledges that VCI presently uses the
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Bonafide Management Systems ("Bonafide") computer software for its retail video
stores, that various fees are payable to Bonafide under the agreements by which
VCI licenses the use of Bonafide's computer software, that the computer software
remains the property of Bonafide, and that any right that Videoland may have,
now or in the future, to use the Bonafide computer software is entirely
dependent upon the written consent of Bonafide. Videoland shall not be required
to pay or incur any license, royalty or similar fee to Bonafide or VCI by virtue
of this Agreement.
7. Financial Reports. VCI hereby agrees to submit monthly written reports
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to Videoland reporting the gross revenue, operating costs and expenses, income
and year-to-date budget variances of the Videoland Stores. Such reports shall be
submitted not later than the 15th day of each month, beginning November 15,
1998. VCI agrees to establish and maintain a comprehensive system of current,
complete and accurate records, books and accounts as are customary and
appropriate for operation and management of retail stores and otherwise
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reasonably satisfactory to Videoland. All records, books and accounts (including
invoices and supporting documents and data) will be subject to examination and
copying at reasonable hours by Videoland or any authorized representative
thereof.
8. Compliance with Laws. VCI will at all times comply with all laws,
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ordinances, rules, regulations and orders applicable to the operation and
management of the Videoland Stores. VCI will immediately advise Videoland in
writing of any claims or actions made or initiated by any third party or
governmental authority with respect to any Videoland Store or Videoland which
may come to the attention of VCI.
9. Assignability. Neither this Agreement nor any of the rights or
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obligations hereunder may be assigned by a party without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise.
10. Notices. All notices to VCI shall be addressed to the Chief Financial
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Officer at the principal executive office of VCI, and all notices to other
parties shall be addressed to the address on file with VCI, or to such other
address as either may designate to the other in writing. All notices, requests,
demands and other communications which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy,
electronic or digital transmission method (with positive confirmation report
generated by the sender's machine); the day after it is sent, if sent for next
day delivery to a domestic address by recognized overnight delivery service
(e.g., FED EX); and upon receipt, if sent by certified or registered mail,
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return receipt requested.
11. Attorneys' Fees. In the event of any legal action or proceeding to
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enforce or interpret the provisions hereof, the prevailing party shall be
entitled (in addition to costs) to reasonable attorneys' fees, as determined by
the court and, if applicable, the appellate court.
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12. Miscellaneous. This Agreement shall be governed by and construed in
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accordance with the laws of the State of California without reference to choice
of law provisions. In the event that any one or more of the provisions contained
in this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, then to
the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument. This Agreement may not be amended except by a writing
signed by each party. The section headings of this Agreement are for convenience
of reference only, and shall not be used to construe or interpret any section,
term or provision of this Agreement. Time is of the essence in the performance
of this Agreement in all particulars. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be duly executed and delivered as of the date and year first above
written.
VIDEO CITY, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx,
Chief Financial Officer
XXXXXX'X VIDEOLAND, INC.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx,
President
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